Hewitt Study Reveals Biggest Barrier to Retirement Saving May Be Lack

Hewitt Study Reveals Biggest Barrier to Retirement Saving May Be Lack of Motivation

    Business Editors

    LINCOLNSHIRE, Ill.--(BUSINESS WIRE)--Feb. 22, 2005--

Providing Education on Saving and Investing May Not Be Enough to Prompt Employees to Take Action
    While most people know they can and should save more for retirement, a new study by Hewitt Associates, a global human resources services firm, reveals that many are still not doing so, even after they are provided with guidance and information to help them.
    The study, conducted by Hewitt in conjunction with researchers from Harvard University and the Wharton School of the University of Pennsylvania, examined the saving and investing habits of more than 600 employees at a Fortune 500 company classified as "low savers" - those who do not contribute enough to their 401(k) plan to receive the full company match, or those who do not contribute to their 401(k) plan at all.
    According to the study, close to three-quarters (72 percent) of low-saving employees said they didn't know how much they need to save for retirement, but believed they should be saving at least two-to-three times as much than they currently were. Most acknowledged they could put more money toward retirement, with almost 70 percent saying they could afford to save $10 to $50 more per week - or $500 to $2,600 more per year. Despite this, the majority of employees who participate in their 401(k) plan but are not contributing enough to obtain the full company match - 77 percent - said they planned to maintain their current contribution level over the near term, and a third of those not contributing at all (34 percent) said they still did not plan to participate.
    "Virtually every company offering a 401(k) plan has employees who aren't taking full advantage of their 401(k) plan and aren't contributing enough to get the full company match - which means they are essentially leaving free money on the table," said Lori Lucas, director of participant research at Hewitt. "This is the first study of its kind to examine the mind-set of these employees, uncover the real and perceived barriers that may prevent them from saving, and determine what, if anything, can be done to motivate them with information to take action and improve their retirement picture."

    Barriers to Saving

    The study found that the majority of low-saving employees lack basic knowledge about their 401(k) plan. Close to three-quarters (73 percent) were unable to correctly identify the rate at which their employer matched their 401(k) contributions, and 54 percent weren't even aware or sure that their company did indeed offer a match.
    Low-saving employees were also the least likely to demonstrate comfort with investing. More than half (59 percent) said they were less than knowledgeable or not knowledgeable at all when it came to investing. Nearly half (48 percent) admitted they did not have a good understanding of the investment options offered in their 401(k) plan.
    The study found that debt may play a role in employees' ability to save for retirement. When asked what employees would do if given a hypothetical raffle prize of $500, over half of employees contributing below the match threshold (52 percent) said they would allocate some or all of their raffle winnings to pay down debts.
    Procrastination is another barrier. Sixty-three percent of respondents below the match threshold admitted that they put things off to the last minute. However, the study found that the biggest obstacle to retirement saving for low-saving workers appeared to be a simple lack of motivation.

    Non-Saving Mentality

    The study sought to test the premise that removing barriers such as lack of information would result in increased saving. To do so, half of the study's participants were provided with information specifically designed to educate them on their 401(k) plan and on potential gains from saving more in the plan. Their responses were mapped to transaction data and tracked over a two-month period to see if employees who received educational materials were likely to change their saving behaviors.
    When the workers receiving additional guidance were informed that, on average, they were sacrificing $1,200 per year in matching contributions, more than half (51 percent) still didn't know whether they were interested in raising their contribution level to benefit from the company match. Eight percent said their losses were not large enough to prompt a change in behavior. A little more than one-quarter (28 percent) did say they intended to raise their savings rate. Yet, only 15 percent of this group subsequently did so.
    "Our research shows that, while knowledge and education are important for building a foundation for change, they're clearly not enough to influence some groups of employees - particularly low savers - to contribute more to their 401(k) plans," said Lucas. "In order to transform these individuals into robust savers, employers need to be very persistent and assertive, and they need to provide foolproof mechanisms for increased saving - such as contribution escalation or 'check the box' cards that instantly allow workers to raise their savings rate sufficiently to obtain the full company match. By coupling these mechanisms with a forceful, persistent, multichannel and multipronged communications campaign, employers can make an impact on the unmotivated saver."

    About Hewitt Associates

    With more than 60 years of experience, Hewitt Associates (NYSE:HEW) is the world's foremost provider of human resources outsourcing and consulting services. The firm consults with more than 2,300 companies and administers human resources, health care, payroll and retirement programs on behalf of more than 300 companies to millions of employees and retirees worldwide. Located in 35 countries, Hewitt employs approximately 19,000 associates. For more information, please visit www.hewitt.com.

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CONTACT: Hewitt Associates Maurissa Kanter, 847-442-7655 maurissa.kanter@hewitt.com JoAnne Laffey, 847-442-7648 joanne.laffey@hewitt.com

KEYWORD: ILLINOIS INDUSTRY KEYWORD: HUMAN RESOURCES BANKING SOURCE: Hewitt Associates

Copyright Business Wire 2005