Designing a plan to improve employees’ chance at a secure retirement
|Illustration by Sam D’Orazio|
Preparing your employees for retirement is not just a paternal gesture—but it makes good business sense. Not that plan sponsors or employers want to push out their most experienced workers, but it is in a company’s best interest to have employees financially prepared when they are ready to retire.
Studies bear out the unfortunate reality that most employees are not secure in their retirement savings. In fact, only 14% of workers continue to be very confident about having enough money for a comfortable retirement and 38% are just somewhat confident, according to the 22nd annual Retirement Confidence Survey (RCS) from the Employee Benefits Research Institute. Nearly one-quarter (23%) are not at all confident.
The Aging Workforce
There are a number of issues surrounding productivity, efficiency and benefit costs that employers will be dealing with for years as the retirement tsunami continues, with approximately 10,000 Baby Boomers turning age 65 per day, observes Michael J. DiCenso, national practice leader at Gallagher Retirement Services and president of GBS Consulting.
If employees are financially unable to retire, they must delay taking that step and continue to work; many plan to work for the rest of their lives. Forty percent of Americans are concerned they will have to work during retirement to pay for living expenses, and 38% are concerned that they will outlive their retirement savings, according to Scottrade Inc.’s 2012 American Retirement Study. One-quarter of Americans surveyed by COUNTRY Financial must delay their retirement by three years or more, and a majority (55%) expect to take a part-time job during retirement to augment their savings.
However, employees’ plans to work longer are not always viable. Fifty percent of retirees surveyed for the Retirement Confidence Survey (RCS) from the Employee Benefits Research Institute indicated they were forced to retire before they planned, due to poor health, disability or a company downsizing or closure.
For employers, if those workers try to remain in their existing jobs, there are many repercussions, from a fiscal and human resources perspective.
According to DiCenso, challenges also arise from a fiduciary (and potentially ethical) standpoint: Can financially-strapped companies afford these benefit costs, take a reduction in profit and keep the rest of employees employed? Furthermore, older, longer-serviced employees are usually paid more, so if they do not retire it may constrain the organization’s ability to hire.
Many employees are not only reluctant to retire for financial reasons but also are concerned about losing the workplace interaction. For example, in the not-for-profit world, employees are following a vocational path that is as much a passion as a career, says Ed Moslander, senior vice president of Institutional Sales & Service at TIAA-CREF. This is true in the health care industry, charities and especially in higher education. The community tie in college towns is strong, and very often higher-education employees have a strong loyalty and identity with their department, as well as the school, Moslander says.
However, Moslander says, institutions must refresh intellectually and creatively, and that means bringing in newer (not just younger) staff, with different experiences. George Castineiras, senior vice president of Total Retirement Solutions at Prudential Financial, agrees that older employees remaining in the workforce block opportunities for newer generations. Millennials, unlike the older workforce, grew up with a high level of technology; so employers want Millennials to get the opportunity to join their companies.
Not only do plan sponsors want their employees to be able to retire, to refresh the employee pool, but as Castineiras believes, if older employees are ready to retire and realize they lack the money and must continue to work, they may become angry with employers they feel did not help them prepare sufficiently, which could lead to a litigation risk that the industry will see in time.