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After the crash put a hurt on retirement plans, some employers are helping out
At Advocate Health Care, workers have access to one-on-one sessions with financial counselors and online tools to help determine if there’s a gap between what monthly income they’ll need in retirement and how much they can expect to get from Social Security and their 401(k) plan investments. They also get guidance on what to do if they’re missing the mark.
New employees don’t have to sign up for the 401(k) plan — they’re automatically enrolled to contribute 3 percent of their annual pay to the plan. And they can request automatic escalation in their contributions and automatic rebalancing to take place if their portfolio gets out of whack.
Since the stock market tanked amid the recession and put a hurt on many 401(k) accounts, Advocate and other employers have been focusing more on helping workers make the most of their 401(k) plans and become better educated about preparing for retirement, benefits experts say.
“A lot of people were overexposed to equities very close to retirement,” prior to the market crash, notes Patti Balthazor Bjork, director of retirement research at Lincolnshire-based benefits consultant Aon Hewitt. “It was a difficult (time) for a lot of people. Employers want to make sure they have the right products and tools and are educating people so that they’re in the right types of solutions.”
Employers have taken a carrot and stick approach.
“We’ve seen plan sponsors do more auto-enrollment and auto-escalations, increasing contributions on an annual basis to really kind of force-feed employees to encourage them to save more assets,” says Bert Finsand, principal in the retirement practice at Buck Consultants.
The use of automatic enrollment has shot up from 19 percent of employers in 2005 to 55 percent last year, according to an Aon Hewitt survey. Automatic escalation has risen from 9 percent to 40 percent.
The automatic feature is “helping participants get in the plan,” says Bjork. “If you default them in, they’re not very like to opt out.”
Indeed, Advocate has an 89 percent participation rate in its 401(k) plan, says Kim Dwyer, vice president of benefits services.
To encourage greater contributions to 401(k) plans some employers are getting more creative with their plan matches — to get a bigger employer match, you have to contribute more, Finsand notes.
More employers also are offering target date funds in their plans. Such funds are designed to be age appropriate. They allocate investments among various asset classes and shift to lower-risk investments as a target retirement date approaches.
“It’s kind of a turnkey solution and a valid default for automatic enrollment,” says Bjork. “That’s been really helpful to at least get people at the right age the right equity exposure based on their retirement age.”
Managed accounts and online investment guidance is also growing at employers, according to Aon Hewitt surveys. While 11 percent of employers offered managed accounts in 2007, 39 percent did so last year. Thirty-two percent offered online advice in 2009, and that rose to 57 percent in 2012.
On the education front, employers are using webinars, onsite workshops, and one-on-one sessions to help employees learn more about the underlying investments in their 401(k) accounts, how employer matches can benefit them and affect their savings over time, and for guidance on investment options and strategies, Finsand says. They’re also using podcasts and text messages to spread the word on retirement planning, he adds.
Education is taking “a more holistic approach focused on retirement readiness,” Finsand says.
At Advocate, 49-year-old Dorothy Bridges participated in a three-week retirement planning workshop that is offered onsite to employees and their spouses. It covered everything from stocks and bonds to diversification, estate planning and investing in retirement. Bridges, an executive assistant who has worked at Advocate for more than 11 years, says the workshop helped her take better advantage of the company’s 401(k) plan.
For so many people, “you’re in the 401(k) plan,” she says. “You just put your money in, but you don’t know what you should be doing, how you should be allocating it.”
She says she learned she was being too safe and needed to take more risk to boost her potential investment returns.
“It makes you think and really sit and make plans,” she says.
Photo of Dorothy Bridges by Chicago Sun-Times.