This is an extraordinary finding by WTW. It says a lot about the inability of those paying into so called pensions and the “value for money” calculation!
WTW’s work tells me that the great experiment in providing people with wealth is failing in America as it’s failing in the UK.
A survey of 547 US plan sponsors by advisory firm WTW, the WTW 2026 Defined Contribution Survey, found that 60 percent of sponsors hold a working definition of retirement readiness.
Among those that do, the definition splits fairly evenly across income replacement (40 percent), retiring on time (39 percent) and retirement confidence (39 percent), with sponsors able to select more than one measure.
WTW labels the shortfall between what employers expect and what their plans deliver a “retirement outcomes gap.”
Employers are asking more of these plans than before.
Improving the employee experience (69 percent) and improving retirement outcomes (63 percent) rank as their top objectives for the next two years, the survey found, and three in four sponsors place retirement savings among the core or top priorities in their total rewards package.
Yet many plans remain measured and governed for an earlier era, WTW said, leaving distance between employer ambition and plan design.
“The retirement outcomes gap is a call to action,” said Chris West, WTW’s senior managing director and defined contribution strategy leader.
Employers have poured money into retirement programs, West added, and the task now is to prove those programs are moving workers closer to a timely retirement.
The survey pointed to where plans stall.
Sponsors tend to track plan-level figures such as participation rates but less often break results out by employee group, WTW reported, which can hide gaps in access and saving behaviour.
Half of sponsors said their plan design needs minor or moderate updating, and one in five want to hand off future administration and fiduciary duties so their teams can concentrate on strategy, as per the survey.
Support also tends to thin out at the point of retirement itself, when workers must decide how to turn savings into income.
If we define “value for money” in the terms that matter to large employers (whether American of anywhere else for that matter), then the rate of accumulation is not the only thing that matters.
The American retirement system (the 401K savings plan) has been an experiment which left those retiring with a retirement wage that they could live on. But now these plans are maturing, employers have no idea if they’ve got value for their money. We know that there is an alternative to 401K which pays a pension without the strain of guaranteeing them. Shall we tell them?
Retirement Preparation
In the states, the median tenure of American workers has been less than 5 years for the past 7 decades. For active workers age 50+, median tenure has been < 10 years for the past 5 decades (probably longer). One Labor Department study confirms that American workers, on average (and averages can be deceiving) have had 11 different employers by the time they reach age 50!
So, the WTW study, intended to measure “retirement preparation outcomes”, is a fools errand for the vast majority of employers.
Myself, by the time I reached age 50, I had had 11 different employers, and through today, now age 74, I have had 15 different employers. If you looked at my retirement preparation status at 14 of the 15 different employers through 2024, I would have been determined to be “unprepared”.
Value for Money
“… The American retirement system (the 401K savings plan) has been an experiment which left those retiring with a retirement wage that they could live on. But now these plans are maturing, employers have no idea if they’ve got value for their money. We know that there is an alternative to 401K which pays a pension without the strain of guaranteeing them. Shall we tell them? …”
In today’s 401k marketplace, many, perhaps most of the domestic insurance companies are busy developing guaranteed income products to sell to participants, by suggesting to their plan sponsors that insurance is what workers want. Many designs include defaults that take effect without any affirmative purchase decision by the participants. Keep in mind the mismatch here because of tenure/turnover – where each employer may, or may not, provide access to a retirement savings plan.
Today, America’s retirees who saved in plans/programs like the 401k have been generally successful at managing their finances in retirement – some with, but most without income guarantees.
The Americans retirees whose retirement preparation wasn’t adequate (and the workers who won’t be prepared when they reach traditional retirement ages) are primarily those who did not have access to an employer-sponsored plan for the majority of their working career, AND who failed to save, including, most recently, those who failed to take advantage of a more than adequate, tax preferred retirement savings program, available for the past 44 years – the Individual Retirement Account.
Also, and importantly, you have to remember that the 401k is NOT restricted to retirement preparation.
Too many plans are poorly designed.
Too many plans leak like a sieve – as Congress INTENDED.
Legislation over the last seven or so years liberalized existing and added many new pre-retirement withdrawal options—confirming that Congress believes people should have access to liquidity that is seldom repaid, described as leakage (often defined as in-service and pre-retirement withdrawals prior to age 59 1/2).
Congress added new leakage opportunities with the Bipartisan Budget Act of 2018 which made more assets available for hardship withdrawals, SECURE 2019 which allows for penalty-free withdrawals for birth or adoption, CARES 2020 which eliminated hardship requirements during COVID, CAA 2021which added withdrawal provisions after a federally declared disaster, and the largest of them all, SECURE 2.0 2022. See: https://401kspecialistmag.com/is-congress-mad-are-you/
Most of the plan sponsors WTW surveyed offer many if not most of those leakage opportunities.
More importantly, most of the same plan sponsors have failed to prioritize liquidity that is seldom leakage. Most failed to require their service providers to update repayment processing for the one liquidity option that seldom results in leakage – plan loans. Most plans still use expensive, cumbersome and less than optimal payroll deduction repayment processes … payroll deduction is soooooo 20th Century.
So, while ~90% of plan loans are successfully repaid, almost all of them are plan loans that are repaid prior to separation. And, obversely, ~90% of plan loans default, they are not repaid, resulting in leakage, where repayment is not completed prior to separation – as most 401k service providers don’t facilitate repayment after separation.