Employers Back 401(k) as Vital Retirement Savings Tool According to New Study from CFO Research and Charles Schwab

Business Wire, June 22, 2009

Senior Executives Give Current 401(k) System a “B” Grade, Say Workplace Education is Key to Improvement

SAN FRANCISCO -- Charles Schwab, in collaboration with CFO Research Services, today released the details of a new study “Getting Retirement Savings Back on Track: Employer Views on the 401(k) and Financial Education in the Workplace,” which reveals that a majority of senior finance and human resource executives in corporate America support the 401(k) as an effective savings tool for retirement. According to the study, employers believe they play a role in improving the 401(k) as a benefit for employees, including making 401(k)-specific and general financial education more available in the workplace.

More than 200 senior finance and human resources executives from large companies in various industries across the nation were questioned about their perceptions of 401(k) plans and the role companies should play in helping their employees plan for retirement. Key findings include:

• Eighty percent think greater access to 401(k) investment planning advice is more important for employees now than it was a year ago.
• Two-thirds (66%) believe that making broader financial education in the workplace is more important for employees now than a year ago.
• Despite negative performance, 51 percent of executives report no change in their 401(k) plan participation rate.
• Sixty-three percent say employee concerns over personal finances are creating a more difficult work environment.

According to the study, nearly nine in 10 (88%) of executives report that employees within five years of retirement are very concerned about the adequacy of their retirement planning and more than half of respondents (58%) believe that employees losing confidence in the 401(k) plan is one of the most significant challenges their company will face in the coming year relative to retirement planning.

“Executives recognize that their employees are more anxious about their retirement prospects, and not surprisingly, that apprehension is felt more deeply by those who are closer to retirement,” noted Steve Anderson, head of retirement plan services at Charles Schwab. “But what we have found both in this study and through our interactions with companies as a retirement plan provider is that today, employers are more prepared -- and more committed -- to playing a lead role in providing people with access to financial education.”

When asked about the importance of different 401(k) plan features, 87 percent of employers say that offering 401(k) investment advice was important to their company’s retirement plan – second in importance only to offering a company matching contribution (96%). In addition, 57 percent of respondents report that employee requests for 401(k) advice have increased since September 2008, and 39 percent say that employee requests for broader financial education, such as budgeting and debt management, have increased during the same time period.

Employers Grade 401(k) a “B”

Executives in the survey give little indication that the weak economy or losses in investment value necessitate any widespread changes to 401(k) plans. Respondents report confidence in the underlying structure of their 401(k) plans and believe recent account value losses are linked primarily to the performance of the overall economy, as opposed to problems with the current 401(k) system. When asked to grade the 401(k), a majority of executives surveyed (56%) give the current system a “B”, affirming that it is working and needs only slight improvements. (See Figure 1 below)

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Proposed Changes to Improve Americans’ Retirement Savings

While the employers surveyed express faith in the fundamentals of the 401(k) system, they also acknowledge that economic troubles have generated more concern among employees and exposed the need for improvements.

According to the study:

• Seventy-six percent of respondents said that making investment advice for 401(k) plans more available in the workplace will have a positive impact on employees.
• One quarter (25%) are already offering more individualized 401(k) advice to employees in place of broader 401(k) education campaigns, educational brochures and workplace group meetings.
• Employers surveyed also show commitment going forward to some existing 401(k) plan features. Seventy-six percent say target-date retirement funds are an important feature to offer in plans, and 66 percent say that automatically enrolling employees into a plan when they are hired is important.
• When asked to rate the importance of different factors when evaluating a 401(k) plan provider, employers top three items are financial stability of the plan provider (91%), quality of investment choices available (88%), and mix of investment choices available (84%).