Financial Wellness: Employers Enhance DC Retirement Plans to Improve Employees’ Financial Security

With concerns mounting that employees aren’t saving enough for retirement, U.S. employers are making significant enhancements to their defined contribution (DC) plans, now considered the main retirement savings vehicle for most working Americans, according to a survey by Willis Towers Watson, a global advisory, broking, and solutions company.


The survey found more employers are adding “automatic” and Roth design features to their 401(k) plans, boosting employer contributions, streamlining investment choices, and improving fee transparency.

“Helping employees with their long-term financial security has emerged as a very high priority for employers,” said Tammy Hughes, senior retirement consultant, Willis Towers Watson—in a press release. “With most employers now offering a DC plan as the primary retirement savings vehicle, they have become very focused on how to improve their plans and deliver better outcomes to participants. The enhancements they are making should go a long way toward encouraging greater participant savings as well as wiser investment decisions.”

The survey found more companies are adopting automatic features to their DC plans. Nearly three in four respondents (73%) now automatically enroll new participants, compared with 68% in 2014 and 52% in 2009. Additionally, 60% of respondents provide an auto-escalation feature, up from 54% in 2014. These automatic features can significantly improve an employee’s retirement readiness.

Other improvements plan sponsors reported making to their DC plans include:

  • Adding Roth features: Seven in 10 respondents offer Roth features within their 401(k) plans, an increase from 54% in 2014 and 46% in 2012.
  • Increasing employer contributions: One in four employers increased its plan contributions over the past 5 years. Of those that increased contributions, 60% did so by increasing the employer match; 51% by encouraging employee savings and employee engagement, and 44% by offsetting benefit changes in their defined benefit program.
  • Streamlining investment options: More than four in 10 respondents (42%) reduced the number of investment options they offer to plan participants over the past 3 years, and another 41% plan to do so by 2020.
  • Offering target-date funds (TDFs) as predominant default option: 93% of respondents use TDFs as the qualified default investment alternative (QDIA), an increase from 86% in 2014 and 64% in 2009.
  • Adding health savings accounts (HSAs): 80% of employers offer HSAs; 12% are planning or considering adding them by next year. HSAs, with tax-free contributions, investment earnings, and distributions, have become a popular retirement savings tool.
  • Increasing fee transparency: 41% charge a fixed-dollar amount per participant for recordkeeping fees, an increase from 32% in 2014.
  • Expanding financial well-being communication: 78% expect to increase efforts to educate employees on retirement planning issues. Of this group, 64% plan to offer guidance on how to draw down funds after retirement.

The survey also found only a third of respondents (35%) measure the retirement readiness of their participants annually, and the vast majority (88%) only measure basic plan statistics, such as participation rate, account balance, and contribution rate. Additionally, 83% of investment committees at the largest plan sponsors say their top priority is to improve retirement readiness and associated workforce risks, yet only 17% spend time at meetings on retirement readiness.

“Given the high priority plan sponsors place on retirement readiness, there is still a significant opportunity for plan sponsors to measure the success of their programs based on outcomes and to conduct this evaluation regularly. Also, sponsors can evaluate the efficiency of their plan operations and investment management. If needed, they can make changes to adopt more efficient models, such as delegating investment decisions to an internal subcommittee, which could allow time to focus on measuring plan outcomes,” said Kerry Bandow, senior consultant, Willis Towers Watson.