Rebecca Moore, senior editor at PLANSPONSOR, spoke with Bob Tomaschko, senior director of compensation, retirement and HRMS at Land O’Lakes, and Greg Long, executive director at the Federal Retirement Thrift Investment Board, during a panel at the PLANSPONSOR National Conference about the issues that can plague plan sponsors.
One aspect of the retirement plan industry has been subject to media coverage and documentaries: fees. In the wake of the Employee Retirement Income Security Act (ERISA) Section 404(a)(5) participant fee disclosure regulations, there was much expected calamity. However, when Moore asked the audience how many received push back or questions from plan participants, she was met with a low rumble of laughter. Although the participant backlash has not occurred, plan sponsors should remain diligent about reviewing their fees and making sure they are reasonable, Long and Tomaschko stressed.
The study of behavioral economics has led to the evolution of an “ ‘auto’ everything” retirement plan culture. Long argued that this development has been very effective, and he anticipates that nearly 90% of his participants will be able to retire with dignity as a result. “As plan sponsors, we are choice architects now,” he said. “You want to make the right choice the easy choice.”
Tomaschko agreed, and urged the panel attendees to look at this from a participant perspective. He does not think plan sponsors have become more paternalistic, and believes “helping people be comfortable retiring when they want to retire [is] the right thing to do.”
What Don’t Participants Know?
A recurring theme of the discussion: Participants don’t know what they don’t know. “How many participants think bond prices don’t go down?” Long asked. Too many. “How many of your participants have a specific, measurable, actionable goal?” Not enough.
The focus on account balance is misguided, Long said. Participants should look at that their retirement income will be, not at a lump sum. According to Long, “If we can change the focus in participants’ heads, that will change behavior.”
Tomaschko noted that Land O’Lakes’ search for a perfect-for-participants annuity product has become an ongoing project. Until they find that solution, he says, better education is a must. When many participants consider making withdrawals from their retirement savings, which not many do, they imagine taking 10% of their balance annually, a rate Tomaschko said is far too much. As participants retire, Long added, some will keep their savings in the plan, while others will roll their funds into an individual retirement account (IRA). It is important, he said, to ensure that they are making that decision with their eyes wide open.
The behavioral change necessary for Americans to be able to retire comfortably and with dignity is massive, Long said, and will take decades to implement and to produce results. Faced with that challenge ahead, Long said: “Let’s get started.”
Unfortunately, most people have neither time for nor interest in their retirement plans, Tomaschko noted. “If I have five minutes to watch a video on large-cap versus small-cap funds, or a cat playing with a squirrel, I’m going to look at the squirrel,” he said. Employees are likely to do the same, and need plan sponsors to help them make the best choices to improve their retirement readiness.