At a time when Americans are increasingly concerned about their retirement security, most employers participating in a recent workplace survey say they have yet to inform their employees about new retirement plan benefits that take effect Jan. 1.
The pension-reform provisions of the recently enacted Economic Growth & Tax Relief Reconciliation Act (EGTRRA) gave a significant boost to employees trying to build or add to their retirement nest eggs.
With the new law in place, Americans will be able to:
- save more money for retirement in their 401(k) plans or other retirement accounts;
- "catch up" if they left and returned to the workforce or were slow to start saving; and
- enjoy greater flexibility in managing their retirement accounts.
Yet, the "Workplace Report on Retirement Planning," a random survey of 504 HR executives commissioned this fall by CIGNA Retirement & Investment Services, found that the new rules are getting little attention in the workplace, where most American make their retirement benefit plan decisions.
The CIGNA survey found that less than one-third of employers (30 percent) have taken action to promote awareness about pension reform and how it affects their employees.
"The economic turbulence we've experienced in recent months has set people on edge about what might happen to their retirement savings," said Thomas C. Jones, president of CIGNA Retirement & Investment Services. "What's troubling is that many employers just aren't ready to help employees understand how they can take full advantage of the positive pension reforms coming in the New Year.
"In a sense, the new law is a holiday gift employers can give to their employees in their benefit plans, the gift of long-term financial well-being and peace of mind. Employees just need to know that the present is there for them to open."
CIGNA recommends that employers start with the following five steps:
1. Provide employees with comprehensive education and communication about the increased savings limits. In 2002, annual deferral limits increase to $11,000 - and then grow $1,000 each year to $15,000 by 2006.
2. Offer targeted information about the "catch-up" provision to workers age 50 and older. The "catch-up" provision allows deferred contributions in excess of the new limits, beginning with $1,000 in 2002 and rising to $5,000 annually by 2006.
3. Clearly communicate the many provisions of the new law that make it easier for workers who change jobs to consolidate their qualified retirement savings in one account.
4. Plan for and promote awareness of the "deemed IRA." Under EGTRRA, employers have the option of adding the "deemed IRA" to their qualified retirement plan starting in 2003, which would provide their employees with an additional tax-deferred savings vehicle for retirement planning.
5. Encourage employees to use the new law as an opportunity to revisit their portfolios to ensure their accounts are well diversified among stocks and bonds - and appropriately targeted to individual time horizons and risk tolerances.
