Survey: The Most Important Benefit Employees Want Their Employers to Focus on Is Retirement

News flash, although not to people who follow my ramblings, employees want their employers to focus on retirement benefits. Not flexible work, not health benefits, but retirement. And of workers whose top priority in the survey is retirement, more view a guaranteed lifetime income benefit as a high priority than anything else.

The National Association of Plan Advisers (NAPA) wrote an article on this survey done by a former employer of mine. Curiously, many retirement firms in other publications seem to be telling employers not to focus on retirement benefits. Perhaps I am reading their materials incorrectly.

The data in this survey screams one thing: Defined Benefit Plans (DB). This does not come as a surprise to me. I've been saying this for at least 30 years. The average worker does not have the combination of discipline to save and financial acumen to invest in ways to build up sufficient assets on which to retire well unless the financial markets really cooperate.

Today, the trend is to try to make 401(k) plans work like DB plans. Have I got another news flash for you: they don't; they can't; they never will!

We'll come back to this, but let's look at some snippets from the analysis of the survey data. And, please note that the survey was done in the December 2021 to January 2022 timeframe. That was before inflation really started spiking, before interest rates started jumping, and before the equity markets visited the narrow whole in the toilet.

36% of workers earning $100,000 or more per year are living paycheck to paycheck. That's double the percentage just one year earlier. 

Then it gets more shocking. Last year, 26% of the survey respondents took out a 401(k) loan and 36% fell behind on their utility bills, rent, or mortgage. And, for all the people who fell behind on their mortgages who have adjustable rate mortgages, it's getting worse ... much worse.

What do you think those people will do? They'll have to do something. They'll have to cut back somewhere. While it's not in the survey, you watch. Many of those 36% will or already have cut back on their 401(k) deferrals.

Which benefit do these people want the most focus on? Drum roll please.

44% view retirement benefits as a top priority, 39% flexible work, and 33% health. One-third more are focused on retirement than on health during a global pandemic. As the late great Mel Allen would have told you, "How about that?."

Of the survey respondents who labeled retirement a top priority, 62% want a guaranteed retirement benefit (that is spelled D-E-F-I-N-E-D B-E-N-E-F-I-T for those who are not listening), 58% want more generous retirement benefits and 53% want retiree medical. Nowhere in that do I read making 401(k) plans work like something they are not.

Nothing that I've commented on here is the least bit surprising. 401(k) plans were never intended to be a primary source of retirement income. They were never intended to provide lifetime income. They were intended as tax-favored retirement savings. The thought is that if you give someone a tax break to do it, when they are able, they will save more for retirement. It's a good concept. Giving insurance companies a windfall with rip-off in-plan annuities is not as good a concept.

I know, DB plans are bad for employers because they are expensive and the costs are volatile. But, they don't have to be.

Defined benefit plans can be designed at whatever cost level an employer considers affordable. And, modern designs are such that when properly designed, the costs do not need to be volatile. In fact, they can be far less volatile than the maybe not so treasured (according to the survey data and remember I had nothing to do with the survey) 401(k).

Get with the program people. Listen to what your employees are saying they want. If your consultants haven't told you how you can do this cost-effectively and cost-consistently, call me. Google me. I'll take your call. Quite happily, in fact.

Dear 401(k) Participant -- An Open Letter

Dear 401(k) Plan Participant,

I hope you are doing well. I really do, but I am concerned about you. No, if you are one of those wealthy participants, I'm sure you'll be okay. It's the rest of you I'm worried about.

You got your statements around the end of last year and the markets were at near record highs. But, the Dow is down somewhere around 20% since then and the NASDAQ nearly double that. The fixed income part of your portfolio that most of you don't understand isn't doing very well either. Have you looked at those statements recently?

Let's look into the future. Do you plan to retire someday? Do you expect a source of regular lifetime income? You do? How much can that 401(k) buy you? Have you factored in the insurance company margins? How about the fees you're being charged by the recordkeeper for the plan and the fund manager? You haven't? Perhaps you should?

How about that lifetime income? Social Security is there, but it might not be the same program when you get to retirement age. 

What's that you say: you have a friend with a defined benefit (DB) plan? I know; you told them it was foolish to factor that into their choice of an employer, but they're still not upset with their choice, are they?

I understand that a year ago, you were contributing 10% of your pay to your 401(k) plan. That's great. But with inflation, you don't seem to be able to do that anymore? Oh, you maxed out your credit cards so that you could contribute to your 401(k) and now you can't pay them down? And, you can't afford to go out, but you can't afford groceries, and you can't handle your credit card debt? Where did you say that lifetime income was coming from?

How about that friend who took the job you recommended against? You know; that job with a pension. That's a pension her employer pays for. You say your friend has been contributing a steady 5% of pay to their 401(k) and feels absolutely fine about retiring someday? Your friend isn't worried about lifetime income just because they have a good DB plan? 

Amazing!

And that house you just overpaid for? But, you got a great teaser rate on your Adjustable Rate Mortgage. Oh, what was that? The rate resets after one year and it doesn't look good. But you told me it was okay because you read you can tap into your 401(k). Something that I think you called a hardship withdrawal?

So, the markets are depleting your 401(k), you're depleting it, and you can't afford to contribute to it anymore? Doesn't that bother you? Why isn't your friend with the DB plan losing sleep at night like you are?

What's that you said? You're going to be parents? The medical costs for childbirth are going to eat away at your HSA balance? And, then there are diapers and you're afraid you'll have to buy formula? Those are all expensive, aren't they?

How are you doing with those lifetime income projections?

Don't you wish you had a DB plan?

How are you doing with your credit card debt? Your mortgage? Your weekly food bills? Your discretionary income for fun? You mean you had to give up saving for retirement?

Don't you wish you had a DB plan?

Regretfully, but I told you so,

John