Who Is Responsible for Retirement Security?

National Retirement Security Week, from October 21 through 27, highlights the complementary roles of governments, employers and individuals in creating better retirement security for everyone in the U.S.

National Retirement Security Week highlights the major influence of defined contribution (DC) retirement plans when it comes to helping U.S. employees generate assets to live on in retirement.

To mark the occasion, experts and analysts have published copious amounts of new reports, white papers and blog posts harkening both the successes and the shortcomings of the DC plan system. Many agree that plan advisers and plan sponsors—along with government regulators and product providers—have done a lot to boost retirement security since the passage of the Pension Protection Act (PPA) in 2006. But there is also near universal agreement that all retirement industry stakeholders can do more to help prepare people for their post-employment future.

According to Jim Poolman, executive director of the Indexed Annuity Leadership Council (IALC), one shortfall in the industry is the fact that participant education has focused far more on the accumulation of assets—rather than on full retirement planning, which also includes guidance on how to spend down those assets effectively. Poolman says plan sponsors, broadly speaking, are only just starting to look beyond maximizing participation rates and asking whether plan participants are taking full advantage of the employer benefit offering.

“Beyond accumulation, it is important to talk about lifetime income, about the risk of outliving your income or your retirement savings,” Poolman says. “We need to talk about expenses and educate individuals about unforeseen costs and hardships in retirement. This is educating them not only about saving for retirement, but about what circumstances surround a successful retirement.”

Poolman suggests “unforeseen circumstances,” such as the sudden diagnosis of a chronic medical condition, can totally derail a participant’s savings strategy—assuming there is even one in place. Even those who proactively take care of their health and put plans in place for paying for future health care face an incredible challenge, given the rising cost of care over time. He says employers can step up here and implement education and potentially even ancillary savings opportunities around medical security for workers’ retirement years.

Employees Want Help—That Much Is Clear

According to Robert Scheinerman, president of group retirement business at American International Group (AIG), a survey conducted by VALIC, an insurance company within AIG, shows one in four employees “do not even know what to ask first about retirement planning.”

There were various qualitative responses which demonstrate a large portion of the U.S. population does not really feel comfortable doing retirement planning on their own,” Scheinerman says.

He recommends plan sponsors utilize a three-pronged approach when designing their benefits. One prong will address those rare individuals who understand their retirement needs and how to craft their own savings strategy. The second prong or tier will be tailored for those who believe they have some idea about how to make a plan, but continue to need support. The third and most important tier will be designed to benefit the majority of people, who are unfamiliar with retirement planning.

“While there are a certain amount of people who think everyone should just do it themselves, we know today that this is not realistic,” Scheinerman says.  

Communications via email may be sufficient for supporting those participants who take charge of their own planning needs, he says, but purely digital communications are not sufficient for those requiring additional support. Offering in-person or at least on-the-phone retirement counselors makes a world of a difference.

“Should plan sponsors or participants express concern with investment portfolios, for example, a retirement plan counselor can analyze investment profiles and pinpoint which participants are investing too aggressively, or too conservatively,” Scheinerman says. These are the types of questions most people just don’t feel comfortable answering on their own—even those with some level of expertise on finance as a general topic.

Scheinerman and Poolman agree that plan sponsors should consider developing formal education schedules that include regular follow ups and benchmarking. Plan sponsors must also remember how investment risk tolerance changes as employees age, and ensure their participants know that retirement planning is a marathon—not a one-time event.

“Quality participant education occurs throughout the life cycle of the plan participant. Getting somebody to contribute 10% to their 401(k) is not the end of the game,” Poolman says. “We should be promoting continuous education about how important it is to be financially literate throughout your entire life, so that you make necessary changes along the way.”