The Retirement Winds of Change

The definition of retirement in America has been evolving to include not just decades of golf or boating, but working, volunteering and pursuing a range of other personal interests. Regardless of what activities people might enjoy, getting to retirement for most means achieving some sort of financial independence; having the money to generate a stream of income to meet one’s needs; and ensuring that money lasts throughout retirement. While the journey is a personalized one, for most people it will include much saving, planning and decisionmaking.

Charlie Nelson, CEO of retirement at Voya Financial, spoke with PLANSPONSOR about the evolution of retirement and implications for the retirement plan industry in 2016.

PS: Charlie, let’s start just looking back at 2015. You’ve had a busy year. I know you joined Voya Financial to head up the retirement business. What have you been up to since you got there?

Charlie Nelson: Having been in the industry for over 30 years, this recent change has presented an exciting new opportunity for me. I started in May, as the CEO of Voya’s retirement organization. I currently oversee the company’s workplace and individual retirement businesses. This includes the tax exempt and corporate market segments, as well as our broker/dealer [B/D] and retail wealth management teams.

I’ve been thoroughly impressed with the strong team of individuals we have, as well as the breadth of solutions and the capabilities we have within Voya.

PS: What attracted you to Voya?

Nelson: What initially attracted me was the opportunity to be part of a newly independent company that is on an incredible journey to become “America’s Retirement Company.” We have a unique and compelling mix of businesses with some very established leadership positions in the retirement, investment and insurance marketplaces. Our workplace retirement plan business is one of the largest in the industry—it serves more than 46,000 employers and nearly 5 million retirement plan investors. Each of Voya’s businesses plays an important role in our strategy to help consumers plan, invest and protect their savings so they can get ready to retire better.

In terms of Voya’s accomplishments, we’re at an incredibly exciting point in our journey. We completed an IPO in 2013—one of the best performing offerings that year—and our stock trades on the New York Stock Exchange. We debuted last year on the Fortune 500 list, coming in at No. 268. Earlier in 2015, Voya achieved complete independence from its former European parent. We’re now a financially strong, U.S. public organization with one of the most diverse boards in the industry. What this means is that Voya is truly in charge of its own destiny, and we’re shaping how to best deliver retirement readiness value for our clients and partners.

To that end, we also announced last year that Voya is making a $350 million strategic investment over the next couple of years to help grow our business. Most of this is going to be focused on enhancing our technology and digital capabilities, which will help our company become even more oriented toward the consumer. We believe this is a compelling proof point that demonstrates our commitment to the business. In many respects, Voya is operating in a very unique place. Despite being a large, well-established market leader, we have the vibe of a startup organization that wants to help people think differently about retirement.

PS: Quite the combination. As you look back at the defined contribution [DC] industry, what are your thoughts about its evolution, and where have we ended up in helping Americans achieve retirement security through the DC plan space?

Nelson: First, we have to acknowledge the incredible progress our industry has made. As we all know, defined contribution plans were never intended to be our primary retirement savings mechanism. Over the past 35-plus years we’ve taken the 401(k), which was essentially set up as a supplemental voluntary system, and transformed it into America’s savings program. The Department of Labor [DOL] data show that the qualified plan industry now supports approximately 637,000 plan sponsors and 93 million participants across America. Those are impressive results.

Along the way, we have introduced employer matching, automatic features, QDIAs [qualified default investment alternatives], asset allocation, target date funds [TDFs], managed accounts, and other important investment options and plan design elements. We have also rapidly advanced the communication, service and support platforms that are integral to how we operate in this business—from phone-based call centers to online account management and mobile capabilities.

Until recently, much of the industry’s focus has been on the accumulation aspects of saving and planning. However, as an industry, we have now transitioned our attention to a more meaningful objective—helping workers generate sufficient retirement income.

We should celebrate how far we’ve come. But we must also recognize that there is more work to be done to help people better prepare for and live in retirement.

PS: If you look at 2015, what would you consider to be the biggest industry development?

Nelson: Without a doubt it has been the Labor Department’s proposed fiduciary rule. It’s one of the most significant issues to impact the retirement industry landscape in many years.

Despite some of the positive intentions of the regulators in developing these guidelines, we believe the regulations in their current form could produce a number of unintended consequences, such as limiting access to investment information and education and, most importantly, impacting consumer choice.

For example, we find that individuals want the most help in understanding their investments, determining the appropriate savings rate and evaluating the options available to them. As currently drafted, the provisions would restrict, not enhance, the availability of high-quality advice and planning solutions.

While none of us knows exactly what the final rules will contain, it was encouraging to see so many organizations involved in the department’s process. Companies such as Voya submitted comment letters. There were various grassroots campaigns and outreach efforts to lawmakers. A number of experts, including myself, testified at the department hearings this past August. Like all important industry issues, we intend to stay involved for the benefit of our clients and advisers. One suggestion we proposed was to develop a consumer “Bill of Rights.” This could be an effective way to achieve the spirit of the proposed regulations, while preserving an environment that promotes customer choice.

We sincerely hope the department considers and balances the full range of comments. The goal is to make sure the final regulations truly promote the expansion of advice, guidance and education to participants.

PS: What do you see on the horizon that will also continue to shape the industry?

Nelson: Second to the fiduciary proposal is the coverage issue in America. I believe we will continue to see more interest in auto-enrollment and the expansion of auto-escalation. We also believe that our policymakers can do more to expand multiple employer plans [MEPs] and provide the greater sharing of electronic documents. Additionally, we need to do more to support starter 401(k)s by making them easier to implement and more attractive for small business owners, by way of tax credits and other incentives. According to industry data, less than half of employees at organizations of between 50 and 100 employees have access to a plan. This number drops significantly for even smaller employers. Our industry has the tools and expertise to solve the coverage issue. We don’t need it to be completely legislated. However, some cleanup of regulations and potential legislative opportunities could help move us along.

Moreover, everyone has to continue shaping the dialogue on retirement security. This is especially critical in an election year.

PS: How do we get participants to save more, and how do you integrate mobile and digital technology with that need to save more?

Nelson: Digital and mobile technologies, along with applying behavioral science lessons, will play a major role in helping participants save more. Quite simply, the industry needs to continue focusing its investments and innovation efforts on improving individual outcomes.

On this front, Voya plans to be one of the leaders in digital innovation by utilizing behavioral sciences and by striving to be one of the easiest companies with which to do business. These are crucial elements for success, and the industry can learn by applying lessons of behavioral finance from the academic world. As an example, through Voya’s myOrangeMoney experience and our digital enrollment center, we’re finding new and better ways to overcome participant inertia and nudge individuals to take positive action.

PS: Given what we know about the different generations, how they get information, and how they prefer to receive information, do you see advisers and financial professionals still playing a large role as people prepare for retirement?

Nelson: Absolutely. There’s plenty of research that shows how advisers can enhance the effectiveness of qualified plans and participants, leading to greater retirement confidence and preparation, especially with Millennials.

Even as technology and social media have become more important in all types of purchasing and decisionmaking, we’re still seeing how people value making financial decisions with the support of professional help. We believe advisers are important for helping investors sift through the many complicated factors—health care costs, taxes, estate planning, Social Security claiming strategies—to help them calculate how much they need in retirement. In some ways, “robo” tools will be a helpful first step since they can flush out certain issues for investors to consider. Then, those same investors may want to talk to someone for confirmation. Advisers that can adapt to this changing client dynamic should have very strong and viable practices in the future.

PS: We talked about what it takes for an adviser to have a vital practice. What does it take for a recordkeeper or a retirement plan provider to successfully compete into these marketplaces?

Nelson: The retirement plan marketplace has been highly competitive, and many services and solutions that were differentiators only a few years ago have become table stakes, whether it’s a managed account or a mobile website or an app [application]. Size and scale are a huge advantage. Successful providers recognize the need to make ongoing investments to ensure that their businesses are truly digital and mobile-enabled. This could create challenges for smaller providers that may not be in a position to do so. Given that our industry is still somewhat fragmented, we may see additional consolidation as we continue to evolve.

Providers are also increasingly being asked to demonstrate how well they can get a client’s work force ready for retirement. The use of data analytics is an important competitive edge for developing tools and processes that can help overcome savings obstacles and that measure the overall health of the retirement plan. Voya’s focus on plan level measurement and reporting capabilities, including its plan health score card, support this growing trend.

Finally, a major source of competition we don’t talk much about is the individual’s own wallet. We’re competing every day for where an individual chooses to spend that paycheck. We need to make sure people of all income ranges have the appropriate tools and resources to plan, budget and allocate so we can put them on the path to financial security at retirement. At the end of the day, it’s all about making this process easier for our customers, so that we can help them retire better. That’s what drives us at Voya.

For more information, visit www.voya.com.