Securing Retirement Outcomes for Employees

The consulting firm recently released “Securing Retirement Outcomes for the Employee: Why the Employer Should Intervene,” which outlines several reasons why such a strategy benefits employers and employees.

These reasons include:

• Lower costs associated with managing the work force;
• Lower asset-management costs;
• A framework for addressing fiduciary concerns; and
• It’s the right thing to do.

Arthur Noonan, a senior partner with Mercer and an adviser for the paper, told PLANSPONSOR, “The plan sponsor is delivering a benefit, with an associated cost, to his employees. As such, he has a vested interest in the benefit being well received, understood and appreciated by the plan participants. Said in another way: The sponsor would like to increase the return on investment [ROI] associated with offering the plan.”

As for lower costs associated with managing the work force, the report points out that a retirement-prepared work force can help employers to reduce severance costs. Noonan explained, “When employees do not retire as expected, employers often have to take action to reduce the work force since normal attrition, including retirement, is not generating the desired level of turnover.” As a result, he said, the action taken is often a severance program with the requisite pay-to-leave component.

Retirement preparedness can also benefit employers in that the more employees there are participating in the plan, the larger the asset base is for the plan. Noonan clarified, "Asset management fees, which are generally deducted from returns, go down as asset size increases."

The report acknowledged that some employers are concerned about the fiduciary implications of extending their oversight and activities into the retirement income area. The report recommends that if plan sponsors have questions on this subject, they should consult existing guidance from the Department of Labor (DOL) and the Internal Revenue Service (IRS).

Noonan added, "I would say that the top guidance that plan sponsors would find helpful—and would benefit participants—would be the from the Pension Protection Act [PPA], particularly on higher contribution limits including Roth, incentives to adopt automatic enrollment and more relief for default investments."

With regards to increased intervention being the "right thing to do," the report mentions that this does not necessarily mean increased spending by plan sponsors. "Intervention could take the form of increased spending if the sponsor foots the bill for offering more assistance" such as seminars, tools and access to advisers and guidance, Noonan said. "Alternatively, the plan sponsor could simply take a more active role in communicating to their employees by informing them of where to go for unbiased information."

A copy of the report can be downloaded here.