PLANSPONSOR Roadmap: Elements of a Retirement Tier

Plan sponsors looking to better serve participants nearing and entering retirement should begin adopting a “retirement tier” strategy, according to speakers at the first session of the Plan Sponsor Roadmap Series livestream held August 27.

The first of a four-part series, the session explored practical approaches for plan sponsors to support employees as they transition from saving in a plan to spending in retirement.

A full recording of the webinar can be viewed here.

The ‘Retirement Tier’ Concept

Karen Witham, vice president of committees and communications at the Defined Contribution Institutional Investment Association, defined the retirement tier as “a range of product solutions, tools and services that allow a plan sponsor to broaden the goal from being wholly focused on savings to also one that accommodates and supports participants who are near entering or in retirement.”

Rather than a one-size-fits-all approach, Witham emphasized flexibility, encouraging sponsors to avoid paralysis by perfection.

“Starting the conversation and doing something is better than doing nothing,” she said, noting that many plans already offer components that qualify as part of a retirement tier.

Key first steps include deciding whether to encourage retirees to stay in the plan and ensuring recordkeeper integration.

TVA’s Vision

Colby Carter, managing counsel at the Tennessee Valley Authority Retirement System, shared the TVA’s five-year journey toward a holistic retirement plan vision. The TVA manages both pension and 401(k) benefits for its workforce, although about 90% of employees currently have a 401(k) plan for most or all of their retirement savings. The authority sought to ensure that employees in its primarily defined contribution structure are “just as prepared for retirement” as those with pensions.

TVA’s strategy included:

• Comprehensive contribution and distribution options: from pre-tax, Roth and after-tax contributions to systematic withdrawals and required minimum distribution support;
• Investment innovations: in-plan guaranteed income solutions integrated into target-retirement portfolios and other options such as target–date funds and managed accounts to ensure TVA “had everything that was possible to help participants”; and
• Personalized guidance: enhanced education and one-on-one advice to help participants navigate retirement decisions.

Carter credited partnerships between consultants, investment managers and recordkeepers for making these offerings possible, though he acknowledged the challenges of coordination.

“There’s a lot of cooks in the kitchen, and that’s not always a good thing, but in this case, you need it,” Carter said. “It’s about asking the right questions, having patience [and] giving yourselves a lot of runway as far as time to be able to do it.”

Advisers’ Perspective

Jason Chepenik, senior vice president of retirement and wealth at OneDigital, urged plan sponsors to elevate their committees’ focus from investments to participant outcomes.

Chepenik said that when a client still refers to their stakeholders or decision-making groups as an “investment committee,” he quickly corrects them by changing the name to “retirement committee.” He makes the change because “it isn’t about reviewing the investments,” it is about making sure the retirement plan is working the best for employees, retirees and beneficiaries.

Chepenik encouraged sponsors to define their milestones for success, focus on plan design flexibility and prioritize both education and personalized communication.

Communication, Technology and Trust

Witham stressed the importance of aligning investment policy statements with a retirement focus, as well as using data, surveys and peer groups to better understand participant needs. She recommended utilizing employee resource groups for near-retirees to foster a community related to retirement planning.

The panel also discussed the emerging role of artificial intelligence in modeling plan distributions, improving managed account services and delivering tailored advice, while emphasizing the irreplaceable value of trust and authenticity.

While they agreed that technology, including artificial intelligence, will become increasingly important as it continues to evolve, employers should continue connecting with participants in an authentic manner that continues to foster a culture of trust to further engagement in their plans.

Chepenik said AI “is and will continue to be a very important component of investment management, risk management idea–generating, and messaging.”