According to new research from US lender Wells Fargo, savers in the US are increasingly turning their backs on conventional pension products in favor of new retirement savings plans.
The 2006 Best Practices in Retirement Plans Survey, which included responses from more than 450 employers across the US, found that nearly all (93%) of respondents sponsor a 401(k) plan or other similar alternative to pensions, and four out of five employers view it as the primary vehicle for their employees’ retirement security.
A 401(k) plan is a retirement savings plan that is funded by employee contributions and sometimes equal contributions from employers. The plan has gained popularity because it benefits from tax-free saving and greater flexibility and portability than traditional products.
Meanwhile, a third of respondents provide a defined benefit or traditional pension plan to their employees. That figure is likely to decline however as one in five companies with such a plan report they plan to close it to new employees, 14% plan to replace their pension plan with a 401(k) or similar plan, 13% plan to freeze current benefits in the pension plan and 5% plan to terminate their pension plan within the next 12 months.
Wells Fargo’s survey also revealed that many employers think staff in general are not saving enough. Indeed, 43% felt that employees needed to save more.