Wide differences in access to and participation in employer-based
retirement plans exist across states, with variations by employer size
and industry type as well as by workers’ income, age, education, race
and ethnicity, according to a report released by The Pew Charitable
Trusts.
The report,
“Who’s In, Who’s Out: A Look at Access to Employer-Based Retirement
Plans and Participation in the States,” found that 61% of workers in
Wisconsin participate in an employer-based pension or retirement savings
plan, compared with 38% in Florida. Access and participation is higher
in the Midwest, New England, and parts of the Pacific Northwest—and
lower in the South and West.
The report also finds that among
Hispanic workers, access to a plan is around 25 percentage points below
that for white non-Hispanic workers (38% vs. 63%, respectively). Black
and Asian workers also report lower rates of access than white
workers.
John Scott, director of Pew’s retirement savings project, notes that half of the states are looking at their own solutions. See “Road Ahead for Auto-IRAs and Open MEPs”
Overall, Pew’s analysis, based on a pooled version of the Census
Bureau’s Current Population Survey (CPS), found that 58% of private
sector workers have access to a plan, while 49% participate in one. Pew
also found that more than 30 million full-time, full-year, private
sector workers ages 18 to 64 lack access to an employer-based retirement
plan, whether a traditional pension or a defined contribution plan such
as a 401(k).
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Retirement plan advisers
solve problems, noted E. Thomas Foster, a spokesman for MassMutual’s retirement
services division, speaking at a presentation by MassMutual on Tuesday, and
they are experts at sizing up a plan. “When I talk to plan sponsors, I ask a
few simple, probing questions,” he said, noting that size of plan is of little
importance. At a session with plan sponsors ranging from Apple and
Williams-Sonoma to smaller business owners, Foster says the same question
resonated with all plan sponsors.
“How many of you can say succinctly what percentage of your participants are
ready to retire right now with 75% to 80% of income at age 67?” he recalled. The
answer might be surprising. Very few were able to quantify how plan participation
actually ties into outcomes, and Foster pointed to education as the solution—or
perhaps the problem.
“You might think
you have a good education program, but if you can’t answer that, your education might
not be as good as you think,” Foster said. Plan sponsors need a process that can
lead them through the metrics and analysis to see where on the readiness scale
their employees are.
Participation
doesn’t tell the whole story, agreed Elaine Sarsynski, executive vice president
of MassMutual retirement and Worksite insurance. “Plan sponsors may think they have
a 95% participation rate, but that can be so far from truth,” she said. “Employees
may not be investing enough, they may not be invested properly, and it can
create real issues.” Getting to the real statistics is critical, Sarsynski
said.
According to Foster,
the retirement industry may be too hung up participation while outcomes go
under the radar. “You can have 100% participation in the plan, but if you don’t
have the right outcomes, that is an exercise in futility,” he said. The key is
to have the right way to measure for employees how much they will be able to receive
in retirement for the rest of their lives, and it is critical to ask the right
questions.
NEXT:
Retirement readiness and plan outcomes tied to education
The solution is tracking participant
progress and being able to quantify whether the plan is on track for
participants, Foster said. One way to get to optimal outcomes is the plan’s
education program, revealed in MassMutual’s new research as increasingly
important to plan sponsors. Employee
education is universally valued, according to “A Winning Combination,” a
study that looks at what retirement plan sponsors value most from financial
advisers.
The study also found that most plan
sponsors want a plan adviser to educate employees on how the plan works and the
importance of contributing, but those without an adviser are especially
interested in personalized advice for employees, especially those nearing
retirement. Those working with an adviser want more frequent education than
they get.
Most plan sponsors with assets
between $25 million and $75 million want an adviser to provide education or
advice to their participants in person semiannually or more often. Plan sponsors
that don’t work with an adviser are more likely (49%) to choose education
annually (in contrast to 39% of those that work with an adviser).
Possible obstacles to an education
program, according to the report: some advisers mentioned needing better
cooperation from plan sponsors in order to provide education to participants.
They said it could be difficult to motivate plan sponsors to schedule a time
for the adviser to come in and conduct group or one-on-one sessions.
Employers that work with an adviser
said education, service and fiduciary responsibilities are the best combination
of attributes in a value proposition statement. And those plans without an adviser
gave top ratings to education and service, when paired with an adviser’s
commitment to reducing plan costs.
The MassMutual “Winning Combination Study” polled
565 plan sponsors: 449 that work with an adviser, and 116 that do not, with
plan assets from under $1 million to $75 million. The research included two
focus groups with plan advisers and was conducted in the summer and fall of
2015 by Greenwald & Associates.