Left to right: Peter Gordon, Joe Ready and Eric Wietsma
During a roundtable discussion at the recent PLANSPONSOR National Conference, Peter Gordon, CEO, John Hancock Retirement Plan Services; Joe Ready, executive vice president, Wells Fargo Institutional Retirement and Trust; and Eric H. Wietsma, senior vice president, Retirement Services Sales and Participant Development, MassMutual Retirement Services, shared their thoughts about what lies ahead for plan sponsors and plan participants with Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR.
PS: We’d probably agree that what helps an employer most in increasing the effectiveness of its plan is the design. Is it all about automation, or are there other design initiatives?
Gordon: Automation is key. Other things matter, but if participants aren’t saving early or saving enough, they’ll find it hard to have a successful retirement.
We know that if you auto-enroll Millennials, about 80% will participate at 5%, and by auto-increasing them annually, you’ll get them to 10% shortly. Ten percent that early is where they need to be in order to have financial freedom later. We know it works, and there’s opportunity to keep doing it. It gets tougher for older people who missed the auto-enrollment wave. In that case, re-enrollment can be a vital component.
Ready: Auto-enrollment and plan design have created a one-size-fits-all process, but there are really four buckets of employees—each at different points in their journey to retirement—in a plan. The first bucket has early savers. The second, the mid-career group, is struggling with aging parents, kids in college. Most of our services, including plan design, are geared toward those buckets.
But two more are emerging, the third being near-retirees. The reality for these participants is they are nearing the end of the accumulation journey. They are more focused on optimization and managing risk. They’re asking, “How do I maximize my savings? How do I allocate my assets to enhance returns while managing volatility and preserving principal?” We can help them optimize, but their path is set in terms of their nest egg size. For this group, help goes beyond auto-features to a different set of products and services that help them preserve their assets and increase returns as they enter the final phase of their retirement journey which is the “living in retirement” bucket.
As an industry, we may have done well on the accumulation side, but now our focus needs to expand to helping people in those latter stage buckets manage risk, know what they can afford and how they can invest. There are products and services available in the retail investment space that need to evolve into the retirement plan market to support what we do for those last two buckets.
PS: How is retirement viewed in the overall benefit discussion?
Wietsma: Over the last 20 years, we’ve seen the defined contribution (DC) plan go from a supplemental “good idea” to a primary benefit.
We see a similar change in health care. High-deductible health plans (HDHPs) with health savings accounts (HSAs) are much the norm. Employees have a certain amount of income to allocate toward benefits. Besides trying to get 10% into their retirement plan, they have to fund an HSA as well.
Meanwhile, I think partnering with sponsors to help participants manage this will be key for us. A holistic benefits tool, such as MassMutual’s MapMyBenefitsSM, shows employees their hierarchy of needs, from protection to health and retirement. For retirees and near-retirees who’ve saved inadequately, having the proper protection benefits might matter more than retirement.