Bank of America Merrill Lynch: Key to Increase Employee Investment is 401(k) Plan Design

The 2012 Workplace Benefits Report from Bank of America Merrill Lynch has found a quickly increasing awareness among employees that they are ever more responsible for their own retirement, and most want to do something about it. Of the 50 million 401(k) plan participants in the country, most use them inefficiently and around 8 million employees don’t participate at all. The new report found that 82 percent of survey respondents would be willing to sacrifice a portion of their salary in order to guarantee an increased retirement income, but lack of knowledge and procrastination prevent them from investing more wisely in their plans.

The report also found that almost 70 percent of plan sponsors felt that they were at least somewhat responsible for the education of their employees about their retirement options. Furthermore, 88 percent of employers consider 401(k) plans to be of significant importance when looking at financial benefits in the workplace. And with the rush to make retirement plans more efficient, plan design is becoming even more crucial.

Some sponsors are switching to automatic enrollment policies in order to increase participation rates. The Bank of America report recommends integrating 401(k) plan enrollment with annual healthcare enrollment and extending auto enrollment to all eligible employees. Plan sponsors should also combine auto enrollment with auto increases to make better use of both features. Raising the automatic increase threshold additionally pushes employees to save more. Matching plans may also be changed to better incentivize investment with the report recommending employers change their plans that match 100 percent up to, say, 3 percent of a contribution to 50 percent up to 6 percent or 25 percent up to 12 percent of contributions.