September 20, 2013 (PLANSPONSOR.com) – Plan sponsors have learned their roles for Act I of the retirement readiness program, so now it’s time for Act II.
sponsors and advisers do not pay enough attention to the critical moments of
employees’ transition into retirement, contended Jerry Patterson, senior vice
president of Retirement & Investor Service at Principal Financial Group,
speaking to attendees of the Plan Sponsor Council of America’s (PSCA’s) 66th
Annual Conference in Scottsdale, Arizona.
pointed out that plan sponsors have learned that people do not like giving up
stuff, but they will often give in to “loss later” if they feel they are doing
something responsible now. People don’t like to be “caught” doing something
irresponsible, so the “opt-out” system of automatic enrollment—in which the
employer will know if the employee is being irresponsible—is a key to getting
people to save.
this is Act I in retirement readiness, he said; an effective transition must be
included in the discussion about retirement readiness.
to Patterson, most people do not know what they will do in retirement, and they
don’t know how to budget for what they will do. Principal’s research found most
participants intend not to touch their defined contribution retirement plan
assets until they have to, and preretirees are desperate for education and
advice. He suggested plan sponsors should make retirement transition help a
part of employees’ benefits package.
not just about what to do with their employer-sponsored retirement plan,
Patterson said. The retirement transition benefit should be a planning event to
consider an employee’s financial picture without a steady paycheck, look at
potential setbacks and evaluate what protections employees have.
“Just drifting into
retirement is scary,” Patterson concluded.