Your Employer Thinks You're Sabotaging Your Retirement

401k options at workToday's generation of workers faces a much different situation than their elders when it comes to saving for retirement. Whereas the vast majority of companies used to provide pensions for their employees, the trend recently has been for employers to get rid of pensions in favor of setting up 401(k)s and similar employer-sponsored retirement plans for their workers.

A recent study from Towers Watson took a close look at whether employers' 401(k) plans are meeting the objective of helping workers prepare for a financially secure retirement. What the study reveals about how employers think about their plans and what workers do with them says a lot about differing attitudes toward 401(k) plans.

Good in Theory, Bad in Execution

The most telling statistic from the survey was the disconnect between employers' intent in setting up the plans and their perception of whether workers are actually using the plans well.

Almost three-quarters of employers surveyed said that one primary reason they offer a 401(k) or similar plan is to ensure that their employees will have adequate retirement income. Yet...
  • Only about a quarter of employers believe that their workers make informed decisions in investing their 401(k) money.
  • Nearly three-quarters of employers have doubts about whether their employees have realistic expectations about how much their 401(k) accounts will be able to provide for them after they retire.
  • And only one in 11 employers thinks that workers have explicitly set income-based goals for their retired years.
That matches up with similar doubts that employees have about the plans. A previous Towers Watson study found that the majority of workers with only a 401(k)-style plan aren't confident about their money lasting through a typical 25-year retirement lifespan.

Making You Eat Your Broccoli

Employers are taking some steps to try to boost retirement readiness.
  • Automatic enrollment in 401(k) plans, where new employees have to affirmatively choose not to be part of the plan, has boosted participation substantially.
  • Despite many companies temporarily suspending employer matching programs during the recession, the majority of those companies have restored that benefit, and now, 91% of all companies that responded to the survey offer an employer match.
  • In addition, more employers are adding money to workers' plan accounts, with a quarter offering profit-sharing contributions that aren't based on employer matching.
Another more recent innovation that many workers are using is automatic escalation, which gradually increases contribution percentages over time. With almost half of the respondent companies making automatic escalation a default under their plans, workers will end up putting successively more of their money toward retirement saving year after year.

Still, employers aren't doing everything they could to support their workers. Despite the overarching objective of helping workers save, employers tend to make decisions about their plans based on other factors, including cost, competitiveness with other employers in the industry, attracting and retaining employees, and meeting the burdens of regulation and compliance.

Invest Smarter

From an investing standpoint, the best news from the study is the increased availability of cheaper and more flexible investment options. Historically, 401(k) plans have been highly dependent on actively managed mutual funds, but you'll find a greater number of employers offering passive investments like index funds as an alternative.

Target-date retirement funds, which change their strategy over time as workers approach retirement age, have also gained in popularity, with many employers seeing them as better default options than money-market funds. And even better, 42% of employers now offer self-directed 401(k) options that allow workers to pick a much wider variety of stocks and other investments.

Make the Most of It

Even as some 401(k) plans are getting better, the onus is still on workers to explore their plan options on their own and commit to taking maximum advantage of their favorable provisions.
Automatic enrollment may be better than nothing, but default choices are never as good as tailoring your decisions to your particular needs and goals.

When more workers take that extra step, employers should be more confident that their employees aren't sabotaging their own retirement prospects.

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I lost money in 3 different 401k plans with 3 different 3 employers. They do not allow you to make safe investments like U.S. bonds because then they could not rip you off. When you leave a job and your employer no longer contributes, watch your 401k savings go into a death spiral. Defined-benefit pension plans are the best retirement plans, but most employers are too greedy to provide them.

October 12 2012 at 12:55 PM Report abuse rate up rate down Reply

After FDR seized all of the Gold in the US and made it illegal for US Citizens to own Gold; the American people never got back the right to own Gold until a Republican President Ford got it back for them in 1973.
A period of 40 ( Forty ) years; while the Liberal congress pompously sat in washington.

October 12 2012 at 12:15 PM Report abuse -1 rate up rate down Reply

In 1933 FDR seized all of the money in the Banks to save the government and federal workers. FDR also seized all of the Gold and made people turn in any Gold or Gold Coins they had.
In 2013 BO will need to save the government and government workers by seizing all of the money in the 401ks.
Also BO will want you to turn over any Gold and/or Gold Coins you have.

October 12 2012 at 12:07 PM Report abuse -1 rate up rate down Reply

Trusting Wall Sreet? Money put into it for the future just keeps these sleezies that handle it, in the clover.We have expeirenced their greed with public money.Might be better off putting your money under your matteress!

October 12 2012 at 11:32 AM Report abuse +1 rate up rate down Reply

Greed has taken over, employer run 401k is hogwash. Pension plan is 100% better. The Roman empire fell from within and the United states will do the same thing under Romney. He is a puppet for the big money GOP machine.

October 12 2012 at 11:29 AM Report abuse +1 rate up rate down Reply

employers should give u the match whether u contribute or not.
workers are squeezed by rising prices and stagnant wages so not everyone has extra money to put away
if u work for a company u deserve to have the 401k contribution

October 12 2012 at 10:34 AM Report abuse rate up rate down Reply

401k vesting is the biggest trap
u have to be with the company for like 7 yrs in some cases to keep the entire match.
So companies lay u off and replace u with someone else be 4 the match is yours.
its all a scam

October 12 2012 at 10:19 AM Report abuse -2 rate up rate down Reply

Retirement; the last of the really big life transitions.

You need to approach it much differently than any other part of life because you can't count on increasing your pay check by any great amount over time. You have to have a two pronged approach, defensive as well as offensive.

On the offense side, start as early as you can and pump as much as you can into your 401K or IRA. In addition you have to keep your eye on your investments. When the market is topping out (like right now), move into a stable low risk investment. like bonds. When the market is in the tank, like in March 2009, you get back into stocks; preferably an indexed type fund to moderate the big swings that occur in individual stocks.

On the defensive side, get rid of debt. No mortgage, no credit card debt, no car loans (unless they are at 0%). Focus on reducing you cost of living as much as possible. Maybe you have to look at moving to a smaller house, in a smaller town. Look at ways to reduce your monthly and weekly consumables. Try to find a nice car that gets great mileage. You are moving into a world where status doesn't matter and comfort and convenience are the most important things. Find a low cost hobby (like photography) keep yourself busy.Try to live within the limit of your Social Security income. It can be done, if you don't have a mortgage or car payments. Retirement is all about having the time to focus on yourself, your friends and family. Take the time to savor every moment.

One last thing, nobody ever laid on their death bed dreaming about how they could have spent more time at work.

October 12 2012 at 8:33 AM Report abuse rate up rate down Reply

Most of the people I work with don't know or care about their retirement until it's to late. When are people going to wake up and realize that they are responsible for their own lives and quit pissing and moaning when they have to do something for themselves. If you don't like 401's there are a lot of different options out there. Roth's pay tax going in and none on the backside when you really need your funds. Educate yourselves and quit depending on someone else to do it for you.

October 11 2012 at 9:41 PM Report abuse +1 rate up rate down Reply

Of course companies encourage their employees to contribute to their 401k plans - the fees for saving in those plans are outrageous and there is an enormous amount of money to be made by others off those plans. I contribute only to the max my company will match. The rest gets invested outside the 401k plan.

October 11 2012 at 8:42 PM Report abuse +1 rate up rate down Reply
1 reply to Linda's comment

The 401K plans were another ruse by corporations to get out of paying a really fair share towards your benefits. It's just like the HMO's they shoved down our throats starting back in the late 60's. They wanted to do everything on the cheap. When my husband's company closed out the original employer-paid retirement plan (it took about 3 years for them to get around to it, because it was underfunded and "flagged" by the government ... some weird stuff went on by the company boss) and replaced it with the 401K, hardly anybody would buy into it because the pay was low and most workers were already living hand to mouth. During the winter months, they were lucky if they got a 40-hr. week in. The company did NOT contribute to the 401K, maybe because we weren't putting in huge amounts. I don't know. What I do know is that we LOST money, because of it's investments in the stock market. And we picked the safest fund to invest in because of my husband's age. Once we saw the size of the fees and that we were LOSING money, we quit the 401K.

It just turned out to be another way corporations have cheated us out of our pay and benefits packages over the past few decades, since the Reagan administration, and worst after the Bushes.

October 12 2012 at 7:49 AM Report abuse +1 rate up rate down Reply
1 reply to CherMoeLin's comment

Cheat you out of what? Libs love things for free,. they just want everyone but them to pay for it.

October 12 2012 at 1:11 PM Report abuse -2 rate up rate down