Half the battle in winning over workers is knowing what they value and what scares them. One study addresses both.

More and more workers worry about their benefits, and especially about retirement accounts, according to a nationwide eight-year study by benefits consultant Mercer. The corollary is that more and more workers are loyal to an employer whose benefits package addresses worker concerns.

Here’s a snapshot of what came out of the Mercer poll:

• Retirement. The number of workers who said they were worried about saving enough for retirement jumped by about 50% between 2008 and 2011. Even among workers under age 50, the number who said they’d probably delay retirement went up by about 50% during the same period. Reflecting their concerns, workers this year expect to put an average of $7,763 into their retirement accounts in 2011, up from $6,440 last year.
• Job security. Even during just the last year, the number of employees who expressed worry over their job security went up by about 25%. It appears that in 2010, a lot of workers thought the economy would get better by now. Because it hasn’t, they’re more worried about whether they’ll have a job tomorrow.
• Importance of benefits. Almost four out of five employees (79%) in 2011 said benefits are one of the main reasons for choosing and staying with an employer. That’s a 4-percentage-point jump over an already high number who had the same response in 2010. As you might expect, respondents were especially tied to the importance of employer-provided health benefits; 86% said what they pay out-of-pocket for their health benefits, including premiums, is probably or definitely worth it for the coverage they get.

What it all means

Based on the data, employees clearly put a lot of stock — and a lot of loyalty — in employers that offer:

• Good retirement plans, via 401(k)s or other accounts
• An environment in which management makes decisions based not just on generating short-term profits but also on the long-term financial security of the company, and
• A solid — if not lavish — benefits package that’s attractive enough that workers won’t dwell on missed pay raises or other salary concerns.

Related story: Do you offer this in your 401(k) mix? Why you should.

Specifically, your Payroll and Benefits folks will want to take note.

That’s because IRS just announced it’s increasing pension plan limits for a whole slew of plans that help employees save for their golden years. And no matter which type your company currently offers, of what type of business you’re in, chances are you’re going to be impacted.

Year-end will be here before you know it. And considering that it’s your finance folks’ busiest time of the year, you want to make sure this info makes it into your CFO’s hands ASAP.

Here’s what’s in store for you (and your employees) come Jan. 1:

• The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2012 to $50,000 (from $49,000).
• The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased by  $500 to $17,000.
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased to $165,000 (up $5,000).
• The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased to $115,000 (from $110,000).
• The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased by $15,000 to $375,000.
• The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased to $17,000 (vs. $16,500 in 2011).

However, a few things stay the same:

• The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550.
• The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $11,500.
• The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals age 50 or over remains unchanged at $5,500.
• The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals age 50 or over remains unchanged at $2,500.

Cite: IR-2011-103, 10/20/11.

The U.S. Senate is taking a look at a bill that would allow automatic enrollment in an IRA for workers whose employers meet certain conditions. If approved, the bill would contain the following stipulations:

• Firms with more than 10 employees that do not already offer retirement plans would have to establish individual retirement account (IRA) enrollment programs. Employees would be able to contribute to these IRAs on a voluntary basis through automatic payroll deductions. Employers would get a $250 tax credit for each of the first two years of the program’s operation to offset costs associated with its establishment.
• A four-year phase-in period would be established for employers that do not already offer qualified retirement plans. In the first year, the provision would apply only to firms with 100 or more employees (counting employees who earned more than $5,000 in the prior year); in the second year, 50 or more; in the third, 25 or more; and in the fourth, 10 or more. An employer with fewer employees could opt in at any time.
• The automatic enrollment requirement would not apply to employers who have been in business for less than two years. Governmental or religious organizations would be exempt as well.
• Employees who take part in the voluntary enrollment program must be at least 18 years old and have been employed for at least three months.
• Failure to comply with the automatic IRA program would result in an excise tax of $100 for each employee who was supposed to be covered. Employers that make unintentional mistakes would have the opportunity to self-correct.
• Employers would contribute a default percentage of 3% (or another amount to be set via regulation) of an employee’s paycheck into the employee’s Auto IRA account.
• Employees would have the choice of contributing to either a traditional IRA or a Roth IRA. If no choice is made, automatic IRA accounts would be established, by default, as Roth IRA accounts. The bill would direct the Treasury Department to create a website to help employers locate appropriate providers. In the alternative, the employer could allow each individual employee to send contributions to an IRA provider selected by the employee.
• An employer would be prohibited from self-dealing, and would be required to transmit the employee contributions by the end of the month following the month in which the cash is paid if it hasn’t been contributed to the Auto IRA. Employers that fail to do so would be subject to an excise tax.
• Employers would have no fiduciary liability under the Employee Retirement Income Security Act (ERISA) if they use a provider that is on a list of approved providers or use retirement bonds. An employer’s sole disclosure responsibility would be to provide the employee with a standardized form explaining the program and investment decisions.
• A small employer that adopts a new qualified plan would be entitled to a tax credit of up to $1,000 or 50% of the employer’s start-up costs, whichever is the lesser amount. This credit would be available for up to three years.
• Automatic enrollment plans would not be subject to employer matching contributions.

To see more details and a summary of the bill — “Automatic IRA Act of 2011,” S. 1557 — go here.

If your company is promoting automatic enrollment in a 401(k) — or is thinking about it — you may want to think again.

A report commissioned by The Wall Street Journal and benefits consultant EBRI exposes a hole in the idea that auto-enroll pumps up investments in company retirement plans. In fact, the opposite could be true.

The report — drawn from investment data on 20 million people over 11 years — shows about 40% of new hires at companies with automatic enrollments are investing less money in their 401(k)s than they would if left to enroll voluntarily.

Why?

The problem is one illustrated by simple math: More than two-thirds of companies that use auto-enroll set their default contribution rates at 3% of salary or less. That’s compared to the typical investment rate of 5% to 10% when done on a voluntary basis. According to the study, 40% of new workers who fell under auto-enroll would have picked a higher savings rate than the company assigned to them.

How about ‘auto-escalation’?
Couldn’t an auto-enroll program have a greater effect with the inclusion of an “auto-escalation” feature that increases employee savings rates by a set amount, typically one percentage point a year? Another EBRI study answered: probably not. Depending on their incomes, 54% to 73% of employees would fall short of amassing enough money to retire if they were auto-enrolled at the typically low default-contribution rate and were auto-escalated by 1% a year to a maximum of 6%.

Status of 401(k)s
Right now, about 57% of large companies auto-enroll all new employees in 401(k) plans, up from 24% in 2006, according to benefits manager Aon Hewitt. The participation rate among auto-enroll employers is 85%, compared with 67% for those without auto-enroll.

Still, 401(k) average savings rates have fallen in recent years. Among plans Aon Hewitt manages, the average contribution rate declined to 7.3% in 2010, from 7.9% in 2006. The Vanguard Group report average contribution rates at its plans fell to 6.8% in 2010, from 7.3% in 2006. Over the same period, Fidelity Investments’ defined contribution plans decreased to 8.2%, from 8.9%.

What to do?
So should you promote auto-enroll at your company? One way to decide is to have your benefits manager run your own numbers and see if contribution totals have gone up or down since the inception of auto-enroll at your company. Or, if you’re considering auto-enroll, compare past numbers under voluntary programs with the totals under automatic enrollment. It could be that in your micro-situation, the investment numbers rise or at least hold steady.

In any case, as the studies shows, it’s misguided to assume that 401(k) auto-enroll results in (401(k) auto-success.

The study looks at, among other aspects of retirement,  spending patterns and how much savings people need to fund those spending habits. The good news: If you’re like most people, and you’ve used the services of a financial planner or retirement calculator, you might be socking away too much. Here’s why:

The typical retirement-planning calculator uses your last working year’s income as the base for your first year of retirement spending and then adjusts that estimate up every year by the inflation rate.  In other words, if your income in the last year you worked was $100,000, the calculator sets that as the income you’ll need in the first year of retirement and adds a percentage each year based on inflation. If inflation is 3% after the first year, you’ll need $103,000, and so on.

That’s bad planning, according to the study, because the method assumes expenses are stable over time. They’re not.

In fact, retirement spending actually declines over time. Here’s the breakdown of annual spending by the average household in 2008:

• Between the ages of 55 and 64 — $54,783
• 65 and 74 — $41,433
• Over 75 — $31,692

That’s a 42% drop in spending as a person ages.  Food, housing and clothing  use up less income as time passes. Entertainment spending falls by about 65%. Tax liability begins to approach zero.

Here’s the bad part, or at least the part you should prepare for: Most people spend more than they expect in the first few years of retirement. That early period is typically when people feel healthy and able to travel and follow other pursuits that put a dent in retirement savings.  The study outlines the common four-part spending pattern over the retirement years:

1. Early retirement:  travel, home improvement, hobbies, and new wardrobes can raise expenses beyond workday levels.
2. Midretirement: the initial spending rush slows.
3. Late retirement: spending and physical activity slow even more.
4. End of life: spending for health care and personal assistance use up the bulk of your cash.

The summary of the report: Don’t expect your spending and expenses to drop right after you retire, unless you make a conscious effort to lower them. Do expect spending and expenses to drop as time goes on.

To start things off, the Government Accountability Office released figures showing about six out of every 10 low-income workers have almost no retirement savings and only about two out of every 10 workers in general have retirement accounts with their employers.  President Obama and some members of Congress want to change that by requiring businesses to enroll workers in the equivalent of a Roth IRA — but with a small tax credit — funded by payroll deductions.

Workers could opt-out of the plan, and businesses wouldn’t be required to make any matching contributions. What would be required of businesses: administration and recordkeeping for eligible employees in the plan, including contract workers.

The National Small Business Association has voiced its objections to the plan, mainly that it adds to the costs of doing business, especially for companies that right now don’t have a direct-deposit setup and don’t farm out payroll services.

President Obama has big plans for changing company-sponsored retirement plans, especially for small businesses.

The Administration’s latest initiative would expand automatic enrollment in 401(k)s and other retirement savings plans to make it easier for companies – especially those smaller and midsize firms lagging behind their larger counterparts – to sign up their workers and decide whether and how much they should save for retirement.

Under these plans, employers deposit a set percentage of each employee’s paychecks into his or her retirement account – unless the worker opts out, or chooses to invest a different amount. President Obama’s initiative will make it easier for employers of all sizes to adopt automatic enrollment by allowing them to rely on pre-approved language issued by IRS. Currently, plan sponsors typically must first get the agency’s written approval to amend their plans.

Here are two more features that may cause employee concern:

1. “Escalator” contributions. Employers will be able to gradually increase employees’ contributions over time, according to the plan design. Companies can set the increase amount, which will probably send unhappy workers scurrying to HR’s door to opt out, once they notice their paychecks shrinking. The just-released Revenue Ruling 2009-30 explains this so-called escalator feature.

2. Conversion of unused leave time into 401(k) contributions. Employers can set up plans to allow workers to convert certain leave time (e.g., current employees with expiring leave or those terminating with unused time) into contributions – and still comply with the complex plan regs. (See Revenue Ruling 2009-31 and Revenue Ruling 2009-32. ) The guidance also discusses when the amounts should be included in the former worker’s gross income. While this conversion option may appeal to higher-ups who can afford to save more, many rank-and-file employees leaving their jobs would probably still rather receive substantial cash payments.

So why the changes?

While these ideas may not excite cash-strapped workers, recent research has found automatic enrollment programs go a long way toward helping the nearly 78 million Americans who don’t have a retirement savings plan at work. The Administration says there’s a clear need because fewer than 10% of those without a plan at work formally save for retirement on their own.

For example, a 2009 survey by the Vanguard Group released last month found that automatic enrollment boosts participation dramatically. In fact, plans that offered the option had an overall participation rate of 84% last year, compared with 60% for plans that didn’t offer it. An earlier study by Hewitt Associates yielded similar results.

You can look here to read the Treasury and IRS rulings and materials, including more info on other savings options such as using federal tax refunds to purchase savings bonds.