PSNC 2020: Recalibrating Retirement Plans

The COVID-19 pandemic has accelerated what was already an emerging goal for the retirement planning industry: helping participants prepare for short-term financial challenges as a means to create greater long-term wealth.

The fourth day of the 2020 PLANSPONSOR National Conference included an engaging presentation about how to “recalibrate retirement plans” to address the present moment and the foreseeable future.

Naturally, a big part of the conversation, which featured several experts from Prudential, as well as Bruce Lanser, a financial adviser and institutional retirement plan consultant with UBS, focused on the impacts of the coronavirus pandemic on U.S. workers. The speakers recounted the massive numbers of job losses and the collateral effects that have been felt by those who have been lucky enough to maintain employment, such as the significant stock market volatility causing greater uncertainty about retirement.

Michael Domingos, head of sales and strategic relationships, Prudential Retirement, said the present moment has put an emphasis on three key concepts that, while more important today, are not totally new in the retirement planning space.

“The first is simply the importance of foundational financial wellness as a precursor to retirement security,” Domingos said. “We have learned just how challenging it is for a lot of people to meet unexpected expenses while also meeting their debt obligations and living expenses. This has demonstrated the need for employers to embrace financial wellness programs and to implement things like emergency savings accounts and support for student loan debt repayment.”

The second lesson that has emerged, which again was already known but has only become more important, is that plan design matters.

“The data shows so clearly that we can improve plans and directly improve people’s financial lives through better design decisions,” Domingos said, highlighting the importance of automatic enrollment and the provision of default diversified asset-allocation solutions.

The final focal point, in Domingos’ view, is the growing importance of guaranteed income. He noted that near-retirees commonly remain over-exposed to equity market risks, and that many could benefit from considering purchasing income guarantees.

Also included in the presentation was Brian Coleman, vice president of total rewards at Dawn Foods, which earned recognition as a 2016 PLANSPONSOR Plan Sponsor of the Year. Coleman discussed some of the progressive plan design elements the firm has deployed in recent years, noting that these elements have helped the plan population navigate some of the challenges of the COVID-19 pandemic. In addition to highlighting the firm’s emergency savings accounts, he said offering the Prudential Pathways series of financial wellness seminars has been helpful for employees. The 90-minute education sessions, which take place during the work day, cover such topics as living within a budget and mapping out a retirement income strategy.

Asked about Dawn Food’s decision to default participants 55 and older into the Prudential IncomeFlex product, Coleman said many team members have expressed their nervousness about selecting 401(k) investment options and trusting those products with all their savings after the retirement date.

“Our team members do not always have the skill set to invest confidently,” he said. “We wanted to give them another option for their retirement wealth. For those team members uncomfortable with planning their future, they can have something that guarantees them a stream of income for their lifetime.”

Currently, upward of 35% of plan assets for participants 55 and older are in IncomeFlex, he said.

In terms of how to educate participants about a retirement-income option, Coleman said the most important elements are simplicity and transparency—though it is of course not always easy to balance these two elements in practice.

“Focus on explaining as simply as you can what the program is, what the positives and negatives are,” Coleman said. “The key for income products is to point out that they do exist and can be utilized effectively by the average person.”