While nearly seven in 10 (69%) plan to replace the majority of Boomer-aged retirees, well over a third (38%) of 403(b) plans expect to face significant challenges in doing so, according to a new survey of 403(b) plan sponsors from the Plan Sponsor Council of America (PSCA) and the Principal Financial Group.
Issues in retirement benefit delivery could mean wider problems for the nonprofit institutions that traditionally provide 403(b) plans as a means of attracting top-quality workers, survey authors argue.
“Many nonprofit organizations rely heavily on 403(b) plans—instead of salaries—to compete for the best employees,” says Bob Benish, executive director of PSCA. “We’ve seen 403(b) plans improve dramatically over recent years. It is clear those plans will be increasingly important in the race for high performers, especially in higher educational institutions.”
Other survey results show more than half of all 403(b) sponsor respondents (54.4%) expect between 10% and 20% of their work force to retire over the next five years.
However, 20% of larger organizations (500 or more employees) expect to lose one-fifth of their work force to retirement. Most are higher educational institutions, according to the survey, where a spike in hiring professors in the 1970s and 1980s is leading to a significant number of potential retirements in the near future.
“As a generation of academics nears retirement, financial professionals have another reason to focus on higher education as an opportunity to grow their business,” says Aaron Friedman, national tax-exempt practice leader for The Principal. “Financial professionals who can help enhance plan designs—making plans more successful and therefore better appreciated by employees—stand to position themselves well in this burgeoning nonprofit marketplace.”
In addition to concerns over recruiting, survey respondents say the other top anticipated challenges include:
- An increased need for training (42.7%);
- Skill gaps in the workforce (39.9%);
- The reallocation of responsibilities causing a burden on remaining employees (38.1%); and
- Increased use of technology (33.5%).
While seven out of 10 plan sponsors believe planning for retirement is the employees’ responsibility, slightly less (66.8%) are active in providing retirement planning education tool and materials. For larger organizations, 90% of plan sponsors are active in employee retirement planning education.
“403(b) sponsors recognize the need to both encourage employees to accept responsibility to prepare for their own retirement and at the same time help them prepare for the transition,” Benish says. “That is important because while employees generally expect to work into their 60s, studies consistently show many end up retiring before they planned, often due to health reasons.”
Survey results are available at http://www.psca.org/403-b-plan-research.
The PSCA is a national nonprofit association of 1,200 companies and their six million employees. The group advocates for increased retirement security through defined contribution (DC) programs to federal policymakers.