Senior Executives Give Current 401(k) System a “B” Grade, Say Workplace Education is Key to Improvement

Charles Schwab, in collaboration with CFO Research Services, today released the details of a new study “Getting Retirement Savings Back on Track: Employer Views on the 401(k) and Financial Education in the Workplace,” which reveals that a majority of senior finance and human resource executives in corporate America support the 401(k) as an effective savings tool for retirement. According to the study, employers believe they play a role in improving the 401(k) as a benefit for employees, including making 401(k)-specific and general financial education more available in the workplace.

More than 200 senior finance and human resources executives from large companies in various industries across the nation were questioned about their perceptions of 401(k) plans and the role companies should play in helping their employees plan for retirement. Key findings include:

• Eighty percent think greater access to 401(k) investment planning advice is more important for employees now than it was a year ago.
• Two-thirds (66%) believe that making broader financial education in the workplace is more important for employees now than a year ago.
• Despite negative performance, 51 percent of executives report no change in their 401(k) plan participation rate.
• Sixty-three percent say employee concerns over personal finances are creating a more difficult work environment.

According to the study, nearly nine in 10 (88%) of executives report that employees within five years of retirement are very concerned about the adequacy of their retirement planning and more than half of respondents (58%) believe that employees losing confidence in the 401(k) plan is one of the most significant challenges their company will face in the coming year relative to retirement planning.

“Executives recognize that their employees are more anxious about their retirement prospects, and not surprisingly, that apprehension is felt more deeply by those who are closer to retirement,” noted Steve Anderson, head of retirement plan services at Charles Schwab. “But what we have found both in this study and through our interactions with companies as a retirement plan provider is that today, employers are more prepared -- and more committed -- to playing a lead role in providing people with access to financial education.”

When asked about the importance of different 401(k) plan features, 87 percent of employers say that offering 401(k) investment advice was important to their company’s retirement plan – second in importance only to offering a company matching contribution (96%). In addition, 57 percent of respondents report that employee requests for 401(k) advice have increased since September 2008, and 39 percent say that employee requests for broader financial education, such as budgeting and debt management, have increased during the same time period.

Employers Grade 401(k) a “B”

Executives in the survey give little indication that the weak economy or losses in investment value necessitate any widespread changes to 401(k) plans. Respondents report confidence in the underlying structure of their 401(k) plans and believe recent account value losses are linked primarily to the performance of the overall economy, as opposed to problems with the current 401(k) system. When asked to grade the 401(k), a majority of executives surveyed (56%) give the current system a “B”, affirming that it is working and needs only slight improvements. (See Figure 1 below)

Proposed Changes to Improve Americans’ Retirement Savings

While the employers surveyed express faith in the fundamentals of the 401(k) system, they also acknowledge that economic troubles have generated more concern among employees and exposed the need for improvements.

According to the study:

• Seventy-six percent of respondents said that making investment advice for 401(k) plans more available in the workplace will have a positive impact on employees.
• One quarter (25%) are already offering more individualized 401(k) advice to employees in place of broader 401(k) education campaigns, educational brochures and workplace group meetings.
• Employers surveyed also show commitment going forward to some existing 401(k) plan features. Seventy-six percent say target-date retirement funds are an important feature to offer in plans, and 66 percent say that automatically enrolling employees into a plan when they are hired is important.
• When asked to rate the importance of different factors when evaluating a 401(k) plan provider, employers top three items are financial stability of the plan provider (91%), quality of investment choices available (88%), and mix of investment choices available (84%).

“Consistent with what we are seeing among our own plan sponsor clients, the employers participating in the study and their employees have a very level-headed approach to the 401(k) despite market turmoil,” added Anderson. “Employers believe that the 401(k) will continue to be one of the most important tools people have at their disposal to save for retirement.”

The full study is available at http://www.aboutschwab.com/press/research/index.html.

About “Getting Retirement Savings Back on Track: Employer Views on the 401(k) and Financial Educations in the Workplace”

In March and April 2009, CFO Research Services conducted an online survey and gathered a total of 219 responses from senior finance and human resources executives at companies ranging from $100 million to more than $10 billion in revenue. Respondents work for companies in a broad cross-section of industries, with the manufacturing and wholesale/retail trade industries particularly well represented. More than half of the respondents worked for companies with more than 1,000 employees eligible for participation in their 401(k) plans.

About CFO Research

CFO Research Services is the sponsored research group within CFO Publishing Corporation, which produces CFO magazine. CFO Publishing is part of The Economist Group. CFO Research Services is not affiliated with Charles Schwab & Co., Inc.

About Charles Schwab

The Charles Schwab Corporation (Nasdaq:SCHW) is a leading provider of financial services, with more than 300 offices and 7.5 million client brokerage accounts, 1.5 million corporate retirement plan participants, 567,000 banking accounts, and $1.2 trillion in client assets as of May 31, 2009. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services business segment. The Charles Schwab Bank (member FDIC) provides banking and lending services and products. More information is available at www.schwab.com. (0609-9577)

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Charles Schwab
Michael Cianfrocca, 415-667-0344
michael.cianfrocca@schwab.com
or
Intermarket Communications
Clayton McGratty, 212-754-5425
cmcgratty@intermarket.com