In the ’80s the focus was on availability of retirement plans, in the ’90s the focus was advice, and in the 2000s, it is automation. Musto told attendees at the 2012 PLANSPONSOR National Conference the next stage will be a focus on outcomes.
Musto said government policy must ground everything on outcomes. Plan sponsors need to defend the positive things about retirement plans, encourage flexibility and shift the dialogue from cost to value. He added that the industry needs Washington to open the playing field so practitioners who know the business can drive solutions.
Plan sponsors are focused on outcomes, but they also have to worry about cost and fiduciary risk. Musto suggested sponsors look at retirement plan improvement as a matter of corporate governance; financially healthy employees have been tied to a company’s financial success.
In the current environment, plan sponsors are increasingly turning to advice solutions and professional diversification is working, according to Musto. Target-date funds (TDFs) produce better returns than those achieved by do-it-themselves participants, he pointed out.
Musto has several ideas for taking the next turn for retirement plans:
- Simplify choice for participants, but expand professional diversification. Musto suggested offering managed equity, managed fixed income and managed cash investment options and educating participants on the three choices that are professionally managed behind the scenes.
- Apply more rigorous benchmarking. Sponsors should use provider reports for all plan and call center transactions to identify the ones that bring down outcomes. For example, he noted, features that frustrate plan participants, increase costs or create account leakage.
- Offer comprehensive financial education. Musto said competition for participant financial action is stiff. Most would rather pay bills or pay down debt than save for retirement. He suggested plan sponsors link participants to resources that will help with these concerns and tee up the next step of saving for retirement.