Retirement product providers say that they continue to struggle with reluctant employers and misinformed employees about the benefits of their offerings.
To combat this, they say they are honing simple messages about saving for a life after retirement, including education efforts to spread the message that there are alternatives to 401(k)s.
"The country is 30 years into the 401(k) revolution and we've seen the 401(k) deliver some fantastic successes," says Craig Howell, business development specialist at San Francisco-based Ubiquity Retirement + Savings. "But the 401(k) has proven kind of unsuccessful on the smaller end of the marketplace - businesses with less than 100 employees. We're trying to stay in front of that."
For businesses with anywhere from two to 20 employees, Howell said his firm's research suggests roughly 92% of employers have not offered a work-based option. This could be because retirement plans feel complicated or unattainable despite the tax credits and deductions that are available for businesses that offer them, Howell says.
"We view that as an opportunity to get word out to that audience with products that are suitable for it," he adds.
While Howell says Ubiquity is often a lone cheerleader for the 401(k) amid small businesses, the industry is closely following several state legislatures that have examined mandatory payroll deduction IRAs for companies with at least 25 employees.
Small businesses in Illinois that have been operational for at least two years will be required to adopt a retirement savings plan by June 1, 2017 after Illinois Gov. Pat Quinn signed the regulatory bill into law earlier this year. Howell said he and his colleagues are also watching California, Colorado and several other states that may soon change the way employers offer their workers a plan.
"We think it has a future," Howell notes about the recent push from state legislatures. "It does appear that some of the states are going to be offering a state sponsored workplace savings program that is in fact going to be a payroll deduction IRA."
Under the bill in Illinois, companies without a work-based savings plan such as a pension or 401(k) will have the option to work with a private entity or join the newly created Illinois Secure Choice Savings Program, according to the Illinois General Assembly website.
"Why not offer them a payroll deduction IRA?" Howell suggests. "It doesn't come with nearly the complexity involved with ERISA plans; it doesn't have the savings power either, and you're limited to what you can save. There's no employer money, but isn't it a great way for business owners save at work?"
With the payroll deduction IRA, employees establish an IRA with a financial institution and authorize deductions through either a traditional or Roth IRA. Small business owners that offer IRAs carry no filing requirements and are also leave contributions solely up to the employee, according to the IRS.
For those that have yet to choose a retirement plan, firms are pushing several products to plan seekers as alternate and often more comprehensive options to the traditional 401(k) offering.
For instance, JPMorgan's SmartRetirement program offers risk-adjusted returns along the individual's path to retirement. This is done through the manager's selection of strategic asset allocation, built on the participant's behavior, as well as a tactical approach, based on historically proven asset allocation methods.
The firm recently released a study, "Off Balance: The Unintended Consequences of Prioritizing One Risk in Target Date Fund Design," which delves into the unintended consequences of selective risk prioritization in target date fund portfolio construction.
"As target date funds continue to garner an increasing percentage of 401(k) contributions, it is critical plan sponsors understand how differently they may manage risk over time," says Anne Lester, JPMorgan's global head of retirement solutions and 2014 Morningstar U.S. Fund Manager of the Year for the SmartRetirement suite.
"We were especially interested in evaluating the various risk management approaches given the broad and rapidly growing adoption of these strategies in defined contribution [DC] plans."
In the DC plan, both the employer and employee make regular contributions, guaranteeing only the employer contributions, and not necessarily future benefits.
Dan Oldroyd, SmartRetirement portfolio manager, says that while the firm believes target date funds are the best choice for most participants, plan participants must consider all possibilities when putting their money away.
"It is equally important to understand how risk prioritization can impact a glide path and ultimately detract from expected retirement outcomes," Oldroyd explains. "Our findings show that now, more than ever, plan sponsors must consider how risk prioritization may cause a target date fund to respond over a 40-plus-year time horizon."
SAVING, NOT CONTRIBUTING
MassMutual Financial Group recently released a study which found that while most Americans are saving rather than spending, just 37% survey participants over the age of 18 said they currently contribute to a retirement plan.
MassMutual vice president Phil Michalowski says that although more than half of the 2,000 research participants did not contribute to a retirement plan, there is overall financial awareness, as nearly 58% said they were putting money into a savings account.
"Fewer Americans are taking actions that could hurt their long-term financial goals," Michalowski says.
T. Michelle Jones, vice president at Bryn Mawr Trust, said she often tells her clients that do not already have a retirement plan to check with their employer to see if they offer either a 401(k) or 404(b) plan. Otherwise, she says her next step is to investigate spending habits and find out where to cut corners.
Jones says from her experience and studies, client education still is key. "Research shows the main reason why people do not contribute to retirement savings is because they think they can't afford it or they don't know how to start it."