401(k) plan is becoming non-negotiable for job seekers, study finds

The 401(k) plan is becoming non-negotiable for those looking for work, and three in four would refuse a new job if it did not offer one, according to a recent study.

The top must-have benefit was health insurance, followed by a 401(k) plan, life insurance and disability income insurance, according to the Charles Schwab’s 2023 401(k) Participant Study.

Other must-have benefits include health savings accounts (HSAs) and flexible health spending accounts (FSAs), the survey found.

New workers are expecting their main source of retirement to be their 401(k), followed by Social Security benefits. Almost three-quarters of participants would like personalized investment advice and over half would like the investments in their 401(k) plans to reflect their personal values.

Voya Financial’s Consumer Omnibus Research: Retirement Report also pointed out the growing importance of employer-sponsored plans.

According to the Voya report, 71% of employed Americans are more likely to stay with their current employer if they are offered an employer-sponsored retirement savings plan (e.g., 401(k), 403(b), 457). This is up from 60% in October of 2022 and is also significantly higher for those workers who have a managed account (85%) than those without (64%).

401(k) now 'retirement bedrock'

So why has the 401(k) become so important to so many employees?

“The 401(k) has been the retirement bedrock of employees’ financial lives for decades,” explained Marci Stewart, director, communication consulting and participant education for Schwab Workplace Financial Services.

“For most workers, a 401(k) is their first experience with investing and it will be the primary source of their income when they retire. Workplace shifts brought on by the pandemic and more recent economic pressures like inflation have encouraged employees to consider their benefits more critically. As a result, the 401(k) has become a non-negotiable factor for workers exploring new job opportunities. It’s important for employers to consider this as they fine-tune their benefit offerings to optimize recruitment and retention,” she said.

Areas where workers need help

In addition to workers’ high level of interest in 401(k) plans, the Schwab survey highlighted some areas where workers need help in the retirement-planning space.

These include:

• Receiving specific advice on how to invest in their 401 (k) plans
• Calculating how much to save for retirement
• Determining when they can afford to retire
• Creating a retirement income stream
• Figuring out what their expenses will be when they retire
• Figuring out how to catch up on their retirement-savings goals
• Managing debt

Understanding the SECURE Act

In addition, workers said that they want help in understanding how new regulatory and legislative changes like the SECURE 2.0 Act will affect their retirement plan, the survey pointed out.
The Setting Every Community Up for Retirement Enhancement (SECURE 2.0) act was signed into law at the end of last year. It offers many current and future enhancements to qualified retirement plans. The new provisions enable employers, the federal government, and the retirement-plan industry to help Americans save more money for their retirement.

Just over half (56%) of workers said that they have heard of such an important act, according to the Schwab survey. And among the provisions in the act, workers are most aware of the increased age for required minimum distributions (RMDs) and the increased 401(k) catch-up contribution limits.

How workers are receiving financial advice

As advisors work with their clients, they should be aware of the way in which workers are getting their financial advice, and how that method is changing. According to the survey, half of workers would feel comfortable in asking artificial intelligence tools like ChatGPT for help with financial planning, but for now, actual adoption of these tools is very low (4%). Currently, workers are still most likely to follow advice from a human professional (95%) over computer-generated advice (74%).

Schwab’s online survey of 1,000 U.S. 401(k) plan participants was conducted by Logica Research between April 19 and May 2, 2023. Survey respondents were actively employed by companies with at least 25 employees, were 401(k) plan participants and were 21-70 years old.

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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