cover story | PLANADVISER May/June 2017

Power Stance

Advocating for aggressive plan design, to help ensure what workers save goes the distance

By Lee Barney | May/June 2017
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Art by Brad Holland

“With one in three Americans having zero saved for retirement and nearly one-third of Americans over the age of 85 having no savings, it is hard to say that we as a nation are preparing people for retirement,” says Rick Irace, chief operating officer (COO) at Ascensus in Dresher, Pennsylvania. “As providers, we have been charged with this noble cause. We are not doing enough.”

Advisers are uniquely tasked with changing this trajectory, and they have been making headway, says Justin Morgan, managing director of plan administration and service at Unified Trust Co. in Lexington, Kentucky. “Advisers are succeeding in making sponsors more aware of the importance of the 401(k) plan as it relates to the end goal of retirement income replacement rates,” Morgan says. “Retirement readiness is resonating among sponsors. By showing them what percentage of their work force is on track to be able to retire, advisers can have more successful conversations with them.”

Approaching the conversation about retirement readiness from the sponsor’s point of view rather than the participant’s will get the sponsors to stand up and pay attention, says Jim Kais, senior vice president and national retirement practice leader at Transamerica, in Miami.

“If you tell the chief financial officer [CFO] that the company is going to pay for the cost of people not retiring, either now or later, and that the cost of setting up a plan and offering matches is far less than the cost of health care and workers’ compensation for older workers”—let alone the risk of having a work force that cannot afford to retire—they grasp the significance of establishing a robust plan, Kais says. “Put it in terms of profit and loss,” he suggests.

Indeed, a recent TIAA survey of 900 plan sponsor executives found that their top concern was people delaying their retirement—thinking they had too little saved to retire on, notes Daniel O’Toole, senior managing director and head of research and plan menu construction at TIAA in Boston.

In line with the worry about cost is the practical issue of work force management, says Sri Reddy, senior vice president and head of full-service investments at Prudential Retirement in Hartford, Connecticut. “Plan sponsors are beginning to realize that if their participants cannot retire, it may produce unintended consequences,” Reddy says. “If you expect five people to retire and only one does, you are unable to promote four people.” Together, these two issues “resonate in a language for plan sponsors that makes sense,” says Rob Austin, director of research at Alight Solutions in Charlotte, North Carolina. “When you tell the plan sponsor that people might keep working simply because they cannot afford to retire and that this will cause problems for succession planning, then, without question, the retirement adequacy conversation holds more gravitas.”