Economic Turmoil Changing the Way 401(k) Investors Think About Retirement Needs

Tue Apr 7, 2009 1:16pm EDT

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New Research Shows Eroding Retirement Confidence Leads 401(k) Participants to
Seek Guaranteed Income in Retirement 
SAN FRANCISCO--(Business Wire)--
Barclays Global Investors, N.A. (BGI), one of the world's largest asset
managers, today released the results of a comprehensive survey showing how the
ongoing economic downturn is eroding the retirement confidence of 401(k)
participants. Notably, the survey indicates that participants give equal
importance to guaranteed retirement income and to covering their health care
costs when it comes to improving retirement confidence. 

The rapid decline in the global economy has cast a cloud over investors with the
majority of retirement plan participants (63 percent) saying their confidence in
reaching their retirement goals has declined in the past 12 months. Of those who
lost assets (80 percent) and are worried they might never be able to retire (15
percent), 41 percent plan to delay their retirement, and more than half (58
percent) plan to work until they die. One of the ways participants claim
confidence could be recovered is with guaranteed retirement income. The
BGI-sponsored study, "401(k) Participant Attitudes, Behavior, and Intentions,"
was based on the results of a survey conducted in March 2009 by The Boston
Research Group. 

"In today`s economy, plan participants` confidence that they will have
accumulated enough money to retire comfortably is low and declining rapidly,"
said Kristi Mitchem, head of BGI`s U.S. Defined Contribution business. "While
the loss of 401(k) plan savings has weakened the confidence of plan
participants, retirement savers are not abandoning their plans, but are changing
their ideas about what they want their plans to provide." 

Retirement Income Ranks Equally Important with Health Care Coverage

When asked how to improve their retirement confidence, 73 percent ranked
guaranteed income in retirement (other than Social Security) as "very
important." That desire increased to 83 percent for those worried they will
never retire. Notably, participants ranked guaranteed income equally with
"knowing my health care costs would be covered" as a way to improve confidence. 

Mitchem says, "The fact that participants ranked retirement income equally with
health care is remarkable, and frankly somewhat surprising. Health care costs
are recognizably top of mind for millions of Americans and a priority for our
government, yet retirement income receives little attention when it comes to
401(k) investors. This survey indicates the current economic crisis has
amplified both the awareness of, and desire for, retirement income for 401(k)

This is further emphasized by the fact that only 13 percent feel Social Security
will provide sufficient guaranteed monthly income in retirement, while 90
percent said they would be interested in a 401(k) option that would allow them
to secure guaranteed monthly income. 

Retirement Confidence Influences Attitudes and Behaviors

Participants report they feel the impact of declining retirement confidence in
many ways. For example, one-third (33 percent) of plan participants admitted the
current economic climate is causing them to delay viewing their account
statements. This percentage increases among those who are unsure if they will be
able to retire as planned (41 percent) and is highest (46 percent) among those
who are worried they will never be able to retire. 

"Unfortunately, the `no news is good news` approach to retirement savings isn`t
the best option. A lack of communication tends to significantly raise fear,
which, in turn, clouds good judgment and can cause paralysis," Mitchem said. "An
account statement is a very important communication tool for guiding
participants toward retirement. Everyone needs that information, and those who
may need guidance the most are shutting down an important avenue of

One-Two Punch: Confidence Down, Losses Real

Confidence levels significantly influence how participants feel they will
recover from their losses. While almost half of participants (45 percent) said
they would "save more" to make up for their losses, that decreased to nearly
one-fourth for those who have a low confidence level. The survey also showed
that participants are more likely to increase than decrease their contributions,
and, despite steep market losses, only 4 percent of participants indicated they
will stop contributions altogether. Overall, half of participants said they will
not make any changes in the next 12 months. 

Mitchem says, "What`s been particularly challenging with the market downturn is
the frenzy over investment returns when the real key to a successful 401(k) is
sufficient savings rates. Participants say they will save more now, but we know
that unless we nudge them, they will join the majority who do nothing. This is
why automatic savings features are vital to helping participants help

Confidence in the health of the economy also showed itself when nearly
two-thirds of participants indicated that in the next 12 months it would be more
likely that there would be a cure for the common cold than a full economic

A Clear Desire for Retirement Income

Nearly half (49 percent) of participants said their employer could improve their
401(k) plan by providing a choice for securing guaranteed income in retirement.
That increased to 61 percent for those participants who are worried they may
never be able to retire. 

The current economic downturn has helped plan participants shift away from
thinking about their plan assets in terms of a lump sum and more toward how
these assets can provide income throughout retirement. "We found that
participants are putting a greater emphasis on the monthly income that their
savings will generate. The current economic downturn has focused participants`
attention on financial stability in the form of guaranteed income," Mitchem
said. "With the burden of retirement savings landing largely on the shoulders of
individuals, it is crucial that plan sponsors provide participants with the
tools to lighten that load." 

401(k) Plans Resilient and Requiring Reform

Weakened confidence also affects how participants view their 401(k) plan as an
employee benefit. Overall, nearly half of all 401(k) participants (46 percent),
regardless of their confidence level, feel their 401(k) plan has become more
important to them during the current economic turmoil. This percentage declines
to 21 percent among those worried they may never be able to retire. 

The survey results send a signal to policy makers to bring income into the
401(k) discussion and suggest changes plan sponsors can make to restore the
confidence of their participants in the face of an unstable economic future. 

"We believe 401(k) plans have been hit hard, but not knocked down. Through
public policy and advancement of plan offerings, we can strengthen retirement
outcomes for millions of Americans," said Mitchem. 

This BGI-sponsored study sampled 1,000 401(k) participants via an internet panel
questionnaire and was designed to tap into participants` perceptions about the
ongoing economic downturn, its impact on retirement confidence, and how
retirement confidence is influencing attitudes and behaviors of defined
contribution plan participants. 

About Barclays Global Investors

Barclays Global Investors is one of the world's largest asset managers and a
leading global provider of investment management products and services with more
than 3,000 institutional clients and $1.5 trillion of assets under management as
of December 31, 2008. BGI transformed the investment industry by creating the
first index strategy in 1971, the first quantitative active strategy in 1979,
and the first target-date fund in 1993. 

About Boston Research Group

Warren Cormier is founder and President of Boston Research Group. He has more
than twenty-five years of quantitative and qualitative experience in financial
services research for investment companies (both retail and institutional
clients), banks, and insurance companies. He is the author of the Defined
Contribution Plan (DCP) 2000- 2008 plan sponsor satisfaction and market dynamics
studies which have become the standard for service quality and trend measurement
in the 401(k) arena. He also created similar DCP studies in the advisor and
participant channels as well as the highly successful DCP Institute that brings
together hundreds of retirement advisors, broker/dealers, asset managers and DC
plan providers to network and share creative ideas on practice building and
servicing plan sponsors and participants. 

Survey Methodology

The data for this study were collected through a 10 minute internet panel of
verified 401(k) participants who are actively contributing to their plan. A
total of 1,000 participants were interviewed in March 2009. A sample of 1,000
observations has a maximum sampling error of +/-3 percentage points at a 95%
confidence level. 

Lance Berg, 415-597-2045
Christine Hudacko, 415-597-2687

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