“We don’t always have a specific target to measure success,” which is a drawback for plan sponsors and participants, Musto said. The definition of a successful retirement plan “is different for participants, sponsors and providers” but should be centered on an adequate “income replacement ratio,” he said. The most critical factor this hinges on is “making sure people are saving enough,” Musto said.
“The burden for retirement has fallen 100% on individuals,” added Joe Ready, executive vice president at Wells Fargo Institutional Retirement and Trust. That burden “should be shared” by providers, plan sponsors and retirement plan advisers, Ready said.
Sponsors and providers must approach different age groups differently, said Elaine Sarsynski, executive vice president of MassMutual Retirement Services Division and chairman of MassMutual International. “For the 75 million Gen Y’ers, if we can start that group saving 10% of their income for 40 years, they will have saved enough, assuming a 6% average return,” she said. “For Gen X in the 36 to 48 age group, we can still do a lot to help them with retirement readiness. When we get to the 78 million Boomers, I would agree with the legislators that we don’t have enough time. That discussion should focus on retirement income, insurance and critical care. The Silent Generation is a completely different discussion. For the two million people over the age of 90, their average income is $15,300, at the poverty level.”
“Connect the emotion to the money,” Musto said. “Show a 55-year-old how much others their age have saved.” At the other end of the spectrum, a 25-year-old could be shown the power of compounding and the tax advantages of a tax-deferred retirement plan.
Better plan design can offer some opportunities.
Sarsynski said advisers and providers must first “understand the needs of plan
sponsors and their individual demographics” and that robust plan design—through
“automatic enrollment, automatic deferral increases, step-up contributions, opt
out rather than opt in, target-date funds, and a streamlined lineup—“is
responsible for two-thirds of a plan’s success.” The other one-third is driven
by “how plan providers and employers influence participant behavior.”
MassMutual looks to improve participant behavior through a “great website, one-on-one enrollment, webexes, iPads at enrollment meetings so that participants can enroll on the spot,” Sarsynski said—efforts that have boosted enrollment from an average of 40% to 85%. The firm also uses YouTube and has developed an application that allows participants to see how they might look like as they age. “Gen ‘ers can watch themselves age—and that is really scary for them, because they look like us,” she said. This inevitably drives up their savings rates, she said.
Since few plan sponsors can answer whether their participants are on track for a 75% income replacement ratio in retirement, this should also be a critical component of plan design, she said. By providing these figures to MassMutual’s participants, participation has jumped from 44% to 53%, and MassMutual hopes to reach 70%.
In boosting participant preparedness, Ready said the most effective
approach is to provide projected “monthly income and how to improve on that
income, along with helping participants understand Social Security and Medicare
choices, and how to handle market volatility.”
Another key opportunity for plan sponsors is to maximize re-enrollment and automatic features, the speakers said. This discussion “must include the economics of the plan and the chief financial officer,” Sarsynski said. “If you can’t get your employees ready, your benefits costs will go up considerably. It’s very expensive.”
Also important for plan sponsors to consider are such innovations as a stretch match, to contain their retirement plan costs and give participants an incentive to save more, Musto said. “Some clients are willing to invest in the plan and embrace innovation,” he said. “It’s a powerful conversation to have with a retirement plan committee. Creative plan design can [deliver] reasonable retirement income replacement rates.”
Certainly, these actions are critical for plan sponsors, as an audience poll showed that 91% are concerned their workers may not be able to retire; only 9% are not concerned. Their biggest concerns about an aging workforce that is unable to retire is health care costs (cited by 68% of the audience), followed by lack of new talent (11%), the inability to promote from within (9%), higher salaries (5%) and other reasons (2%). Only 5% of plan sponsors are not worried about this scenario. Asked whether their plan design will adequately prepare their participants for retirement, only 28% said yes. The vast majority (57%) said it could be improved, and 15% said it could not.