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Press release from Business Wire

Employers Say Retirement Plan Success Fueled by Tax Deferrals

<p class='bwalignc'> <b>Research from The Principal shows removing tax incentives could derail financial security of American workers</b> </p>

Thursday, November 10, 2011

Employers Say Retirement Plan Success Fueled by Tax Deferrals10:37 EST Thursday, November 10, 2011 DES MOINES, Iowa (Business Wire) -- A new survey of small and medium-sized employers finds that eliminating retirement plan tax incentives could have a significant negative impact on retirement security by discouraging savings and reducing the number of plans. According to research from the Principal Financial Group®, three-quarters (75 percent) of employers say current tax deferral incentives are the most attractive retirement plan feature to employees and more than eight in 10 say participation and savings would decrease if the incentives were removed. The 2011 Principal Financial Group Retirement Readiness Survey questioned small and medium-sized employers across the United States—those who offer defined contribution plans and those who do not. The survey of 1,305 benefit decision makers was commissioned by The Principal® and conducted online by Harris Interactive® in May and June 2011. Key findings include: Ninety-two percent of employers state that retirement tax incentives for workers are important in their decision to offer a 401(k) plan. Nearly two-thirds (65 percent) say their desire to continue offering a plan would decrease if those incentives were removed. More than a third (36 percent) of employers who don't currently offer a plan say the lack of tax incentives would decrease their desire to start offering one. “Employers offer retirement plans voluntarily, so it is critically important to understand how proposed changes to the system would impact their decisions,” said Greg Burrows, senior vice president, retirement & investor services at The Principal. “It is especially vital to listen to smaller employers because they are the economic backbone of the nation. What we are hearing loud and clear in this survey is that employers value the current voluntary system and they want Congress to preserve retirement savings tax incentives.” The survey finds that many employers believe that even a reduction in tax incentives would shrink worker participation and contribution levels as well as diminish their own desire to offer a plan. More than half (54 percent) say tax deferral limits should be raised, not lowered. “With recent economic volatility and burgeoning baby boomer retirements, the last thing we need to do is remove an incentive to save that is working,” said Burrows. “Instead, we need to encourage more employers to offer retirement plans and enable Americans to save effectively for retirement so they can achieve their financial dreams. That means doing everything we can to encourage workers to save early, save often and save enough.” Rethinking and reinforcing retirement readiness Two out of three employers who offer a plan believe the current 401(k) system is effective in helping workers achieve adequate retirement savings. Most believe employees need to be saving on average at least between 12 and 16 percent—including employer match— over the course of a career. Many are willing to make changes to their programs if shown research the actions would boost savings. Sixty-six percent of employers who offer a plan would be willing to improve education to promote double-digit savings levels. Twenty-two percent would be more likely to add auto enrollment. Forty percent would consider a 6 percent or 8 percent default deferral rate for workers who are auto enrolled in the plan. Thirty-two percent of employers who use auto enrollment would be willing to combine a 6 percent deferral rate with a 1 percent auto increase up to 15 percent if shown research that participants wouldn't opt out. Measuring worker retirement readiness: is the plan popular or successful? While 75 percent of employers feel they have a successful defined contribution /401(k) plan, 82 percent measure success by participation rates. Only 4 percent of employers who offer a plan measure if their workers are on track to have adequate retirement income. Only 15 percent consider retirement income ratios when designing their retirement plan. “While participation rates indicate a plan's popularity, they don't measure true plan success in the form of retirement readiness: how well the plan delivers participants to retirement with adequate income,” Burrows said. “We are providing tools to help employers measure success by calculating retirement income ratios. From there they can make plan design decisions based on how well features will get employees on track to replace 85 percent of their pre-retirement income.” See the full report and a white paper, How to Move from a“Popular” Plan to a Successful Plan. For more news and insights from The Principal, connect with us on Twitter at http://twitter.com/ThePrincipal. Methodology This survey was conducted online from May 17– June 17, 2011 within the United States by Harris Interactive on behalf of the Principal Financial Group. Those surveyed included 507 adults aged 18 and older who are worker-benefit decision makers for companies with 10 to 500 workers and who do not currently offer defined contribution retirement plans and 798 worker-benefit decisions makers for companies with three to 1,000 workers that do offer defined contribution retirement plans. These decision makers were selected from a Principal Financial Group client list, and their data was not weighted. About the Principal Financial Group The Principal Financial Group® (The Principal ®)1 is a global investment management leader including retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $320.8 billion in assets under management2 and serves some 17.8 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.comAbout Harris Interactive Harris Interactive is one of the world's leading custom market research firms, leveraging research, technology and business acumen to transform relevant insight into actionable foresight. Known widely for the Harris Poll and for pioneering innovative research methodologies, Harris offers expertise in a wide range of industries, including health care, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant and consumer package goods. Serving clients in more than 215 countries and territories through its North American, European and Asian offices and a network of independent market research firms, Harris specializes in delivering research solutions that help clients stay ahead of what's next. For more information, visit www.harrisinteractive.com. 1 “The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group. 2 As of September 30, 2011. The PrincipalTerri Hale, 515-283-8858hale.terri@principal.comorJaime Naig, 515-247-0798naig.jaime@principal.com