Public Sector Needs More Retirement Readiness Help

“Improving Retirement Readiness for State and Local Government Employees,” released jointly by the National Association of Government Defined Contribution Administrators, Inc. (NAGDCA) and the International Foundation for Retirement Education (InFRE), says public sector employers have started to adjust their retirement plan benefits offerings and shift more of the risk of saving and investing for retirement to their employees. With factors such as increased longevity of retirees and increasing medical expenses in the mix, public sector employers are “facing a significant challenge to ensure employees recognize their new retirement readiness responsibilities.”

In examining similar changes in the private sector in recent years, the paper notes that most public sector employees will not able to clearly understand their new personal risks and make informed retirement planning decisions without assistance from their employers. Public sector employers need to continue to use benefit packages as a way to attract and retain skilled workers, notes the paper, but they must also find a balance in their communications to inform employees that without personal savings or other income sources, since these benefits will likely not be sufficient to meet all of their future retirement income needs.

The paper recommends public sector employers and retirement plan providers help plan participants accept their new retirement planning risks and responsibilities by:

• Offering personal retirement assessment tools that measure retirement readiness on a holistic basis. This means not only looking at an employee’s wealth and financial needs component, but also their health and happiness preparedness.
• Expand education programs to address various retirement planning needs—not just investing decisions—related to public plan differences, gender, ethnicity and generation.
• Encouraging participation in voluntary savings plans by using best practices plan features that simplify decisionmaking, reduce costs and offer outcome-based income projections.

“The combination of changing benefits, retirees living longer and increases in medical expenses mean that public sector employers are facing a significant challenge to ensure employees recognize their new retirement readiness responsibilities,” says Ralph Marsh, president of the Lexington, Kentucky-based NAGDCA.

“As public employers begin to share more of the responsibility of preparing for retirement with their employees, defined contribution plan savings will need to play a greater role in how employees become retirement ready,” says Kevin S. Seibert, managing director of InFRE, based in Lubbock, Texas. “Helping employees understand and score their personal retirement readiness status will also motivate them to take necessary action to improve projected outcomes.”

The paper’s authors conclude, “Although there is not a one size fits all solution, a commitment to a retirement readiness evaluation program combined with ongoing education programs and enhanced savings plan design features will create a strong foundation for positively impacting needed changes in public sector plan participant behavior.”

NAGDCA is an organization of defined contribution retirement plan administrators and financial service providers. Its aim is to focus on retirement planning for public sector employees participating in 457(b), 403(b), 401(a) and 401(k) retirement plans. The International Foundation for Retirement Education (InFRE) is a nonprofit education foundation devoted to enhancing the retirement preparedness of the American worker.

An abstract for the white paper can be found here. The full white paper can be found here.