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After two years of cutbacks, 2011 will be a year of rebuilding company-sponsored 401(k) plans—for both employers and employees. But the result could be more flexible, more customized retirement savings plans.

Here is a roundup of recent research regarding your employees and their retirement savings plans.

Later retirements looming

Employees relying on 401(k)s to fund their golden years might be working longer than they once expected. Actuarial and employee-benefit consultants at Nyhart say many won’t be able to retire until age 73.

Other findings from the organization’s Fall 2010 401(k) Retirement Readiness Study:

  • 81% of employees 18 or older will not be able to afford to retire by age 65.
  • The average 55-year-old employee needs to contribute more than 45% of his or her pay for the next 10 years to build assets sufficient to retire at age 65.
  • Unless they increase their 401(k) contributions, most 60- to 64-year-old employees will need to work until age 75 before they’ll be able to afford to retire.
  • 70% of employees younger than 25 will not be able to retire by age 65.

Lesson learned: Employees who contribute the greatest percentage of their incomes to a 401(k) have the best chance to retire by age 65.

Employees must contribute more

Employees understand that they’re responsible for saving, but they’re still not contributing enough to their 401(k) plans to ensure a comfortable retirement.

An ING survey found that 87% of employees who have 401(k) funds admit they could save more; they just don’t.

  • Nearly two-thirds said their employer-sponsored retirement plan accounts for all or most of their retirement portfolio.
  • Many employees merely guess how much they should contribute. They don’t understand the long-term impact of small contribution increases.
  • Almost all employees acknowledge they could afford to contribute an additional 1% of annual pay. One-third said they could afford 5% more.

Lesson learned: Even experienced 401(k) participants can benefit from more financial education.

Some walk away from money

Another ING survey reveals that half of American adults who have participated in a 401(k) or equivalent plan moved on to a new job without moving their retirement funds. Nearly one in five left behind accounts worth $50,000 or more.

Reasons: They didn’t understand how to roll over a 401(k) into an Individual Retirement Account or where to transfer their money, they forgot about their 401(k) or they just didn’t deal with it.

Lesson learned: Discuss 401(k) rollovers during exit interviews.

A new option: Guaranteed income

More plan providers are offering a guaranteed lifetime income investment option, which appeals to recession-weary employees whose nest eggs took a huge hit during the recession.

A lifetime income option typically guarantees that a working employee’s income base will grow by a certain percentage each year—usually for a finite period like 10 years—until the first withdrawal, no matter how financial markets perform. If the market goes up, the employee reaps the gains. If the market flattens or falls, retirement income is protected.

Once the employee retires and starts withdrawing money, income is guaranteed for life, even if the contract value falls to $0. Under some plans, surviving spouses can continue receiving guaranteed benefits for life as well.

Lesson learned: Flexibility and customization are key when it comes to 401(k)s. Negotiate with your provider to lock in options that might appeal to your specific workforce.

HR must go back to school

Do you know how much your organization’s 401(k) plan costs? Nevin Adams, editor-in-chief of Plansponsor magazine, says a “surprising number” of employers don’t.

In fact, plan sponsors know little about things like target-date asset allocations and whether asset allocations are appropriate.

Lesson learned: Insist on a thorough annual briefing on new options and benefits from your 401(k) provider. The more you understand about the 401(k) plan your organization offers to employees, the better you can answer their questions, encourage participation and make the best plan choices for your business.

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