Cynthia Egan, president of T. Rowe Price Retirement Plan Services, Inc., said participants overall have “stayed the course,’ during the financial crisis, with less than 4% of them in plans recordkept by T. Rowe Price taking any action. She also said sponsors have been proactive in helping participants. However, the financial reality is present: Some sponsors are talking about reducing the match and hardship withdrawals are up slightly.
Otherwise, the defined contribution world is still battling the same issue of getting participants to use DC plans as best they can. “Economic crisis or no economic crisis, DC has the same issues,’ said Egan. She outlined two main reasons why the system isn’t working to its full potential, pointing out that T. Rowe’s research shows that 74% of participants are unconfident about investing and are risk-averse. “We must recognize that the vast majority of individuals are savers and not investors…and I would underscore that with they’re not interested,’ she said. It’s not even an issue of advice; but they actually need someone to do it for them, Egan added.
Secondly, Egan said DC plans are overcomplicated, but noted the step in the right direction with the Pension Protection Act. She said of the plans where T. Rowe has implemented auto-enrollment, 94% of participants stay in plans. Egan said that, as an industry, now is the time to simplify and be bold, increasing automation while offering tools for the smaller percentage of people interested and confident about investing.
Egan said while pushing for automation, the firm is also shifting educational efforts to focus more income in retirement and financial responsibility. “We would really like to see generations coming along understanding “how much do I need.’’
The Retirement Income Question
At retirement, T. Rowe is an advocate for keeping equities in a portfolio. Christine Fahlund, senior financial planner, said just as it is key for younger participants to stay in the plan, it is key for retirees to stick with the allocation, even if their inclination is to leave it. When asked if the financial crisis has made the firm question whether equities are good in a portfolio at retirement, Fahlund said, “We’re not tweaking our philosophy at all.’
Fahlund said in addition to staying the course, people need to be realistic about retirement. “I think it’s good … to maintain flexibility in your thinking in terms of when you retire,’ she said. Many people are relying on part-time work, but that’s also not necessarily reliable. “How many greeters can Wal-Mart hire?’ she said.
T. Rowe Price is looking into providing more retirement income products, such as guaranteed income products and managed payout funds, but the firm has not actually decided anything yet. The firm offers an annuity rollover platform through the Income Solutions platform from Hueler Companies, and also offers funds that can carry into retirement and used with an adviser to make systematic withdrawals.
Egan said that the guaranteed product is something T. Rowe is looking into, focusing on flexibility and reliability. Sponsors right now are pondering the tough question of whether to include a guarantee, she added. Fahlund said the guarantee question is a tough one for investors that they should discuss with their adviser. If structured appropriately, a guarantee might be good for investors, but T. Rowe Price is still very much in the process of looking into it, Fahlund said, noting that “the process’ means they are spending hours and hours looking into it. “We won’t come out with anything just to come out with it,’ Fahlund said.