The traditional plan participation rate benchmark is no longer considered a leading indicator of a successful retirement plan. Increasingly, plan sponsors are measuring a host of factors, of which participation rate is only one number. Elaine Sarsynski, Executive Vice President and Head of Retirement Services at MassMutual, spoke with Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR, about refocusing plans on outcomes and looking at benefits holistically in order to truly gauge success.
PS: How are plan sponsors benchmarking participant retirement readiness?
Sarsynski: When we talk with our plan sponsors together with our advisers, we typically focus on a RetireSmart analysis tool that we have here at MassMutual. This tool helps a plan sponsor answer a very specific question: “What percentage of my employees will be on track to retire with monthly replacement income of, say, 75% at the age of 67?” These variables obviously will depend upon the plan and the individual’s personal goals.
This is a report card that measures the probability of retirement success of a plan sponsor’s employees. We like to think that each plan sponsor is going to have close to 100% of employees on track, but unfortunately, we’re seeing about 40% of employees are currently on track to retire with sufficient replacement income. What we want to do is drive that behavior at the plan level so that we continue to see improvement in replacement income levels for all employees.
For participants, MassMutual’s RetireSmart Ready Tool is available on our participant website. In a matter of minutes, an employee is able to see a report that shows what level of replacement income he or she is on track to receive based on current criteria such as savings levels, asset allocation, et cetera. If an employee sees that she may only be at 50% probability of retiring at her desired goals, then the tool shows some options for making changes immediately—perhaps increase the deferral rate or change the asset allocation, for example—that would help increase the likelihood of reaching her goal. The participant can select and implement his or her changes right on the spot.
PS: Elaine, you mentioned worksite benefits being looked at holistically. Do you believe this is where we are going as an industry?
Sarsynski: On average, we know that additional health care expenses are going to cost somewhere between $150,000 and $200,000 during retirement. This is not being talked about enough holistically in the retirement planning discussions with individuals.
We also know that the cost of health care continues to be a huge expense for employers, and they also may start thinking about defined contribution (DC)-izing all of their worksite benefits. It’s important to start thinking about how you would maximize that employee’s spending at the worksite among a variety of products. So, marrying particularly the health care and the retirement discussions is absolutely the future of our industry.
PS: What types of plan sponsors does MassMutual think would most gain from this holistic worksite benefit discussion?
Sarsynski: I think all of them would benefit from this discussion. After all, worksite benefits are really there in order to attract, retain and engage employees. Specifically, we are seeing a tremendous need at the smaller end of the market. In smaller companies, the CEO is also the chief financial officer (CFO), they’re the head of human resources (HR) and may be shutting off the lights at the end of the day. Often these folks would like to see a packaged program so that they can quickly determine whether or not they have the right blend of health care, retirement, disability insurance, et cetera. Therefore, we found that the CEOs of smaller companies do look forward to these types of holistic solutions at the worksite.
Heard at PLANSPONSOR National Conference
Panelists speaking on the CEO Roundtable panel on the first day of the conference focused on improving retirement plans to enhance participant success. Elaine Sarsynski, Executive Vice President and Head of Retirement Services at MassMutual, said each demographic has to be looked at individually in order to gauge success and determine how to help.
For the youngest participants, Generation Y, automatic enrollment and “auto” deferral increases can produce positive outcomes. If all Gen Y-ers are “in their plan for 40 years at an average rate of 6%, accumulating at least 10% plus per year, by the time they reach retirement age they will have sufficient replacement income on a monthly basis,” she said. “We can really help a significant number of Gen X-ers through those same tools.”
The most “at risk” generation is the Baby Boomers, she said. Those ages 50 and older face challenges because they do not have the lengthy time horizon to accumulate a large amount of savings through small accumulations, she said.
To help the Baby Boomers, recordkeepers, advisers and plan sponsors are going to have to “work together to have a conversation about working longer, reducing expenses and trying to get some protection—perhaps through mortality insurance—to help them.”
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