Retirement Readiness Q&A

Last Updated: February 06, 2012

After our recent Educational Series Webinar on Retirement Readiness: Is your plan getting employees to a better retirement?, Cody Mendenhall, CFP®, Executive Director, responded to the questions the audience asked. Here’s what he had to say. Question: In this economy and with the markets fluctuating so much over the last year, do you see a trend in employer confidence in individuals’ ability to save? And if so, how are they responding to this economy? Cody: Individuals’ lack of confidence in their retirement readiness is well documented in studies, but a recent study from Aon Hewitt showed a significant decline in employer confidence in their employees’ retirement readiness as well. The study showed a decline of employer confidence from 30% last year to just
4% this year. So year-over year, we’ve seen a significant drop in retirement readiness confidence levels, even from the employers’ standpoint. Studies have also shown that many sponsors’ plans have increased both attention and resources to participants in this coming year. Many plan sponsors are actually looking to add plan features, and are beginning to concentrate on how those plan features can be used more effectively. For example, more employers plan on implementing automatic enrollment, and I’m seeing more use of the auto escalation feature for contributions as well. Question: Is retirement even possible for Americans anymore? And is it the role of the employer to contribute to this dream? Cody: When I talk about retirement, I’m talking about an individual’s future at retirement age. Everyone has the choice to have a better future. The idea that retirement is a day when you no longer work, buy a sailboat and go sail around the world is most likely not possible for most Americans, especially those who started saving late. But that doesn’t mean that there’s no hope and that people shouldn’t prepare for their future. The truth is that everybody has options for retirement when they get to retirement age. And our job, as consultants, is to help them understand what those options are. Maybe for some people, it’s the joy of not having to wake up to an alarm clock anymore. Bottom line, even people who start planning for retirement late in their careers can improve their future; for example, perhaps by reducing the amount of hours that they’ll have to work once they get to a specific age. Employers can make a huge impact here by providing the resources for individuals to prepare by following logical steps. First, talk about your vision of retirement and make a choice to prepare for it. Second, choose a retirement plan strategy, act on it, then monitor the plan annually. And finally, reach that day of enjoyment, whatever that looks like. As employers have moved away from defined benefit (DB) pension plans in favor of defined contribution (DC) pension plans, workers have been left with what the industry calls an “income gap” previously filled by the DB pension plans. I believe the answer to this problem is finding a balance. In the DB pension plan world, plan sponsors were the ones that had all the responsibility. In the DC plan world, individuals have been transferred all of that responsibility. We need a DC plan, but with some of the attention to individuals and resources from the plan sponsor that existed in the DB world. Question: I understand that we will be faced with a national problem if individuals aren’t prepared for their future – or fail to become “retirement ready.” As a plan sponsor, I think we have an opportunity to make an impact on that potential crisis, but where in the world do we start? Cody: I agree. We can make a big impact on retirement readiness not just for individuals, but on society as a whole. What plan sponsors can do is create an education plan that is more effective by being more results focused rather than activity focused. And some of the analysis we’ll provide is on the replacement income ratio, a common metric that individuals use in individual planning to see if they are on track to replace somewhere between 70% to 90% of their pre-retirement income. We’re introducing it into the actual plan to measure the replacement ratio for the plan as a whole. This allows us to see the health and effectiveness of the plan in aggregate. Workforce data will allow us to identify unique needs of each employer’s retirement plan. We will work with both employers and record keepers to pull key data, including data unique to a plan to customize an education program appropriate for a specific plan’s needs. Continual communication, especially one-on-one efforts throughout the year are crucial too. Question: We already have a lot of resources and tools available for our employees from our record keeper and Pension Consultants. What more can we do to help our employees become retirement ready? Cody: The industry does a decent job of continual improvement with these resources, but we must combine these with a focus on one on one interactions. Unfortunately, some people procrastinate saving for retirement. To be effective we must take a more active role in helping employees by planning their retirement options with them through one on one interactions. We also need to have a continual message, not just one time meetings. We will use all resources available to prepare a custom campaign for each retirement plan that not only includes one-on-one interactions, but also specific themes in emails, on websites and in newsletters. Getting this right is so important and we are committed to its success. View the on-demand video of Cody Mendenhall’s presentation on Retirement Readiness: Is your plan getting employees to a better retirement? PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


Pension Consultants, Inc.



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