Lack of Communication Between Employers and Their Employees Threatens Future Retirement Security

Business Wire, Feb 6, 2007

Annual Transamerica Retirement Survey Shows Major Disconnect in the Workplace

LOS ANGELES -- Results from the Eighth Annual Transamerica Retirement Survey revealed major differences in how employers and their employees view the importance of retirement benefits. Data from the 2006 survey also indicates a lack of communication in the workplace when it comes to benefits packages, compensation and investment education, which could make it more difficult for employees to get the tools they need to successfully save for retirement.

The survey found that employers continue to overlook the high value that employees place on retirement benefits compared to salary. Fifty-six percent of employers believed employees would choose a higher salary over excellent retirement benefits, while only 34 percent of employees agreed with that statement.

Very little dialogue between employers and employees on retirement issues may be fueling this gap: Only one in five employees (22 percent) have spoken to their supervisor or HR department about their retirement benefits in the last 12 months. Coincidentally, 77 percent of employers believe their employees would prefer not to think about retirement until they near retirement age, while 73 percent of employees disagreed with this statement.

"For as long as we've been conducting our retirement survey, we've seen a great divide between employees and employers on retirement issues," said Catherine Collinson, retirement and market trends expert for the Transamerica Center for Retirement Studies1." As more employees count on employer-sponsored plans as their primary source of retirement income, it's crucial that employers and employees communicate when making decisions about their retirement plan."

Why Employers Need to Care

Employers have much to gain by offering robust retirement benefits. Among employees whose company does not offer a retirement plan, 62 percent of employees said they would leave their job for a similar position with an employer that offers a retirement plan.

"Many employees now expect a 401(k) plan with an employer-matching contribution to be part of their overall compensation package. In fact, the survey found that employees are more likely to take another job that offers a better retirement benefits package," said Collinson. "Communicating with employees about how to achieve their retirement goals can go a long way toward improving employees' perception of their retirement plan benefit."

Better communication also may drive participation and savings rates among all employees, which can help make it easier for employers to pass nondiscrimination testing. According to survey results, 26 percent of employees are not participating in their employee-funded retirement plan.

"Beyond helping employees better prepare for retirement, plan participation is key to passing the IRS' annual nondiscrimination tests," added Collinson. "By encouraging employee participation, the company also is increasing the likelihood that management will be able to contribute to the maximum limits allowed by the IRS and, or, the plan."

Employees Show Strong Interest in Pension Protection Act Provisions

Fortunately for both employers and employees, the 2006 Pension Protection Act has created new opportunities for companies to offer more comprehensive retirement benefits geared at increasing participation and savings. But while employees are indicating interest in many of these opportunities, employers are failing to recognize it.

For instance, survey results indicate that employers are not aware of employee interest in retirement accounts, such as the Roth 401(k) option, that may allow them to pay income taxes up front and withdraw funds at retirement tax free. As of August 2006, 89 percent of employers were not offering the Roth 401(k) feature and only 13 percent had planned to do so in the future. The number one reason for not offering it was the perceived lack of employee interest (29 percent). However, 44 percent of employees said they would prefer to pay taxes now instead of later, suggesting that there is a strong interest in an investment vehicle such as the Roth 401(k) option.

Additionally, results show that employees are interested in -- and would benefit from -- other provisions related to the Pension Protection Act. For example, more than two-thirds (68 percent) of employees admitted that they did not know as much as they should about retirement investing. Under the new law, plan sponsors will be able to offer fund-specific investment advice to their plan participants beginning in 2007.

"The Pension Protection Act is the most far-reaching retirement legislation in decades," said Collinson. "This legislation offers employers important tools to increase participation, keeps employees in the plan, and helps them invest more wisely. It allows for a situation where everyone wins. But it's only as good as a plan sponsor's willingness to adapt these provisions to its plan."

Closing the Gap

Despite the current disconnect, employees are clearly demonstrating an eagerness to engage more with employers on retirement issues. Fifty-seven percent of employees stated they would like to receive more information and advice from their company on how to reach their retirement goals.