“Most Americans don’t get retirement advice other than what employers make available, and among those who do get advice from other sources, some do not get unbiased advice,” Anna Rappaport, chair of the Society of Actuaries Committee on Post-Retirement Needs and Risks, told attendees of the Plan Sponsor Council of America (PSCA) Annual Conference in Nashville.
She noted that retirement plan sponsors have a role to lead and inspire employees and provide good resources.
The least plan sponsors can do is encourage employees to seek advice and provide resources to help them find the best place or person from which to get it. The Society of Actuaries has a number of free resources on its website.
Carol Bogosian, member of the Society of Actuaries Committee on Post-Retirement Needs and Risks, suggested there is a pyramid of providing advice from the least personalized to the most personalized and plan sponsors should start at the bottom and add layers they feel comfortable with.
Some employers are only comfortable providing education, which is at the bottom of the advice pyramid. According to Bogosian, the first layer is financial wellness and retirement plan education. This includes unbiased education to all employees about all aspects of financial planning, including employee benefits planning. It can include education about budgeting and saving, home buying, college funding and estate planning. But, Bogosian noted it has a heavy focus on helping employees develop positive savings habits.
The next layer, which Bogosian calls “soft guidance,” is plan design and automation. This includes automatically enrolling employees into the retirement plan, automatically escalating their deferrals into the plan and automatically rebalancing investments. The third layer of the pyramid is the default investment option—particularly target-date funds, in which plan participants are automatically invested in the appropriate mix of investment options.NEXT: The transition to personalization
The next layers of the pyramid offer guidance and advice that is less personal than the top layers of the pyramid. Employers can offer employees access to retirement planning calculators.
Rappaport said plan sponsors should research the available calculators, since they can provide vastly different recommendations and information to participants. They can run test cases to see if they are accurate, ask a consultant or adviser about the best calculators, or use trusted sources such as the Consumer Financial Protection Bureau. Plan sponsors should inform employees about what the calculators will show them.
Plan sponsors can also offer guidance from financial professionals, but this is different from advice. Considering the recent fiduciary rule published by the Department of Labor (DOL), guidance does not make any specific recommendations regarding a product or investment and can be delivered by a financial professional that does not require a securities license.
The more personalized advice that makes up the top tiers of the pyramid include automated services, such as online or robo-advice, which offer investment advice customized to the user’s inputs. It also includes managed accounts, which is customized, considers a plan participant’s assets outside the retirement plan and includes a human interface.
However, Bogosian suggested automated services and managed accounts only provide investment advice. “Only a person can provide both retirement and investment advice,” she said. This is the top tier of the advice pyramid plan sponsors can offer employees—one-on-one meetings with a financial professional.Plan sponsors must be comfortable with this high level of advice, especially considering the DOL’s fiduciary rule. They should review adviser contracts with legal counsel.