Hewitt Survey Reveals New Employer Trends in Retirement

Hewitt Survey Reveals New Employer Trends in Retirement

    Business Editors

    LINCOLNSHIRE, Ill.--(BUSINESS WIRE)--Jan. 18, 2005--

    Concern Over Inadequacy of Employee Retirement Saving Makes Communication, Education and Automation Tools Key Priorities for 2005

    As many employees continue to underutilize their 401(k) plans, companies are becoming increasingly concerned that their employees aren't up to the challenge of assuming responsibility for their own retirement savings, according to a new survey by Hewitt Associates, a global human resources services firm. To address these concerns, employers are stepping up their efforts in 2005 to educate and make it easier for employees to effectively participate in their 401(k) plans.
    Hewitt's survey of nearly 200 large companies reveals that only 18 percent feel confident that their employees will retire with sufficient retirement assets. Even less (12 percent) feel confident that their employees even understand their retirement benefits and are taking responsibility for their retirement future.
    "Many employees are just not actively using the retirement programs that are available to them--either it's not a burning platform, or they don't feel up to the task. Whatever the reason, companies want to see a change here," said Lori Lucas, director of participant research at Hewitt. "Because they may not be able to rely on a pension plan to fund their retirement, employees need to make better use of remaining retirement savings vehicles such as 401(k) plans. Employers see this as a key issue for 2005 and are looking for ways to encourage workers to take control by equipping them with information and tools to help them improve their saving and investing habits."

    Majority of Companies Offering Defined Benefit Plans Not Likely to Make Changes

    According to Hewitt's survey, the majority of employers do not plan to make significant changes to their defined benefit plans in 2005. However, about one in four (27 percent) employers say they will consider amending their plan to exclude new employees from participation, and one in five (20 percent) are considering a shift to provide defined contribution plans only.
    While more than half (55 percent) of companies offering hybrid pension plans (cash balance or pension equity) do not anticipate a plan design change in 2005, about three out of 10 companies intend to make some type of change to them if legal and regulatory issues are not resolved. The most common intended change is to terminate or freeze the cash balance plan and provide all future retirement benefits under a defined contribution plan.
    "Concern over cost volatility and regulatory uncertainty are making pension plans less attractive to employers," said Lucas. "If the environment doesn't improve, some employers may find their best course is to limit their future commitment to defined benefit plans. That leaves the 401(k) plan to fill the void--and it's up to employees to take ownership of their retirement planning."

    Increasing Education and Communication Efforts

    With responsibility for retirement savings shifting more to employees, employers are focusing more of their time on educating employees about the value of 401(k) plans. According to Hewitt's survey, almost 90 percent of employers plan to focus on making sure their employees understand how their 401(k) plan works, the value of it and how to access it. They also plan to take steps to promote personal responsibility for retirement planning and initiate actions designed to increase 401(k) plan participation. Seven out of 10 employers (70 percent) report they will focus on offering additional support to employees to manage the diversification of their 401(k) plan.

    Putting Retirement Plans on Autopilot

    Almost half of companies (47 percent) say they are also likely to automate certain features in their 401(k) plan as a way to increase participation and quality of participation. Key areas of focus for those companies include automatic enrollment, automatic contribution rate increase features and automatic rebalancing.
    "Many employers are acknowledging that regardless of their efforts to educate workers on the importance of saving for retirement, there will always be some who are just not going to actively participate on their own," said Lucas. "Automating the 401(k) plan is a way that enables such employees to better maximize the value of their plan without requiring a lot of time or effort on the part of the employee."

    Other Key Findings

--	About a quarter of employers (24 percent) are likely to make changes to their 401(k) contributions in 2005. Most are either seeking to increase the company matching contribution or change the structure of the match.
--	About one in three (35 percent) employers may add a Roth 401(k) account to their defined contribution plan when permissible on January 1, 2006.
--	Twenty-seven percent of companies say they are likely to implement automatic rollover to an IRA or individual retirement annuity provider, while about one in 10 (11 percent) will allow these accounts to remain in the plan by reducing the plan force-out limit to $1,000. More than half of employers (63 percent) are still undecided.
--	Only about one-quarter (28 percent) of employers say they are somewhat or very likely to develop a phased retirement program in 2005. Employers cite several barriers, including that phased retirement is inconsistent with their workforce strategy.
--	The majority of employers (85 percent) are planning to educate employees about the costs of retiree medical.

    About Hewitt Associates

    With more than 60 years of experience, Hewitt Associates (NYSE:HEW) is the world's foremost provider of human resources outsourcing and consulting services. The firm consults with more than 2,300 companies and administers human resources, health care, payroll and retirement programs on behalf of more than 300 companies to millions of employees and retirees worldwide. Located in 35 countries, Hewitt employs approximately 19,000 associates. For more information, please visit www.hewitt.com.

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CONTACT: Hewitt Associates Maurissa Kanter, 847-442-7655 maurissa.kanter@hewitt.com or Joe Micucci, 847-442-7656 joe.micucci@hewitt.com

KEYWORD: ILLINOIS INDUSTRY KEYWORD: HUMAN RESOURCES BANKING SOURCE: Hewitt Associates

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