As providers and plan sponsors, we must be champions for preserving and improving the private retirement savings system and encourage employees to participate fully. It is essential for legislators, regulators and industry leaders to work together to simplify—not complicate—the system and make it easier for people to succeed instead of creating barriers to victory.
Preserve What’s Working
We must preserve—rather than abolish—incentives for savers so they want to contribute to their employer-sponsored plans, including favorable tax treatment. Reducing participants’ taxable income today, with before-tax deferrals, is a key advantage to saving in an employer-sponsored plan. Savings aren’t completely tax free. Taxes are simply deferred until distribution. Offering a Roth IRA investment option also gives participants the choice of paying taxes on those contributions now instead of paying taxes later when they retire. Imposing limits on tax-advantaged savings creates barriers, adds complexity and promotes a false notion that a certain amount of savings is sufficient.
Enhanced plan education and communication that addresses the needs of a diverse workforce and encourages participants to accumulate enough assets to take them through their retirement years are powerful tools in a plan sponsor’s offering. Potential fiduciary requirements that may disrupt service and education offered by providers could force savers to switch to higher cost, unknown resources for retirement guidance at critical life stages, like a separation from service or job change. Offering education, including one-on-one communication, is a primary way to help participants stay on track through all life stages.
Improve What We Have Now
While we’ve come far as an industry to create solutions that enhance employer-sponsored plans, we need to continue to innovate and make it easier for people to see the value in saving in their plans and truly help them achieve retirement readiness. Let’s consider some areas for improvement.
Transparency and Fee Disclosure
Helping participants understand the value of all the services associated with their retirement plan requires transparency and education that connects costs with the full benefits they receive. It’s important for providers and plan sponsors to work together to help participants realize that not all plans are the same. The investments, plan services and educational programs a participant receives may differ significantly from one plan to another. Plan sponsors need to understand the variables to determine with confidence that plan costs are reasonable, and then effectively communicate to participants the value of the retirement plan offering. Education through disclosure can empower participants and help them make more informed investment and savings decisions.
Providers and plan sponsors must make it easy for employees to understand their investment and plan options. Participant decisions that directly affect their retirement readiness begin at the first step, enrolling in the plan. Other decisions including deciding how much to save and selecting investments can be overwhelming for savers. Offering access to IRAs for savings power boosts and plan features such as automatic enrollment, automatic escalation and auto re-enrollment can help to simplify the savings process. When fully participating is the automatic path and opting out requires an active decision, plan features will overcome some of the traditional obstacles to saving.
Participants need a realistic, tangible understanding of what their monthly income will be at the time of retirement. Illustrations can help participants understand what they’ll need to save so their monthly income meets their needs throughout their retirement years. The entire financial services industry has focused on accumulation for the past 20 years. Now it’s equally important to have a strategy for converting savings into an income stream. Options include guaranteed withdrawal benefits, lifetime income features and principal protection strategies. Participants may also benefit from dedicating a portion of their contributions to in-plan guaranteed options that offer financial protection of an income stream coupled with growth potential.
While online advances in video, mobile and social media have made it convenient and faster than ever to deliver messages, research shows participants continue to value one-on-one, in person meetings with financial professionals. Some plan providers offer access to dedicated retirement consultants who meet one-on-one with participants and help them understand the benefits of their retirement plan. Research of Lincoln Financial’s plan participants shows that the average deferral rate among participants that meet with a retirement consultant is 8.4%, versus 5.9% for those that have not.
Moving Forward Together
We need to offer retirement savings plans with features that encourage full participation. We believe in an optimistic approach to motivating savers and intentionally design our programs to help people take charge of their retirement planning through positive encouragement and reinforcement. As an industry, we must pledge our leadership and work together to simplify the system and make it easier for people to succeed. If you’re looking for a reason to be motivated and optimistic, remember why we do this. We’re committed to offering plans that are aligned to your total rewards strategy, attract and retain top talent, and boost the retirement readiness of all savers.
By Chuck Cornelio, President, Retirement Plan Services, Lincoln Financial Group
Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affliates.NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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