DC Participation Peaks, But Savings Rates Still Falling Short

(September 6, 2013) — Participation rates in defined contribution (DC) plans peaked at an average 78% this year but most employees are still not saving enough, according to a study by Aon Hewitt.

The research showed almost 28% of 3.5 million eligible employees contributed below the company match threshold, thereby missing out on substantial retirement contributions.

Aon Hewitt examined saving and investment behavior of these workers across 141 DC plans, with an average of 24,700 eligible employees per plan, since 2002.

Based on this study, typical allocation to equities rose marginally to 68.3% from 66.8% in 2011. The number of asset classes held by participants also increased to average 5.3, showing moves to diversify.

Average allocation to company stock, however, dropped to 13.4% from 41.8% in 2002. 

It was also revealed that 14.5% of participants of DC plans initiated trades during 2012, a figure significantly lower than 20% in 2008.

Despite such improvements seen in 2012 in DC plans, leakage continued to plague retirement savings.

Aon Hewitt witnessed a minor decline in contributors with outstanding loans from 27.6% in 2009 to 26.6% and a considerable climb in the number of those withdrawing money from their retirement pots—6.5% from 4.9% in 2006.

To improve on these concerns, Aon Hewitt recommended the following to plan sponsors: utilize automatic enrollment and other incentives to increase participation, suggest a variety of investment features such as target-date funds for higher rates of return, and reduce leakage by limiting loans to prevent premature loss of retirement savings.

The full paper can be found here.

Related Content: Investment: Where DC Should Not Focus, Says Consultants

Contact the writer of this story:

Sage Um

Assistant Editor, aiCIO
sum@assetinternational.com

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