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More Than Half Fear Pension Benefits Are at Risk, But Fewer Than Two in Five (38%)
Plan to Increase Individual Contributions to Compensate
BOSTON, January 4, 2007 - Fidelity Investments today released its Tax-Exempt Workplace Savings Tracker, a first-of-its kind study measuring the retirement savings progress of employees in the tax-exempt sectors of health care, education and government.
Despite compensation levels comparable to those of corporate workers1, tax-exempt sector employees have saved an average of $48,000 in their defined contribution (DC) plans, 23 percent less than the average $62,000 saved by their corporate sector peers2. In addition, although more than half (55%) of tax-exempt sector workers report having access to a defined benefit (DB) plan, 57 percent fear the plan will be reduced or discontinued in the future. Among those who have been affected by DB changes or fear their pensions are at risk, only 38 percent plan to increase their contributions to DC plans to compensate.
"It's encouraging that many tax-exempt sector workers recognize that personal savings are playing a more critical role in their retirement, but troubling that they have no plans to increase those savings," said John Begley, an executive vice president with Fidelity Employer Services Company.
Participation in DC Plans
On a positive note, the study found that tax-exempt sector workers are participating in DC plans at higher levels, with tax-exempt sector participation rates reaching an estimated 83 percent, compared to 64 percent in the corporate sector3. This disparity may be partially due to the fact that one in four (25%) tax-exempt sector workers can receive an employer contribution without having to allocate a portion of his or her salary into the workplace savings account.
"Although workers are participating in their plans, the level of activity shows they are not taking full advantage of the benefits of workplace plans," said Begley.
Although one in four tax-exempt sector employees made the extra effort to increase the contribution in 2006, almost half (48%) still contribute less than $2,0004 per year to their DC plan. The study showed that deferral rates are 6.9 percent in both the tax-exempt and corporate sectors5. However, Fidelity suggests a 10 percent to 12 percent deferral rate to achieve a more secure retirement.
Inertia and Lack of Information Preventing Active Employee Engagement
Tax-exempt sector employees cite several challenges to being actively engaged in their workplace savings plans. Many are not familiar with the details of their DC plan and retirement investments, with 45 percent not knowing how many providers they can choose from and 26 percent unaware of how many mutual funds or investment options they hold. Of those eligible individuals who have not yet opened a DC plan account, more than half (56%) say it is because they have no extra funds to save and one in five (18%) reported that they "haven't gotten around to it."6
Study findings suggest that many employees would welcome the inclusion of automatic features into their workplace savings plan design. For example, more than two-thirds (67%) think it would be valuable to have an automatic increase option that boosts their savings rate annually, with 27 percent of respondents citing auto increases as very valuable. The study also found that 17 percent of respondents currently invest in a lifecycle fund, while separate Fidelity research has shown that the number of participants in lifecycle funds double when the funds were offered as a default.7
"This study proves that access to workplace benefits alone does not help to create financial security unless participants are actively engaged in saving and investing in their plan," said Begley. "Thanks to federal legislation passed in 2006, employers can help employees turn inertia to their advantage by adopting automatic solutions that are proven to dramatically increase participation and savings rates and also improve asset allocation strategies."
About Fidelity's Tax-Exempt Workplace Savings Tracker
While many studies have been conducted regarding the actions of corporate DC plan participants, Fidelity's Tax-Exempt Workplace Savings Tracker provides a vehicle for measuring retirement savings behaviors among tax-exempt employees specifically. The study was conducted by Richard Day Research, an independent research firm, among 1,521 current employees with DC plan accounts across tax-exempt sectors, including higher education, health care, government, foundations, and faith-based organizations. The survey was fielded online and by phone between April and May 2006.
About Fidelity Employer Services Company
Fidelity Employer Services Company provides benefits and human resources administration, talent planning, payroll solutions and stock plan services to more than 20 million participants in the United States as of November 30, 2006.
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of more than $2.9 trillion, including managed assets of more than $1.3 trillion as of November 30, 2006. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to more than 22 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, the largest mutual fund supermarket and a leading online brokerage firm. For more information about Fidelity Investments, visit www.fidelity.com.
1Based on comparison of FESCo recordkeeping data (corporate median income $58k) versus Tracker (tax-exempt median of $55k).
2Corporate figure based on FESCo 2005 recordkeeping data indicating an average 401(k) balance of $62,000.
3Based on FESCo 2005 recordkeeping data.
4Figure refers to median contribution levels. The average is $4,000.
5The 6.9 percent figure is based on FESCo 2005 recordkeeping data.
6While the Tracker focuses on plan participants, key data also was captured on non-participants.
7FESCo 2005 recordkeeping data.
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Fidelity Investments Institutional Services Company, Inc.
82 Devonshire Street, Boston, MA 02109 |
