Making Retirement Work

Retirement benefits and how to make them work — as in, you know, actually enabling employees to retire — was the subject of a spirited panel discussion at the second day of the Health & Benefits Leadership Conference in Las Vegas.

“Every day for the next 15 years, 10,000 people will reach retirement age,” said moderator Melissa Kahn, principal at benefits-consulting firm MJKAHN Associates. “This is the year that the last of the baby boomers will be turning 50. People are living longer and staying healthy longer and they’ll also be working longer.”

Many of these employees are concerned about retiring without enough funds to see them through old age, she said.

Panelist Greg Long, executive director of the Federal Retirement Thrift Investment Board, which administers the federal government’s 401(k) plan for federal employees (which has assets of $400 billion), talked about a step his agency took: It created an online tool that shows plan participants the monthly amount they would receive from an annuity based on their current plan balances. “You want them to focus on that monthly number, not the number that represents their account balances,” he said. This proved to be an excellent way to get participants focused on saving more and planning more for their retirement, said Long.

Laurie Rowley, co-founder and president of The National Association of Retirement Plan Participants, a nonprofit dedicated to financial education for the nation’s 75 million defined-contribution plan participants, discussed a comprehensive study her organization undertook to understand what drives plan-participant behavior. The biggest single impact on participants’ deferral rates, they found, was the company match. Financial literacy and the confidence participants have that they can actually acquire sufficient resources to retire comfortably were also key drivers, she said.

Trust was also an issue, said Rowley, with only 26 percent of study respondents saying they felt they could trust their DC plan’s recordkeeper.

Financial literacy has a fundamental impact on plan participant behavior, she said, including their deferral rates. Many people don’t understand the terminology related to financial planning and retirement.

“Financial literacy across all demograhpic groups is very low, and that impacts their confidence,” said Rowley. “We need to create personalized education that’s tailored around people’s financial needs. If you can inform them in a proactive way, that will really engage them.”

NARPP has created “just-in-time” educational materials that employers can provide to their workers as they’re making major financial decisions related to retirement planning, she says, adding that this material is available for employers to link to their own websites. Online education can also be valuable because some employees may be reluctant to let on how little they know about retirement and financial planning in front of their peers in a traditional classroom setting, said Rowley.

Catherine Golladay, vice president of participant services at Charles Schwab, said her firm has retrained its call-center staff to take a more “consultative” vs. transactional role with plan participants, using events such as an employee who calls in to make a hardship withdrawal from his 401(k) to discuss things like setting up an emergency savings fund and re-examining his investment strategy to generate higher returns.

“Our call centers have been trained to take a more conversational approach to interactions, with the goal of getting plan participants to think about whether their decisions make sense in the context of their financial lives,” she said.

Rowley said many employers that have set up auto-enrollment programs have cut back on financial education for their employees — and that’s a mistake.

“Our study shows that people who are auto-enrolled tend not to value their plans as much and are less financially literate,” she said. “But many plan sponsors have decided to roll back financial education in light of auto enrollment. That’s not right — many people still aren’t investing enough, and they still need education.”