September 30, 2008
The Economy’s Latest Victim: Employee Retirement Savings, Says Aon Consulting
CHICAGO, Sept. 30 /PRNewswire-FirstCall/ -- Even though U.S. organizations provide various financial and retirement planning tools to help their employees save adequately for retirement, many employers say their workforce does not save or fully understand how much income they will need at retirement, according to Aon Consulting Worldwide, the global human capital consulting organization of Aon Corporation .
(Logo: http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO)Aon Consulting's 2008 Benefits & Talent Survey of more than 1,100 U.S. organizations found that 93 percent of employers offer defined contribution plans (DC) to their employees and 92 percent of employers contribute to the plan. However, about 40 percent of organizations with DC plans have less than 70 percent of their workforce participating in the plan. According to 67 percent of employers, employees do not participate in the plan because they cannot afford to make contributions.
"In this sluggish economy, which has seen record high gas and food prices and home foreclosure rates, it's not surprising that employees may sacrifice retirement plan contributions to fund other necessities," said Cecil Hemingway, executive vice president and Aon Consulting's U.S. Retirement Practice leader. "That said, employers should strive for 70 percent or higher employee participation rates. A mark of less than 70 percent indicates a poor plan, poor communication, or both. During this economy, employers should emphasize the financial advantages of contributing to a 401(k) plan, such as being able to reduce federal income taxes and receive employer matching contributions," he added.
Recognizing most employees will need on average between 77 and 94 percent of their pre-retirement income to maintain their current lifestyle in retirement(1), the 2008 Benefits & Talent Survey found employers provide the following to help employees determine how much income they will need:
-- 65 percent of employers offer Web-based retirement planning tools; -- 56 percent provide retirement planning information they obtain from their record-keeper, defined contribution consultant, or financial planning partner; and/or, -- 36 percent provide personalized retirement planning statements.
Even with these resources available, the survey found only 10 percent of employers believe their employees understand to a great or very great extent the percentage of pre-retirement income they will need to maintain their current standard of living in retirement. Forty-six percent of employers believe their employees only understand this to some extent. In addition, 68 percent of employers who offer personalized Web-based retirement planning tools estimate that less than half of their participants used them in the past year.
"Despite the resources available, it is clear the message is not getting through to employees," Hemingway said. "This survey confirms that it may not be the form of communication or the tools provided but the content being communicated. To motivate employees to save for their future, communication and tools must be relevant and engaging, such as taking personal information to calculate whether or not the participant is on track for retirement and outlining a plan to help them improve their savings," he said.
The survey also found that employers have built in features to the defined contribution plan design to bolster employee retirement savings. For example, 92 percent of organizations offer some type of employer contribution, with about one-third of employers offering a 3 percent contribution for a 6 percent employee contribution. Thirty percent of employers currently offer automatic enrollment and of those employers, 56 percent use a target date retirement fund as their default investment fund. Almost 18 percent of employers use automatic increases in defined contribution deferrals.
"These features help employees improve their accounts and at least save at the minimum level, without much involvement from the participant," Hemingway said. "I expect to see more employers implementing these features in the future to help participants retire on time, and to help reduce employer workforce management costs in the long run."
About Aon Consulting
Aon Consulting Worldwide is among the top global human capital consulting firms, with 2007 revenues of $1.352 billion and 6,335 professionals in 117 offices worldwide. Aon Consulting is shaping the workplace of the future through benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006, 2007 and 2008. For more information on Aon, please visit http://www.aon.mediaroom.com/.
Aon Corporation is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was named the world's best broker by Euromoney magazine's 2008 Insurance Survey. In 2008, Aon ranked highest on the Business Insurance ranking of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues. Aon also was ranked by A.M. Best as the number one insurance broker based on brokerage revenues in 2007 and 2008, and was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/.
(1) According to Aon Consulting's 2008 Replacement Ratio Study. For more information, contact: Sara Carlson 312.381.5045 [email protected]
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CONTACT: Sara Carlson of Aon Corporation, +1-312-381-5045,[email protected]
Web site: http://www.aon.com/