The 401(k) Is Not Delivering. Employers Are Starting to Admit It

For decades, the defined contribution plan — primarily the 401(k) — has been the primary vehicle through which American workers save for retirement. It replaced the pension as the dominant employer-sponsored retirement benefit. It accumulated trillions of dollars. And by one measure — assets under management — it has been extraordinarily successful.

But a new survey from WTW finds that employers are increasingly asking a harder question: is the 401(k) actually helping people retire? And the answer, for a growing number of plan sponsors, is that they do not know — because they have never defined what a successful retirement outcome looks like.

The WTW 2026 Defined Contribution Survey, based on responses from 547 U.S. employers that sponsor a defined contribution plan, finds that most plans are still measured, governed, and delivered for a different era — one in which accumulation was the goal and retirement was someone else’s problem. That era is ending. The pressure to prove plans work is mounting.

The Definition Problem

Only 60% of plan sponsors surveyed have a working definition of retirement readiness. That means four in ten employers sponsoring a retirement plan for their workforce cannot articulate what a successful retirement outcome looks like — not even in general terms.

Among the 60% who do have a definition, the standards vary considerably. Income replacement — whether the plan will generate enough income to cover essential expenses in retirement — is cited by 40%. Retiring on time is cited by 39%. Retirement confidence is cited by 39%. Sponsors could select more than one option, which means there is no consistent standard even within that group.

This definitional gap is not a minor administrative detail. It is the root cause of what WTW calls the retirement outcomes gap: the structural mismatch between what employers expect their DC plans to deliver and what those plans were built to achieve. You cannot close a gap you have not measured. And you cannot measure a gap you have not defined.

“Employers have invested heavily in retirement programs, but the next challenge is proving these programs are moving employees closer to retirement readiness,” said Chris West, senior managing director and defined contribution strategy leader at WTW.

What Employers Are Being Asked to Deliver

The survey makes clear that expectations for DC plans are rising significantly. Employers are asking their plans to deliver more than ever. Enhancing the employee experience tops the list of plan objectives for the next two years, cited by 69% of sponsors. Improving retirement outcomes comes in at 63%. Three in four employers rank retirement savings as a core or top priority within their total rewards offering.

These are ambitious goals. They are also goals that the traditional DC plan structure — designed primarily to facilitate tax-advantaged accumulation — was not built to achieve on its own. Accumulation is a means to an end. The end is retirement income — predictable, sustainable, and lasting. And most DC plans, as currently designed, stop well short of that destination.

The survey respondents skew large: over 60% hold at least $1 billion in DC plan assets, 42% have 10,000 or more employees, and 72% also manage a defined benefit plan. These are sophisticated plan sponsors with substantial resources and professional oversight. If they are struggling to define and measure retirement readiness, the challenge for smaller plans — without dedicated staff and professional advisors — is considerably greater.

The Pension Ghost

The context behind this survey matters. The 401(k) became the dominant retirement vehicle precisely because it replaced pensions — defined benefit plans that guaranteed a monthly income for life, regardless of market performance or how long the retiree lived. The shift transferred risk from employers to employees. It also transferred complexity — the decisions about how much to save, how to invest, and how to convert savings into income — to people who were not equipped to make them.

That transfer worked reasonably well during the accumulation phase. Auto-enrollment, auto-escalation, and target-date funds have helped more workers save more consistently. But at retirement — when accumulated savings need to become sustainable income — the DC plan largely leaves workers on their own. There is no guaranteed payment. There is no longevity protection. There is only a balance and a decision.

The WTW survey captures what happens when the first generation to retire largely without pensions moves through this system at scale. Employers are discovering that their plans helped people save — and are now uncertain whether that saving will be enough to support a retirement that might last 25 or 30 years.

The Shift Toward Outcomes

The survey identifies four steps WTW recommends for closing the retirement outcomes gap, and each one reflects a shift from process-oriented plan management toward outcome-oriented thinking.

The first is definitional: plan sponsors need to define retirement readiness in measurable terms. Without a target, there is no way to assess progress or identify where the plan is falling short. Income replacement rate — whether the plan will generate enough income to cover essential expenses — is the most outcome-oriented definition, and it is the one most directly connected to whether participants will actually be able to retire.

The second is analytical: using enhanced plan data and AI-enabled analytics to identify where support is needed. Four in five sponsors surveyed said they are willing to leverage AI for data analytics and monitoring. The opportunity is to move from aggregate metrics — average balances, participation rates — to participant-level diagnostics that identify who is on track and who is not, and why.

The third is structural: shifting time and resources from plan administration toward retirement outcomes. One in five employers said they are considering or planning to delegate future delivery of their plan — outsourcing administrative burden so that internal resources can focus on strategy and participant outcomes rather than compliance and operations.

The fourth is relational: extending more personalized support through the transition into retirement. The decumulation phase — converting savings into income — is where most plans currently provide the least guidance. Extending support through this transition is not just good plan design. It is the difference between a plan that accumulates assets and a plan that actually delivers retirement security.

Plan Sponsor Priority (Next 2 Years)	Share Citing It
Enhancing the employee experience	69%
Improving retirement outcomes	63%
Rank retirement savings as core/top priority in total rewards	75%
Willing to leverage AI for analytics and monitoring	80%
Considering outsourcing future plan delivery	20%
Have a working definition of retirement readiness	60%

Why Income Replacement Is the Right Benchmark

Of the three definitions of retirement readiness that plan sponsors cited — income replacement, retiring on time, and retirement confidence — income replacement is the most rigorous and the most directly tied to retirement security. It asks a specific question: will this plan generate enough income to cover essential expenses for as long as the participant lives?

That question leads directly to guaranteed lifetime income. A portfolio withdrawal strategy can generate income — but it cannot guarantee that the income will last. Market downturns, sequence-of-returns risk, and longevity can all cause a withdrawal strategy to fail. Guaranteed income — in the form of annuities, pensions, or income riders on annuity contracts — eliminates that uncertainty. It replaces the question “will my money last?” with the answer: yes, it will, regardless of what markets do or how long you live.

The WTW survey does not prescribe a specific product solution. But the logic of its findings points clearly in one direction. If the goal of a retirement plan is income replacement — generating enough predictable income to cover essential expenses in retirement — then the plans most likely to achieve that goal are the ones that include guaranteed income as a structural component, not an afterthought.

What This Means for Workers

The WTW survey is addressed primarily to plan sponsors — employers responsible for designing and administering retirement plans. But its implications reach directly into the financial lives of the workers those plans are meant to serve.

If your employer’s retirement plan has not defined what retirement readiness means, it has not built a plan designed to get you there. If it has not measured whether participants are on track for income replacement, it does not know whether the plan is working. And if it has not extended personalized support through the transition into retirement, it has left the hardest decisions to the people least equipped to make them alone.

For workers approaching retirement who are relying on a 401(k) as their primary retirement vehicle, the WTW findings are a useful reminder: the plan was built to help you save. The decisions about how to convert those savings into income that lasts — and whether to incorporate guaranteed income into that structure — may require guidance that goes beyond what the plan itself provides.

Source: WTW. Read the original release.