PS: How is our industry faring in preparing the average American for retirement?
Sarsynski: Whenever I hear legislators talk about the demise of our industry and say we aren’t achieving our objectives, I think it’s important to consider demographics. We can’t have that broad brush for all American workers. There are about 75 million in Generation Y—folks ages 18 through 35. If we can start them saving throughout 40-year careers at 10% deferral rates with an average of 6% returns, they’ll have about enough income in retirement, assuming we use plan design to prevent leakage.
With Generation X—around 50 to 55 million Americans, ages 36 through 48—we can do a lot because time is still on their side. As to the Boomers—78 million Americans, with 10,000 retiring a day for the next 19 years—we’ve got a problem. Maybe 15% to 20% feel prepared. The discussion with those who have saved enough is easy; we can talk about income replacement, annuitization and how we’ll take care of that. With the remainder, we’ll have to talk about Social Security, about not retiring early unless for health issues, reducing expenses, exploiting insurance, critical care or other workplace benefits.
With the demographics for Generations Y and X, we can solve many of the issues in our industry today; the Boomers are a different discussion.
As to the silent generation, we’re talking about mortality. There are 2 million Americans over age 90, with an average income of about $15,500. Some things, we as providers or you as employers can’t solve—those are for our legislators and social programs.
PS: Can automatic features, such as auto-enrollment, auto-escalation and match design, be maximized in a plan’s design to optimize outcomes?
Sarsynski: Yes. When presenting features like those, we often need to discuss the plan’s economics. We call this “our CFO story,” because often, a CFO [chief financial officer] goes right to the bottom line: “We can’t afford that,” or “We don’t want to change the match.” If companies don’t set up an appropriate plan design that prepares employees to retire at 65 or 67 with sufficient replacement income, the costs of company workplace benefits jump, whether it’s workers’ comp, disability or other benefit expenses. We’ve done the arithmetic, and when we share that with CFOs, they realize that features like re-enrolling make sense and help their bottom line.
About 40% of work claims concern participant finances: Do they have enough in savings? Will they be able care for their families? They need a plan design where they can save appropriately, with tools that show them they’re on track, or what to change. Our RetireSmart Ready tool ties to their specific data. Someone visits the plan website, puts in a couple variables; it will spit out his forecast: “Today, you are 60% likely to have at least 75% replacement income at age 67.”
The tool shows him some changes to make—maybe increase the deferral amount or do a step-up. Suddenly, it goes to 72% probability. He says, “This is great!” Pushing another button implements those changes—the whole visit is seven minutes. Design like that gets people to take action.
Heard at PLANSPONSOR National Conference
Americans want retirement savings strategies that are simple to understand, easy to use and change as their lifecycle changes. They want professionally managed investments, following a glide path, to help them save and accumulate wealth for retirement.
However, we have an imbalance in gender preparedness. Women have almost 38% less in their accumulated balances than men do. We spend considerable time at MassMutual reflecting on how to motivate women to save and accumulate more, if they can, when normally their first concern is buying their kids soccer shoes, etcetera.
Women also tend to invest differently than men. About 78% of all women’s assets under management [AUM] are in target-date funds [TDFs], whereas with men’s, it’s about 58%; men go more into lifecycle funds. So when we look at the demographics of a plan—maybe it’s a hospital or retail—and we see a skew toward women, we have those discussions to ensure the women try to offset any time spent outside the work force caring for family, their parents or whatever. That’s when we hone in on the demographics and do what we can to push women forward in our plans.