Are defined contribution plan participants prepared for retirement? That depends on who you ask. According to research conducted by BlackRock in late 2015 with over 1000 DC plan participants and 200 plan sponsors, there’s a serious disconnect between employers and employees.
The findings indicate that plan sponsors are more optimistic about the health and understanding of their employees than the plan participants themselves. The results show:
- 67% of plan sponsors think their employees understand the investments in their DC plan – 43% of participants agreed
- Only 37% of employees think they know how much they should be saving – 64% of plan sponsors thought that their employees were better informed
- 59% of plan sponsors think their employees are prepared for retirement compared with just 28% of the employees
Though research conducted by BlackRock is helpful to highlight the problem, we should be focused on the solution with the bill for not properly funding retirement plans as companies moved from defined benefit to defined contribution plans starting to come due. Older workers with inadequate retirement savings continue to work increasing a company’s overall benefits costs while hurting productivity and morale. And with so much data available, the perceptual disconnect between employees and plan sponsors highlighted by BlackRock’s research is startling.
Anne Ackerly, BlackRock’s head of DC for the US and Canada, noted that the research shows that participants want more help – they saw an increase in the use of auto-enrollment with little pushback from participants as well as a company match. So what’s holding back plan sponsors from instituting the “Ideal Plan” using all auto features? The same issues that UCLA Professor Benartzi has uncovered with participants: inertia and risk aversion. When we present the “Ideal Plan” to plan sponsors at TPSU showing the dramatic effect it has on a person’s account balance, they are stunned with no logical answers on why they are not using it.
Time to auto enroll plan sponsors into the “Ideal Plan” and then let make them opt out?
