Salient to Investors:

Lee Topley at Unified Trust said 401(k)s were first introduced in the late 1970s as supplements to defined benefit pensions, when companies could easily to meet obligations through low-risk bonds with double-digit interest rates. After interest rates fell 401(k) plans grew as more companies decided that pensions were too pricey. Greg Carpenter at Employee Fiduciary said early contributors were mostly high earners. Only 7% of private sector employees with retirement benefits had a pension in 2008 versus 62% in 1980.

MetLife said only 28% of employers offer automatic projections of how much retirement income a participant’s 401(k) account might produce: instead employers tend to offer online tools to help participants, but few workers like doing this themselves – Robyn Credico at Towers Watson said everyone just uses automatic features like the default option.

Towers Watson said companies ranked workers’ ability to retire behind competitiveness of benefits within the industry, benefit plan costs, employee attraction and retention, and legislation and compliance when designing a plan. Plan Sponsor Council of America said the average company contribution to 401(k) plans is only 2.5% of pay and not nearly enough to provide for the basic costs of living in retirement, while the average employee contributes 6.4% of her paycheck to her 401(k). Advisers recommend 10% minimum, 15% for those who start in their 40s or later.

The Employee Benefit Research Institute estimates the aggregate retirement income deficit for all Baby Boomers and GenXers is $4.3 trillion.

Credico says companies have seen a rise in individuals who cannot afford to retire, but punch the clock for a paycheck.

New Department of Labor regulations require plan providers to disclose the amount in fees that both companies and their workers pay for their 401(k) plans. However, Employee Fiduciary’s Carpenter said they did not try to make it plain English and made it as gibberish as possible. Towers Watson said a worker making $75k a year and saving 8% annually in a 401(k) would lose 2.8 years’ worth of savings in a target-date fund with a 0.2% fee, and 11.6 years in one with a 1% fee, over the course of a career.

Towers Watson says the number of large employers that offer 20 or more funds declined by 8% from 2010 to 2012, and those that offer 9 options or fewer increased by 3%. The Plan Sponsor Council of America said the average plan has 60% of assets in stocks, 25% in actively managed US stock funds and just 9% in indexed US stock funds.

Steve Vernon at Rest-of-Life Communications said most people will be better off in indexed funds with costs as low as possible. Companies often think their broker’s advice is free because their compensation fee is bundled into the expense ratio, even under the new DOL fee disclosures.

BLS says 50% of workers in companies with fewer than 100 employees have access to retirement accounts, versus 79% in companies with up to 499 workers, and 86% in large companies.

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