Many employers have greatly improved their retirement plans in recent years, despite the deep recession and financial pressures. After scaling back their percentage matches in 401(k) and similar programs, employers are now restoring matches. They're also stepping up their financial advice, providing employees with more easily understood investment choices and steadily lowering the fees that employees pay to their fund managers.
At the same time, the retirement savings and investment habits of aging baby boomers continue to fall far, far short of what's needed for successful retirements. Many commentators say the 401(k) system is broken, and the disappearance of traditional pensions has not been replaced by anything resembling a successful employee retirement system.
This attention is having an impact on employees and their employers. Employees are increasingly convinced they face challenging, if not dismal, retirement years. According to the 2013 Workplace Benefits Report from Bank of America Merrill Lynch, nearly 80 percent of more than 1,000 current 401(k) plan enrollees surveyed in March said they see themselves still working into their late 60s or even 70s. Further, only a third of them feel their employers provide them with sufficient advice to help them prepare for retirement.
At the same time, Steve Ulian, the firm's managing director for institutional retirement and benefit services, says employers are convinced they need to do more to help employees achieve successful retirements. This help goes far beyond increasing their match for 401(k) contributions or finding investment options with lower fees. It involves what he calls a "sea change" in employers' willingness to provide lifestyle and broad financial advice.
"Employees – there's no other way to put this – are crying out for help," Ulian says. "Plan sponsors are saying, 'You know what? If you have the capabilities to talk to our employees about these things, go ahead.'"
Topics such as household budgeting, health care, retirement, long-term disability and college planning are examples of this expanded menu of employee advice, he adds. "Clearly, financial readiness, financial wellness if you will, is fast becoming the number two, if not the number one, employee benefit issue" after health care.
At the same time, Ulian stresses, employers need to figure out more effective ways of communicating with employees. "It's not just enough to put the stuff out there and expect employees to self-serve," he says. They often don't know where to start, the subject is complex and they are already living busy lives.
Ulian advocates face-to-face financial advice for employees and advisers. He adds that it makes sense to talk to employees about their retirement plans when another major benefit issue is on the table, such as an annual health plan enrollment. "You have to get the employee engaged when something else is happening," he explains. "That's hugely beneficial."
Mercer, a unit of Marsh & McLennan Companies, issued a report in April calling on employers to step up their efforts to help employees achieve better retirement outcomes.
The report, "Securing Retirement Outcomes for the Employee," spelled out seven business arguments for why employers should do more:
1. They can.
2. It's the right thing to do.
3. Greater flexibility and lower costs associated with managing the workforce.
4. Enhanced employee engagement and loyalty.
5. Lower asset management costs.
6. The employer received a better return on infrastructure investments already made.
7. A framework can be put in place to address fiduciary concerns.
Mercer argues that employers should consider developing a "retirement income strategy" for every employee. This strategy, in turn, would have implications for the way that employee is managed.
"For some employers, this means little change," according to the report. "For others, it will translate into a greater use of part-time schedules, changing role definitions, increased working flexibility and careful mentoring and training to manage the gradual transition of responsibilities."
Toni Brown is a partner with Mercer Investments and consults with employers on benefit programs and issues. She believes, as does Ulian, that employers who take a leadership role can achieve a competitive advantage and improve their profitability over time.
She explains that there has been significant discussion, but "very little implementation" of expanded employer benefits programs. "With most newer ideas for any savings or retirement plan, the fiduciaries really want to vet it as much as possible to make sure they are doing the right thing," she says. "But I think many plans are adding advice, and they're being careful to add an organization that can provide advice rather than adding the advice themselves."
She notes that 401(k) plans were designed as a supplementary savings vehicle but have become the primary retirement investment vehicle for many employees as traditional pensions have disappeared. The work of turning 401(k)s into primary retirement plans certainly has been going on for several years, but it will take a long time.
"We need employers and plan sponsors today who are willing to be leading edge here and who understand the importance of having a retirement income [plan]," Brown says. "You need an advocate within the company, and then you need the company to do it."