As the year ends we are reminded how important it is for providers to work closely with plan sponsors to ensure that their offerings evolve in ways that have a positive impact on plan participants’ ability to boost their retirement readiness and feel confident about their retirement savings plan. To understand where we are heading, it is helpful to look back at some of the most noteworthy industry topics over the past year and consider how they will continue to affect the 403(b) plan space in the year to come.
Participant Fee Disclosure
Without question, participant fee disclosure was the most substantial development in the retirement plans space this year. In many cases, executing fee disclosure requirements proved to be more complicated than anticipated for everyone involved. In fact, the Department of Labor acknowledged the complexity surrounding this new regulation by twice extending the regulatory period to comply.
For most plan sponsors, fee disclosure provided an excellent opportunity to engage participants and encourage them to take a more active role in saving for retirement. Fee disclosure has opened conversations leading to a better understanding of what plan sponsors and participants are paying for the services and benefits they receive. Fees can and should influence participant investment decisions, but are only one part of the story. Overall plan value must be part of the fee disclosure conversation.
As providers and plan sponsors evaluate the success of this initiative, here are a few things to consider:
- How helpful were the materials participants received?
- Did they successfully convey all the required information?
- Was this information clearly understood by plan sponsors and participants?
- How smooth was the fee disclosure implementation process?
- And most important, how are you determining the answers to these questions? Do you have relevant data or are you gauging your success through anecdotal feedback?
The ramifications of fee disclosure have not yet been felt and it is unclear, at this early stage, what participants will do with this new information. It is up to providers and plan sponsors to take lessons learned from the initial disclosures and enhance communications in a way that helps participants understand the true value of their total retirement plan offering.
Transformation of Retirement Plan Communication and Service
A particularly meaningful and positive trend in 2012 was the movement toward enhanced retirement plan communications. This year, the industry saw a clear acceleration with a focus on retirement education and a higher level of value-add services delivered to plan sponsors and participants. Industry leaders, including Lincoln Financial, conducted and shared research illuminating plan sponsor attitudes about the effectiveness of communications programs. Providers who offer communication and education across a variety of channels are more likely to motivate participants to take actions that will boost their retirement readiness.
The industry is coming to the realization that a retirement plan communications program is not “one-size-fits-all.” Whether it is online, in print, on the phone, through the mail or in one-on-one in person meetings, providing employees with resources tailored to their needs and their environment increases their understanding of plan offerings and their engagement with the plan. This is especially true in the health care profession – a field often characterized by around-the-clock care and variable work schedules. Actively researching how plan participants want to receive information is critical and reaching them on their terms are essential ingredients to overall plan satisfaction.Many providers offer knowledgeable retirement professionals who can help answer any questions about plan services, including fee disclosure. This year, some companies announced they will hire people who will go on-site – a service that Lincoln has practiced for 15 years and firmly believes provides a high value of service to plan sponsors. In many cases, these on-site retirement specialists serve as an extension of the HR department and play a critical role in helping participants understand the benefits they receive from their plan and what they need to do to better prepare for the future.
Providers are also changing the conversation around retirement savings. In the new year, we will likely see retirement education moving away from plan mechanics to a more personalized communications approach. An outcomes-focused conversation, such as asking participants where they want to be when they retire, and considering their monthly income at the time of retirement, is becoming more prevalent. This approach is transforming participants’ interest in their retirement plan benefit in a more tangible and meaningful way.
There’s no doubt that fee disclosure will continue to evolve. Providers, who proactively monitor and prepare for additional requirements, in partnership with their plan sponsors, are more likely to reap the intended benefits of transparency. The positive transformation of plan communication and services will likely continue as well.
In addition, privacy and technology issues will be top of mind for providers and plan sponsors in 2013. Providers and sponsors must maintain their vigilance about the privacy of their employees’ information. In today’s technology environment, where personal and professional worlds blend in to each other and mobile devices support a 24/7 connected mentality, traditional firewalls are no longer sufficient. Additional safeguards must be implemented. Plan sponsors should make sure their providers are diligent about protecting employee information – including login policies, password protections, access validation and more.
We also look forward to a heightened awareness of the need for people to save in a way that gets them “to and through” retirement. As savers demand ways to generate a retirement paycheck for life, plan design will evolve to address this compelling issue. True income guarantees within employer-sponsored plans will become more prevalent.
Plan sponsors and providers must embrace these issues and demonstrate their commitment to foster employee confidence about retirement savings. After all, helping people take actions that result in healthier outcomes – whether for physical, mental, economic or financial well-being – is a common thread between the health care, non-profit and retirement planning industries. This is an exciting time in the evolution of employer-sponsored retirement plans. All stakeholders have the opportunity to be part of solutions that will better engage savers and improve our outlook on the future.
Chuck Cornelio, President, Retirement Plan Services, Lincoln Financial Group
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