Table of Contents | Published in April 1999

Who Will Answer to Employees in the 2020s?

Communication connection: It's the Internet, stupid!

By PS | April 1999

Communication connection: It's the Internet, stupid!

Michael J Gulotta
ASA, Inc.

Over the years, surveys have found that people become very concerned with retirement as they approach their 50s. During the next two decades, the boomers will cross that threshold; the older ones will reach age 66, qualifying for full Social Security benefits by the 2020s. Millions of these participants will be at the age where they are more attentive to their retirement benefits than they have ever been in the past. And they will have questions. The ones who have been actively involved in managing their 401(k) portfolios will be paying a lot more attention to their pension plans. And those who have not focused on either will suddenly want loads of information on both. There is no question that information will be available. The question is: Will participants be able to understand it?

Most retiree information and education today is geared toward the retiree whose long career was with one employer before leaving the workforce. But the boomers who did not work their entire careers with one employer may find themselves beneficiaries of shorter vesting rules and drawing pension payments from two or three employers and 401(k) payments from an even larger number. Because of their career diversity, they will have less familiarity with any one plan and need more information and assistance from each plan in which they participated.

Plan sponsors can expect a higher volume of inquiries and requests for information than they may have been accustomed to in the past--letters, phone calls, e-mails, and even personal visits. These inquiries will go either to the benefits office or to a vendor, especially if benefits administration has been outsourced.

Employees will want to become more informed as they recognize that the burden of making decisions with respect to being financially prepared to face their retirement is shifting largely to them. To no one's surprise, we will see an increasing reliance on technology to provide crucial information concerning retirement. Plan sponsors will strive to assure that employees understand their plans to the fullest. The educational needs of participants are already changing the way plan sponsors behave.

One example of a company poised for the future is AT&T, whose "Life Tracks" program provides educational materials based on employees' life events. At its core, this approach shifts the focus in communications from looking at a specific benefit (the pension, savings plan, health insurance, etc.) to looking across all benefits based on events such as marriage, illness, death, and retirement, as they occur in employees' lives.

We helped AT&T develop an innovative approach that said, in essence, "It will be more effective to deliver the employee to the information/data instead of the other way round." We created a Web-site approach with graphics that mimic transportation routing maps that guide, or "path," employees to the specific information or transaction that they need based on the events occurring in their lives.

No changes were made to the company's core Web sites which were set up by corporate function, such as the pension, savings plan, health benefits, and personnel guide. Knowledgeable employees who want to go directly to the pension or health site continue to do so in the way they always have. But now there is an alternative method of accessing information or performing transactions based on the specific events occurring in life. Using such events as the starting point, Life Tracks directs employees among the other sites, literally leading them on a guided tour of just the specific information or transaction that they need from each site. The Life Tracks site functions as an alternative gateway or entry point for the delivery of participants to information and transactions on other Web sites, including those maintained by benefits vendors. The employee response to Life Tracks has been overwhelmingly positive, and AT&T is expanding the number of events it covers.

Obviously, today's forward-thinking companies have moved beyond the stage of simply posting information on the intranet and using the Web for enrollments and transactions. They are already changing the way they think about communicating to and educating their plan participants. But greater changes are coming. Over the next two decades, the demand for information will increase significantly across every aspect of participant education. A mobile workforce will be monitoring retirement assets gathered from multiple employers, creating a demand for transparency of information from company to company. High-tech solutions create the need for training among older workers generally unused--if not actually averse--to technology. The importance of retirement saving will become so generally recognized that the entire workforce--the young as well as the mature--will demand more and better information about it.

One trend we observe is education programs that exploit Internet technology to address comprehensive information needs of employees, from saving for retirement to buying a house. This new way to look at participant education goes beyond pie charts and online account statements to furnishing comprehensive assistance for meeting all of life's financial goals. This kind of integrated, employee-focused information, we believe, will transform participant education from looking backward at investment averages to looking forward to building a strong individual financial foundation.

Two-prong approach
With "old-school" workers due to retire in the next 10 to 20 years and the new breed of worker whose education is already technology-based, we conceivably could see the need for two levels of communication--one aimed at the older, less technologically astute or adept employee; the other, targeting the junior-level worker more comfortable in cyberspace than in office space. Some plan sponsors may opt for technological training for the older employee. Notable will be the change in interest and focus on the part of the younger worker. Today, it is still difficult to get younger people to think about their retirement needs. In the near future, with the proliferation of easy-to-understand as well as portable plans, such as cash balance, combined with the shift to employees becoming more accountable for their investment and savings decisions--and more proficient in their use of technology--we will see the face of pension planning transformed.

The up-and-comers will bring their knowledge of their pension plan holdings to bear as they consider a range of investment choices in their plans as well as opportunities to build wealth from their earnings for everything from participating in the stock market to buying a home to preparing for their own or their children's future education.

Moreover, Social Security and Medicare will likely look very different than they do today. Social Security reform may lead to government-sponsored individual investment accounts and Medicare reform may increase the interdependence between company-sponsored retiree health benefits and Medicare. Whatever the actual changes, employers probably will find that they have incentives to integrate Social Security and Medicare information into the educational materials they provide employees.

Tomorrow's participant/retiree will require the corporation and its vendors to expand beyond the traditional benefits-information/transaction role they currently fill. Plan sponsors will find their participants demanding not only more plan information, but also different kinds of education as they transform into benefit payees or recipients of large lump sums. Today we are seeing significant assets flowing into retirement plans. Near-term, these inflows are likely to continue to rise. But starting in the 2010s as the boomer cadre passes through ages 59 1/2 to 70 1/2, the flow of retirement funds will slowly reverse and funds will begin flowing out. What will happen to the economy and the stock market then? What will happen to the value of the stock of companies that have encouraged heavy employee ownership through retirement plans?

Yesterday's retirees relied primarily on annuities from a defined benefit plan. But many boomer retirees will be relying on funds from a defined contribution plan. With the rapid growth of these accounts, companies and vendors are focusing on educating employees about how to invest and allocate their assets. As the number of participants wanting to withdraw funds grows over the coming years, plan sponsors will have a very strong incentive to educate them about how to liquidate or take distribution of those assets in an orderly and sensible fashion, reminding them, of course, to pay attention to tax consequences, penalties, and investment alternatives.

Many of these plans offer a company stock investment option, and it is not uncommon for participants in these plans to weight their portfolios heavily with company stock. Such participants are more heavily invested in a company and its performance after their retirement than those receiving annuities alone. They will need and demand a different level of information and education than either previous retirees or other stockholders.

Where will they get this information--human resources? treasury? investor relations? Or somewhere outside the company? While the answer may be any or all of the above, the changes that occur in technology will provide additional alternatives. Both companies and vendors are delivering educational and transactional information very differently from a decade ago. Daily transaction processing and interactive voice response were leading-edge technologies in 1990. Who could have foreseen then the extent to which information would be delivered and transactions processed through the Web?

At their fingertips
Many companies already recognize that technology allows them to move the education and information to an employee/retiree self-service model, with the Inter/intranet handling the majority of this activity online and corporate staff or outside administration vendors playing a supporting role. From individual account activity and educational information to pension SPDs, the information is accessible to the employees when they need it, where they need it--whether that be from the office, home, or the road.

With hindsight in 2020, we may look back at today's information superhighway and find it analogous to the early days of television. The first programming for the new medium was based on live radio or live theater. It took time for programming to evolve specifically for television (although I'm not sure evolution is the right word for what has happened to the programming). Some futurists suggest we are on the brink of an even bigger change or paradigm shift. In any case, as the technology evolves, companies will find new "programming" approaches for educating participants.

Crystal ball gazing
Continuing to look deep into my crystal ball, I see plan participants sitting in the comfort of their homes working at personal electronic media stations. What are they doing? Are they applying for retirement? Are they figuring out whether to liquidate mutual fund shares or company stock from their 401(k)s? Are they looking at the benefits offered by companies that they might want to freelance for today? Or are they just watching one of 1,500 channels of TV? Whatever the answer, they will expect to find the information they need, get answers to their questions, and transact the business of their lives more quickly and efficiently than ever before (whether from their bank, a retailer, or the sponsor of their retirement plan).

While I have tried to predict what will happen 10 to 20 years in the future, the pace of technological change may continue to accelerate and allow it to happen within the next three or four years. While tomorrow's plan sponsors may work in a world we can hardly imagine today, it seems safe to say they will face ever-greater demands for faster information, transactions, and accountability from the employees and retirees they will serve.

Michael J Gulotta is president and chief executive officer with ASA, Inc., a Somerset, New Jersey-based employee benefits consulting firm. Prior to the establishment of ASA in 1985, Gulotta was chief actuary at AT&T, where he was responsible for the actuarial allocation of the $54 billion of pension fund assets of the former Bell System pension plans.