Companies to Workers: Start Saving More—Or We’ll Do It for You

Firms are boosting the automatic retirement-savings rate—and finding little pushback from employees

Companies from Apache Corp. to Google Inc. to Credit Suisse Group AG have boosted the percentage of worker paychecks automatically diverted to 401(k) plans well above the long-held standard of 3%. Some are setting aside as much as 10% of their workers’ money or automatically increasing the amounts by 1% a year unless employees opt out. But not all are matching the increased savings with company contributions. The moves are the latest attempt by companies to transfer the burden of retirement costs to workers. (The Wall Street Journal)

“The typical American household has almost nothing saved for retirement,” Nari Rhee, manager of the retirement-security program at the Institute for Research on Labor and Employment, told the Wall Street Journal. Many employers in recent decades shed costly retirement obligations by eliminating traditional pensions that guarantee a set payout for life and replacing them with tax-deferred 401(k) plans where employees are largely responsible for saving and investment choices.

Several factors favored the growth of defined benefit plans in the 1950s, 1960s and 1970s, explained the St. Crois Source. The American workforce was relatively young, the medical advancements that are now allowing longer lives were still in development, and global competition for U.S. economic expansion was still a distant challenge. In the past 30-plus years, much has changed.

Because of these changes retirement planning has shifted away from Defined Benefit to Defined Contribution. Defined Contribution plans held $6.6 trillion dollars of employee savings in June 2014: $2.7 trillion was in Defined Benefit plans; $941 billion was in government or nonprofit sponsored 403(b) plans; $255 billion in 457 plans; and $401 billion in the Federal Employees Retirement System’s Thrift Savings Plan. Though the private sector was the early adopter of this form of retirement planning, it is now projected that public sector adoption will grow faster than the private sector as public sector plans play catch up, the website reported.

Meanwhile, Employee Benefit News reminds us that financial stress can affect employee productivity and while many employees say they understand the importance of saving for retirement, some say they can’t afford to save or lack understanding about where or how to save. Aon Hewitt’s recent 2015 Financial Mindset survey found that 68% of U.S. employees say they regularly save for retirement, though a third does not, EBN said.

 


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