Retirement Education: The More the Better

A recent behavioral change study from Financial Finesse, El Segundo, Calif., has come to that conclusion. The firm found that employees saved on average 11 percent of their employment income—over twice the national average—in their 401(k) plans when the employee had five or more interactions with retirement education programs.

By comparison, employees having only one interaction with the firm’s retirement education services deferred much less of their salaries—roughly 4.5 percent—to their 401(k)s. If they participated in two such programs, they deferred more, nearly 7.5 percent. 

The deferral percentages kept rising as with each as the number of interactions increased.

Ramping up

The trend is enough to make 401(k) providers want to ramp up their employee education programs. As it turns out, that is exactly what many employers have been doing.

Early this year, Aon Hewitt, a Lincolnshire, ILL.,business of Aon Corporation, reported that more than half (56 percent) of companies it surveyed now offer online investment guidance. Furthermore, nearly half (47 percent) say they are likely to add an online guidance feature in 2011.

The Aon Hewitt survey covered 210 mid-to-large U.S. companies representing 6.2 million workers.

Some companies are going beyond employee education, too. For instance, 36 percent of companies surveyed by Aon Hewitt indicated that they also offer online investment advice and managed accounts. An additional 36 percent said they are likely to offer online advice and 30 percent, managed accounts, in 2011.

Researchers are quick to point out that many employees do participate in their 401(k) plans. 

For instance, a 2010 survey from LIMRA, Windsor, Conn., found that 78 percent of pre-retired employees with access to a defined contribution plan currently do contribute to it, pointed out Matthew Drinkwater, associate managing director, retirement services during the recent retirement industry conference in Las Vegas.

Still, contribution levels remain very low. This is so even among longer-tenured plan participants, Drinkwater said. The average 401(k) account balance for plan participants in their 50s and 60s is $77,650, he said, citing 2009 data from the Employee Benefits Research Institute. Those with 20 to 30 years of job tenure had only twice that amount saved up.

Grossly unprepared

“The vast majority of plan participants are still grossly unprepared for retirement,” sums up Financial Finesse in its newest survey. Conducted in first quarter 2011, the survey found that only 15 percent of employees reported being on track to replace at least 80 percent of their income in retirement.

That is a decline from 18 percent in fourth quarter 2010.

In order to increase retirement preparedness, employees must close this gap, says the researcher, adding that “this may take some hard work in learning new skills and sacrifice in saving more out of their paychecks.”

Only 34 percent of the surveyed employees reported feeling confident their investments are allocated properly, the California researcher continues. And among all investment calls coming into the company’s helpline in first quarter 2011, 64 percent involved requests for help in choosing the right investments for the employees’ retirement plans. 

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].