Retirement Savings Is Important Yet Confusing for Most Employees

Total Compensation Statements Can Help

A recent survey from BlackRock, a national asset management firm, has confirmed something many Americans already know. According to the Survey of 401(k) Participant Attitudes and Behaviors, the vast majority of those who put money into 401(k) plans feel that their retirement savings are more important to them since the financial downturn felt in 2008.

For the survey, 1,000 participants were asked to indicate priorities and concerns that revolve around their 401(k) retirement savings plans. Data from the survey suggests that saving money is the top priority for the bulk of Americans, but the survey also reported that many workers are confused by 401(k) plans and may not be saving properly.

The survey also showed that although Americans are saving money, many feel that the amount they are putting aside will not be sufficient enough to fund their retirement. BlackRock hopes that more effective communication of savings strategies from employers can help turn the tide for the nation's workforce.

What Employers Can Do to Help

Over 70% of those surveyed indicated saving for retirement as their top priority, yet further responses on the survey conversely showed despite the employees' emphasis on savings, many are unsure how much to save. These statistics include:

• Nearly one out of every four participants did not know the rate their employer matched contributions to 401(k) plans.

• 83% of 401(k) contributors only invested the minimum amount to receive a full-match from their employer.

• Less than half of those polled designated their employer's matching rate as their top influence on how much they contribute.

• 33% of survey participants feel automatic escalation features used to increase 401(k) contributions are "very important” savings incentives.

According to BlackRock, employers should be doing more to educate their staff on how to use automatic escalation and company matches to their advantage, otherwise employees will continue to blindly pump money into 401(k) plans, hoping for the best.

Retirement is a Gray Area for Many Employees

Responses to the survey show a general lack of understanding when it comes to the realities of retirement and how to budget retirement savings. Individuals intend to retire by a certain age, yet their savings disagree and put the hopes of a self-funded retirement in jeopardy. The survey found:

• 62% of participants reported beliefs that they will live longer than their retirement savings can fund.

• Nearly 60% of those surveyed would prefer receiving steady retirement income rather than a single lump-sum payment.

• 82% of participants reported having little to no experience managing sums of money greater than $100,000.

BlackRock hopes that these statistics will be a wake-up call to employers who expect their workers to understand complicated financial issues, like longevity risks and the effects of inflation. Otherwise, according to BlackRock, employees will be left to manage their life savings on their own.

Employees are not averse to the thought of receiving professional financial guidance either. About 72% of respondents showed an interest in having their employers suggest well-diversified managed accounts for retirement funding.

What Tomorrow Brings

Thirty years ago, employers devised defined contribution plans as a way for workers to supplement their retirement savings, but as 401(k) and similar defined contribution plans became the principle form of retirement savings, employers have tried their best to meet the needs of America's aging workers.

As the country works to emerge from its economic troubles, employers must take a second look at their defined contribution plans. BlackRock suggests that employers work to increase savings rates now and begin to educate their employees on how to make their money work for them, ensuring the savings necessary to fund happy and long retirements.

Total Compensation Statements can Help Reduce the Confusion…

Total compensation statements are a great way to communicate with your employees. Why not give us a call and see how we can help you enhance communications with your employees.


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