Employees must change retirement mindset

Employers need to think outside the box when it comes to tackling employee retirement saving. The three-legged stool of social security, pension and personal savings is going to be a thing of the past for most of today’s workforce. At an employer retirement symposium in Bethesda, Md., Wednesday hosted by AFS 401(k) Retirement Services, LLC, the group challenged the 50 or so employers in attendance to throw away their current plan and start fresh

“No one likes change,” said Daniel Haverkos, lead consultant for retirement plans at AFS. “But it will force you to reevaluate why you have a retirement plan,” and refocus around that. He said to start first with new plan design and provided three recommendations for innovating in this area:

1. Auto-enrollment: “About 50% of all Fortune 500 companies are using some version of automatic enrollment,” whereas 65% of AFS’ client base uses auto enrollment. He says while the standard of starting auto enrollment at 3% was established by the Pension Protection Act of 2006, “you’re doing a disservice to your employees starting there, because you’re suggesting to them that’s enough.” He recommends starting at 6% instead.  
2. Auto-escalation: “We hate to lose from our retirement account and even more so we hate to lose from our paycheck,” Haverkos said. He recommends tying auto increase to certain times of the year when you evaluate pay raises or to tie it into January 1, “and the feeling of losing from our paycheck is diminished some.”
3. Re-enrollment: He says that employers should set auto enrollment at 6% and then do re-enrollment for all employees who are contributing under 6%.

Haverkos also said that, as a goal, “if you can get your employees up to 12%, then we’re getting people closer to being able to save for retirement.”
Another way that employers should innovate is around employee education. Haverkos says that employees come out of the broad meetings about 401(k)s always asking the same three questions that clearly weren’t answered in the session: 1) How much do I need? 2) How much do I invest to get there? 3) What will my retirement income be? Haverkos says it’s the retirement industry’s fault that employees are still confused after retirement education courses. They need to be reconfigured to answer these three questions.

One new way of educating people is by using technology that ages a current picture of an employee to how they’ll appear at retirement age. Haverkos says that by seeing a future version of yourself, instead of thinking of that self as a stranger, people save 50% more for retirement.

Alex Assaley, lead retirement adviser at AFS and EBA’s 2012 Retirement Adviser of the Year, also emphasizes that simplified investments is the last component of his firm’s strategy for employers.

“I don’t think target-date funds are couch potato vehicles,” said Hail Bjornson of J.P. Morgan Retirement Services who also presented at the conference. “Too much choice leads to making no choice. Bjornson says that while only 18% of people in a J.P. Morgan survey are in target-date funds, he expects that number will rise to 40% with more people in their 20s and 30s embracing the vehicle.

The half-day meeting was called Chutes and ladders: Changing how we think about retirement plans.