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Many Boomers May Have to Rethink Retiring Before
Becoming Senior Citizens
Few companies believe workers truly understand how to
invest in retirement assets
 March
27, 2006 – Boomers planning to retire before officially becoming senior
citizens at age 65 may be rethinking this strategy, according to a new
study, that indicates they may have to wait a little longer. Aon
Consulting surveyed 1,071 U.S. employers and found that 39 percent
believe half or more of their workforce will not have enough savings to
retire between the ages of 62 and 65.
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Companies in the Central and Southeast are less
optimistic, with 43 percent and 41 percent, respectively, saying the
majority of their employees will not retire at a reasonable age, based
on savings habits.
"Employees face a broad array of retirement plans
offered by their employer, with different availability based on job type
and when an employee was hired," said Chris Bone, executive vice
president with Aon Consulting.
"Today more than ever, employees control their
retirement future, a responsibility that can't be taken lightly.
Increasing life expectancies, multiple job changes and greater diversity
of family resources in retirement, make it critical that workers start
saving earlier and take full advantage of employer-provided retirement
resources."
In addition, this study shows that 74 percent of
organizations with 401(k), 403(b) and 457 plans say half or more of
their employees contribute to these plans.
However, only 19 percent of these companies believe
their workers truly understand how to invest in plan assets. Meanwhile,
63 percent say their workforce has some understanding of defined
contribution investment principles, but 18 percent of employers believe
their workers have little or very little knowledge on the topic.
Despite having many employees facing retirement
challenges, few companies are modifying their retirement plan designs,
according to the Aon Consulting study. In fact, only 20 percent of
companies are actively reviewing their retirement plans, while 80
percent are not considering near-term changes.
Moreover, even though 76 percent of organizations
believe retirement education is important, very important or absolutely
critical, just 1 percent say financial or retirement planning
information is communicated to employees on a regular basis.
"While most employees realize they should save more
for retirement, the problem is they don't know how much more," said Bill
Crawford, senior vice president with Aon Consulting.
"Workers are left to interpret well-meaning, but
nonspecific, retirement information, based on their own circumstances,
which is a process that paralyzes many. Companies need to ensure this
information answers the basic questions all employees ask, such as: How
much do I need? How much will I have? Am I on track? If I am not on
track, what can I do to change? Once equipped with this information,
employees are prepared to start a financial plan."
Employer Contributions
This study also shows that 85 percent of
organizations make contributions to employee 401(k), 403(b) and 457
plans to a certain level. In fact, 29 percent of companies offer a 100
percent match on employee contributions, while 7 percent provide a 75
percent match and 39 percent of employers match 50 percent of employee
contributions.
The level to which companies provide a match
varies, based on employee contribution. More than 40 percent of
organizations match employee contributions of 6 percent or more of pay,
16 percent match pay contributions between 5 percent and 6 percent, and
18 percent of companies match employee contributions between 4 percent
and 5 percent of pay.
"Company matches can be significant, representing
tens of thousands of dollars over time, so it's critical that employees
understand their company's retirement plan design and know what's needed
to take full advantage of the matching contribution," said Bone.
This study also reveals the following.
● The most popular retirement plans employers
offer include 401(k) (63 percent), defined benefit (23 percent) and
403(b) (15 percent).
● Nearly 85 percent of organizations have 10 or
more investment options in their defined contribution plans.
● More than 85 percent of companies allow for
loans through their defined contribution plans.
● Nearly 90 percent of retirement plan
participants use Web-based retirement planning tools.
● Fifty-eight percent of employers offer
retirement plan participants personalized advisor-based retirement
planning tools.
About the Study
In January of 2006, Aon Consulting conducted its
"National Employee Benefits Trends Survey" of more than 1,000 U.S.
employers to examine 2006 employee benefit trends and determine what
plan design decisions employers will make in 2007. The survey focused on
health care, retirement, communication and HR outsourcing issues facing
organizations of all sizes and industries. Copies of this study are
available by calling 800-438-6487.
About Aon
Aon Corporation (NYSE:AOC)
(
http://www.aon.com/ ) is a leading provider of risk management
services, insurance and reinsurance brokerage, human capital and
management consulting, and specialty insurance underwriting. There are
47,000 employees working in Aon's 500 offices in more than 120
countries. Backed by broad resources, industry knowledge and technical
expertise, Aon professionals help a wide range of clients develop
effective risk management and workforce productivity solutions.
Aon Consulting is among the top global human
resources consulting firms, with 2005 revenues of $1.255 billion and
7,000 professionals in 120 offices throughout the world. Aon Consulting
delivers integrated consulting solutions to help clients with employee
benefits, human resources outsourcing, compensation, communication and
management consulting.
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