Retirement Benefits Remained Strong in Recession

Regarding 401(k) or similar plans, the percentage of employers who sponsor a plan increased from 72% in 2007 to 82% in 2012, according to “Weathering the Economic Storm: Retirement Plans in the U.S., 2007-2012,” by the Transamerica Center for Retirement Studies. The increase was mostly found among small companies with 10 to 499 employees, which was more likely attributable to the closings of unstable companies that did not sponsor a plan versus healthy companies adopting new plans.

Traditional pension plans were the exception to the increase in the adoption of retirement benefits, dropping from 19% in 2007 to 16% in 2012. Overall, the survey findings are “pleasantly surprising,” Catherine Collinson, president of Transamerica Center for Retirement Studies, told PLANADVISER.

The survey also found that the percentage of companies offering matching contributions declined from 80% in 2007 to 70% in 2012, but matching programs are regaining ground; of the 17% of employers who said they decreased or suspended their match since 2008, half have already reinstated it.

While Collinson said it would obviously be preferred if companies did not suspend their matches, it is still comforting to know they did not drop their retirement plans altogether when times got tough. “2009 and 2010 were the most challenging, the darkest hours,” she said.

One reason retirement benefits have continued despite the dismal economy is that a majority (82% in 2012) of employers report that they consider a retirement plan an important tool for attracting and retaining employees.

A significant number of employers who sponsor a plan have also made more features available to workers in the past five years. The number of companies offering automatic features increased from 31% in 2007 to 45% in 2012; among them, 84% have adopted a qualified default investment alternative (QDIA). The percent of plan sponsors adopting the Roth feature to their 401(k) plans has increased from 19% in 2007 to 32% in 2012.

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Employees Continue Saving  

Despite a bad economy, employees have continued saving for retirement. But their confidence is a bit shaken, with only 51% in 2012 reporting they are confident in their ability to retire comfortably, down from 59% in 2007.

Among workers offered a 401(k) or similar plan, participant rates stayed strong at 77%. Unfortunately, some employees had to take from their savings during the recession. Employees reported higher levels of total household retirement savings (estimated median) in 2012 than in 2007. In 2012, Echo Boomers reported having $8,615, compared with $15,213 in 2012; Generation X reported $32,106 in 2007, compared with $41,821 in 2012; and Baby Boomers reported $74,781 in 2007, compared with $99,320 in 2012.

“The survey found modest gains in retirement savings, yet the reality is that the level of savings in both 2007 and 2012 is inadequate for many workers to meet their future retirement income needs,” Collinson said.

She stressed that even those planning to delay retirement or work through it should have a financial plan. “Delaying retirement is an important way to help bridge a shortfall in savings,” she said, “but planning not to retire is not a retirement strategy.  It’s important to have a backup plan for life’s unforeseen circumstances, such as a job loss or health issues, which could derail the best of intentions.”

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Collinson offered tips for creating a financial plan for unforeseen circumstances:

·        Talk to your family- It’s important to have financial conversations with family to discuss what will happen if unexpected situations arise. For example, if an older family member needs caretaking, this may disrupt the caregiver’s ability to save for the future. “If families have conversations about caretaking, it’s really important to look at the financial impact on the caregiver.”

·         Seek other employee benefits- Employees should consider extra benefits to “make the landing softer,” Collinson said. Examples include disability insurance, long-term care coverage and Medigap coverage. Employees should also become educated about Social Security, she added.

·         Find creative ways to reduce expenses- “Be very diligent in managing expenses and cutting unnecessary expenses to help preserve the life of the nest egg,” Collinson said.

Plan sponsors and advisers can also help employees get back on track, post-recession, by reframing existing educational tools. Transamerica asked employers if they have implemented programs since the recession to help employees get back on track, and only 16% responded yes.

In addition to reframing these tools with a message such as “helping you get back on track,” sponsors and advisers should promote the tools several times per year. “Advisers have a wonderful opportunity to assist plan sponsors and their participants with the various tools available,” Collinson said.