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Employees Care Equally About Retirement and Medical Benefits

Employees expect their defined contribution (DC) plan to be a key vehicle for funding their retirement and they are worried their retirement savings will not be enough to cover their expenses, according to new research from Buck, an integrated HR, pensions, and benefits consulting, technology, and administration services firm, and a Gallagher company.  

To gain insight into workers’ satisfaction with their retirement benefits and their ability to save for retirement, Buck commissioned an independent research firm to survey benefits-eligible workers and HR and benefits professionals who administer retirement plans, allowing for a comparison of similarities and differences between employee and employer responses.  

The findings are published in Buck’s survey report, Saving For Retirement: Employee and Employer Attitudes Towards Retirement Benefits. Employees were asked to identify the top three benefits they look for when considering a new job, and the data shows they care almost equally about their retirement benefits (65%) and medical coverage (67%), followed by dental insurance (36%) and flexible schedules (33%). Companies recognize this, but think medical coverage is a more significant consideration (77%), with retirement benefits second (70%) followed by flexible schedules (36%) and dental insurance (32%). 

More significantly, 91% of HR professionals believe their organizations offer competitive retirement packages, though 61% of employees believe they could find a better package with a different employer.  

“With rising inflation, it’s not surprising that employees are concerned about their ability to save for retirement and this, in turn, is reflected in the perceived value of employer-sponsored retirement plans,” says Tonya Manning, U.S. wealth practice leader and chief actuary at Buck. “DC plans have evolved to become the primary retirement savings vehicle for Americans, and for plan sponsors, the challenge is how to help participants reach their savings goals.”  

Key findings from the survey are below.  

  • While many employees (79%) are satisfied with their retirement benefits, they don’t necessarily believe their savings will provide adequate and 76% have increased concerns about their capacity to save for retirement given the unstable economy. More than a third (35%) of employees cited the rising cost of living expenses as the top impediment to saving, followed by personal debt (20%) and family obligations (11%).  
  • As a sign that employees are more focused on their immediate cash needs, more than half (53%) of employees preferred a $500 pay increase over a $500 increase in contributions made to a retirement plan.  
  • An indication that employees are looking for a way to save for more immediate cash on-hand needs, 79% of workers would like their employer to offer supplemental savings accounts, such as emergency savings, in addition to retirement benefits.  
  • Despite new legislation, retirement benefits have remained largely unchanged; almost half (46%) of employers say their retirement package has remained the same in the past two years, and 39% of employees agree. However, 57% of companies offer, or plan to offer, matching retirement contributions for student loan payments, a provision included in the recent SECURE 2.0 legislation. This would be a popular move as 57% of workers would like to see this enhancement.  
  • Increasing the company match is viewed as the best way to improve retirement plans by both workers (52%) and employers (49%). Employees and employers were also in lockstep regarding other top focus areas to improve retirement benefits, which included improving or offering a pension plan and offering more investment options.  
  • Nearly half of all employees (45%) believe they need more than $1 million to retire, and 10% believe they need more than $2 million. More than two-thirds (70%) believe that defined contribution plans are key to funding their retirement.  
  • Some employees (28%) think that increasing education and communications could help to improve their retirement benefits. For workers, the most confusing parts of their retirement plan are withdrawal options, followed by investment options, and plan fees and expenses. Additionally, a troublesome 39% of employees are unsure if they contribute the required percentage of their annual compensation to receive the full company match, indicating that more company communications may be needed. 

“The good news is that employees are aware that their contribution to their retirement plan is key to a successful outcome,” says Manning. “However, with today’s financial stressors, it’s critical that plan sponsors regularly assess what policies or strategies are in place to increase retirement plan participation, drive savings rates higher, and improve participant investment outcomes. This will help boost employee confidence in their retirement plan’s ability to help them reach their savings goals—and enable companies to deliver on their promise to help their workforce retire with dignity.” 

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