November 26, 2013 / 7:31 PM / 6 years ago

The shape of 401(k) plans to come - and why they're changing

(The opinions expressed here are those of the author, a columnist for Reuters.)

California state worker Curtis Walker looks over retirement plan brochures at the Calpers regional office in Sacramento, California October 21, 2009. REUTERS/Max Whittaker

By Mark Miller

CHICAGO (Reuters) - What will your 401(k) look like in five years? Not the account balance - that will be determined mainly by the size of your contributions and market performance - but the plan itself. There’s a good chance your employer will make some important changes over the next few years, as the industry ushers in changes aimed at getting you to save more - and do more planning for retirement.

That’s the key finding of a survey released last week reflecting the views of 55 401(k) experts who were asked to predict the ways workplace plans will evolve over the next five years. The study, sponsored by plan provider Transamerica Retirement Solutions, queried industry insiders at organizations ranging from research, consulting and trade organizations to universities and financial services companies.

The biggest change will be a new emphasis on retirement readiness, rather than simply getting workers to join a plan and contribute. The idea is to focus on actual retirement outcomes, and it reflects apprehension about the large number of Americans who are approaching retirement unprepared. If that’s something you’re worried about, it turns out your boss shares your concern.

The 2013 Retirement Confidence Survey by the Employee Benefits Research Institute (EBRI) found that just 13 percent of workers are very confident they will have enough money to live comfortably in retirement.

And a 401(k) benchmarking survey released earlier this year found that just 12 percent of employers believe that most of their employees will be financially prepared to retire, down from 15 percent in 2011. That survey is conducted annually by Deloitte, the International Foundation of Employee Benefit Plans and the International Society of Certified Employee Benefit Specialists.

It would be nice to think employers are motivated by altruistic concern about the retirement security of their workers. No doubt, some are - but there’s also a human resources issue here straight out of Adam Smith. Companies are worried that older workers will overstay their welcome. Transamerica even came up with a name for it: Aging Worker Syndrome.

The federal Age Discrimination in Employment Act (ADEA) of 1967 made it illegal to have a mandatory retirement age younger than 65, and the law was amended in 1986 to rule out any mandatory age for most occupations. And in the wake of the last recession, rising numbers of older workers are staying on the job longer - either for the money and the benefits or because they like working. That EBRI report found that 36 percent of workers expect to stay on the job past age 65, up from 11 percent in 1991. Meanwhile, 25 percent of workers expect to retire before age 65 - half as many as in 1991.

Clearly, working longer is one of the best ways to boost long-range retirement security. Every year of additional work can help you delay filing for Social Security (thereby increasing annual benefits when you do file) while allowing you to contribute to your retirement accounts longer and spend fewer years drawing those accounts down for living expenses.

But for employers it raises the prospect of workers staying on the job past the point where they are productive, not to mention higher healthcare costs. “We don’t want people to have to work longer if they don’t want to,” says Grace Basile, assistant director of market research at Transamerica.

The new focus on retirement readiness also reflects the continuing erosion of defined-benefit pensions and recognition that defined-contribution plans will be the key source of retirement income for many workers, aside from Social Security. That’s leading more plan sponsors to encourage workers to set specific goals for their 401(k)s. The study forecasts that far more plan participants will be getting retirement readiness assessment reports that tell them whether they’re on track to achieve a successful retirement, and how much they need to be saving.

The study also forecasts the acceleration of several other 401(k) plan trends:

- More professional advisers. The number of plans offering workers in-house advisory services has been growing quickly in recent years, and the study forecasts further growth. Plans also will encourage participants to consolidate retirement assets - such as 401(k)s from former employers - making it easier for advisers to provide workers with an accurate picture of readiness.

- Further automation. The rising trend of automatic enrollment of new employees in plans has boosted participation rates sharply in recent years. Plan experts expect that trend to continue. They also think more plans will boost default employee enrollment contribution rates to 6 percent from the current average of 3 percent.

- Greater engagement through mobile platforms. Plan sponsors will reach out to participants with retirement planning apps that mimic online games, retirement readiness alert messages and calls to action. Says Basile: “It’s going to be about getting their attention, and getting them to take action.”

Finally, the experts are anticipating a helping hand from the market. They forecast that the current strong equity market will continue for a while - 70 percent agreed or strongly agreed with a forecast that the Dow Jones industrial average will have reached 17,500 by yearend 2017 - it closed Monday at 16,073 - and a majority agreed that total U.S. retirement plan assets will soar nearly 40 percent to $26.6 trillion.

For more from Mark Miller, see

Follow us @ReutersMoney or here Editing by Douglas Royalty

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