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.