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401k perks return, but savings lag

Workers are getting a little more help from their employers when it comes to retirement saving, but many are still falling short in building their nest eggs.

By MSN Money Partner Oct 23, 2012 2:20PM

This post comes from Jonnelle Marte at partner site MarketWatch.


MarketWatch logoMany companies are once again matching employees' 401k contributions after suspending or slashing matches during the recession. In 2011, the percentage of companies making those matches increased to 95.5%, up from 91% in 2010, according to survey results released this month by the Plan Sponsor Council of America, a nonprofit that services plan sponsors.


But while more companies are contributing to retirement accounts, they aren't as generous as they were before the financial crisis. The average company contributed 4.1% of pay in 2011, up from 3.7% in 2010, but still below the peak of 4.7% seen in 2006.

Instead, experts say some employers are throwing in another perk that often doesn't cost them anything: 401k advice. Many retirement plans administered by Charles Schwab, for example, let employees chat with Schwab representatives to discuss their needs and get help comparing mutual funds available to them, says Steve Anderson, the head of Schwab Retirement Plan Services.


Image: 401k © Tom Grill, CorbisThose workers who take advantage of the advice tend to save more and be more diversified than those who don't use the service, says Anderson. (Schwab's administrative costs for running the 401k, which are often evenly divided among a plan's participants, stay the same whether or not a company offers advice, he says.)


Despite the return of matching contributions, financial advisers and other experts say workers still aren't saving enough. For instance, about two-thirds of investors surveyed by T. Rowe Price said they contributed 10% or less of their salaries into their 401k plans, according to results released this week. And nearly a third said they were not sure how much they were saving.


Christine Fahlund, senior financial planner at T. Rowe Price, recommends workers save closer to 15% to 20% of their income -- or more if they don't start saving until their 40s or 50s.


Those lower savings rates mean many workers will have to delay retirement, take on part-time work, or spend significantly less during retirement, says Fahlund. Indeed, while the economy has bounced back, workers' confidence hasn't: Just 14% of Americans are confident they will have enough money to live comfortably in retirement, up only slightly from the low of 13% reached in 2009, according to a 2012 survey by the Employee Benefit Research Institute.


And 37% of workers expect they will have to work past age 65, compared with 11% in 1991.


Some advisers say the company match may be -- at least partly -- to blame, pointing out that some workers see little reason to contribute beyond what their employer matches. For instance, many workers will contribute no more than 6% of their pay if their employer matches up to 6% of their salary, says Steve Vernon, a financial adviser and author of "Money for Life: Turn Your IRA and 401k into a Lifetime Retirement Paycheck." "Don't take the design of the plan as a signal as to how much you should save," he says.


Some companies are trying to change that by matching up to a higher portion of a worker's salary but lowering the amount matched per dollar, he says. For instance, a company could go from matching up to 5% of pay dollar for dollar, to matching up to 10% of pay, but only contributing 50 cents for each dollar the employee puts in. That would increase the total contribution to 15% of pay from 10% for workers who max out their company contribution, says Vernon, but the total amount contributed by the company would stay the same.


Other companies are trying to boost savings by making the process automatic. The percentage of plans with an automatic enrollment feature increased to 45.9% in 2011, up from 23.6% in 2006, according to the Plan Sponsor Council of America. And 55.2% of plans had a component for automatically increasing the amount contributed, up from 31.2% in 2006.


Savers can use these step-up programs, which typically increase the percent allocated by one or two percentage points each year, as a way to work up to the target 15% or 20% savings rate, says Fahlund.


More on MSN Money:

Oct 24, 2012 10:05AM

it's a false understanding that 401K's are the only way to save for retirement.  i contribute to the company match level, and also save in other areas such as accelerated home mortgage payments, various life insurance products, cash savings, and frugal living. 


articles like this writen by any one of the 401K Mutual Fund companies, WANT us all to throw 80% of our cash into their products.  it's cash for them.  and seeing how well THEY have performed the past decade, cash for them isn't necessarily cash for us....... 


the lack of people saving can be an indication of total distrust of these retirement "products"

Oct 24, 2012 12:54PM
Another problem is the lack of funds to invest as the median salary worker is having less and less available to invest after paying for all their living expenses. If workers were paid enough to begin with, including money to put into retirement,  there won't be the need for government to pay to support those people in retirement. You can thank capitalists for that problem.
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