At the recent PLANSPONSOR National Conference, Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR, hosted a roundtable conversation with Elaine Sarsynski, executive vice president of MassMutual Retirement Services; Christine Marcks, president at Prudential Retirement; and Pat Murphy, managing director and head of distribution for New York Life Retirement Plan Services. These industry leaders discussed the retirement plan topics that most affect plan sponsors and their participants.
Cooke Mintzer: There is a changing definition of what people are thinking about as they are look towards their retirement. What’s the role of providers as we enter this new world?
Sarsynski: We focus on how to create a plan that motivates action on behalf of participants. The first thing we have to start doing with our advisers, and I would recommend plan sponsors think about, is to evaluate the type of retirement plan that you are looking for.
I always like to ask an adviser and plan sponsor: “Do you know how many people in your plan are on track to retire with a 75% replacement income on a monthly basis at age 67?”
We have to have a different conversation—plan sponsors together with advisers—about working longer, reducing expenses and trying to get some protection, perhaps through mortality insurance, as an additional benefit to help them.
Cooke Mintzer: As you look to Washington, what can we do as an industry to try to strengthen this private retirement system and address some of these challenges?
Marcks: Strengthening the current system needs to be a private-public partnership. We have seen improvement since the Pension Protection Act (PPA) was passed, as a result of the safe harbor protections that were put in place and the work that advisers have done with sponsors to drive better outcomes. But the picture isn’t complete.
First of all, there is the coverage gap. Half of eligible employees are not in a plan today.
There’s discussion about proposals to promote automatic individual retirement accounts (IRAs) and multiple small employer plans that would allow small business to offer retirement plans to their employees.
In terms of the existing plans, I think the Department of Labor (DOL) should focus on clarifying safe harbor rules for advice and education, because many sponsors and advisers want to provide better education to participants in these plans, yet are concerned that they may be crossing the line from a fiduciary standpoint.
Access to in-plan income options is another important area of focus. It’s about completing the plan—bringing defined benefit (DB)-like characteristics into defined contribution (DC) plans and providing safe harbor protections to employers for including income options in the plan.
Cooke Mintzer:The recent fee disclosure brought attention to recordkeeping and what plan sponsors get for what they pay.
How can plan sponsors rank what they get for what they pay? Is recordkeeping a commodity?
Murphy: It comes down to how we define recordkeeping. If you define it as the keeping of the records, literally, yes, it’s a commodity. We believe it’s the ancillary services that you add on to the recordkeeping platform that allow us to differentiate. It’s the intellectual capital that we bring to the table. We’ve all done a really good job of rolling out tools and innovations in technology: the latest gadget, the latest Web, the latest application (app).
We need people to start thinking again about what they need for retirement. We need to have them start taking personal responsibility and accountability for their own retirement. We need to start having personal conversations with the individuals about their situations. Employees are struggling with budgeting, with basic finance. They’re burdened with debt. They certainly have rising health care costs. And those issues all need to be brought into the conversation and put into context so that we can create the appropriate plan for those individuals.
Cooke Mintzer: What is the role of plan design as plan sponsors look to make sure their plans have that competitive advantage?
Sarsynski: The research that we’ve done with 3 million participants proves the 90:9:1 rule where 90% of our participants just want to know, “What do I do?” Nine percent of our participants and employees may want to make a little change, and then 1% are going to map out their investments and make changes all over the place.
When you look at a plan design, about 70% of an employee’s success rate is related to the design. Only about 25% to 20% is related to the interaction with the participant.
Working with your adviser or plan provider, it’s very important to think about auto-enrollment, auto deferral increases, ensuring you have appropriate investments on your platform—target-date funds (TDFs), lifestyle funds, custom target-date funds—and you are considering the demographics of the plan. All of that is critical.
Murphy: I agree that 99% of employees want to be told what to do, unless you slice it on a generational line, because Boomers don’t necessarily want to be told what to do. They want to think that they’re making the decision, and Gen Y folks don’t want us to tell them what to do, they want to talk about it with their friends and then make a decision based on the information we give to them.
Cooke Mintzer: What is the plan sponsor and provider role in helping participants think about decumulation?
Murphy: From a sponsor perspective, your role is to design the plan that makes it easy and comfortable for your employees to get the money out at retirement. The key phrase there is “at retirement.” We don’t believe that we should make it too easy for people to get their money out before retirement.
We don’t believe that this discussion is a product discussion. We believe it’s an advice discussion. We ultimately want to give advice to the participant on what they should do, but we need to understand what else they have for assets.
We need to understand whether they have a large IRA rollover. We need to understand if they are married, if their spouse has assets that are going to be accessed for retirement. We also want to help them understand strategies around maximizing Social Security. They don’t have to start taking Social Security at age 65. So, is there a strategy around taking a partial distribution from the 401(k) plan until they get to a point where they can maximize their Social Security benefits? For those of you that want to allow your employees to get partial distributions, you actually have to have it in your plan document.
Sarsynski: I think tools that are simple, that are populated with the data from the individual’s recordkeeping data, not averages, are very compelling.
Our RetireSmart Ready tool, used during the accumulation phase, takes plan data and helps participants move their savings bar and answer questions like: “What is the probability that I will be able to retire when I’m 65 with a replacement income of 70%, 75%, 65%?” You can change the allocation or your deferral increase with this tool within five minutes.
We just launched an online decumulator tool, “The RetireSmart Income Tool.”
It asks four questions: The first question is, “What level of guaranteed income do you need in retirement?” The second is, “What inflation protection are you looking for—2%, 3% or other? The third question is around liquidity. In other words, “How much available cash do you need in retirement?” And the fourth is, “Do you wish to leave a legacy?”
The tool runs some models, and it spits out what your optimal draw-down schedule would be.
Marcks:We have a similar tool that takes the data in our recordkeeping system and allows participants to add in outside assets—and then the tool performs a retirement income calculation for them.
We’ve seen that 20% of the participants who use this tool increase the deferral to the plan by 5 percentage points on average because they start making the connection between what they’re saving in their plan and what they’re going to have to live on when they retire.
There is now an advanced notice of rulemaking from the Department of Labor seeking input on the proposal to mandate lifetime income illustrations. Expect to see a debate on whether the illustrations are required quarterly or annually, and what assumptions are used to create the illustrations, including whether they’re based on current balance or a projection of the future balance at minimum retirement age.
Cooke Mintzer: How can sponsors use technology to improve participant outcomes?
Marcks: First of all, go mobile. We’re doing a lot of work right now to make sure we’re reaching participants in the way that best engages them. We’ve also done some interesting studies in how to motivate the Millennial Generation, for example, such as using gamification techniques in enrollment meetings to get them hooked and thinking about saving for retirement. So that’s the direction we see the industry headed in, as well as establishing online and virtual communities. The younger generations get information from peers and friends, and the industry has to learn how to inform them using similar techniques.
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