More than half of plan sponsors want to review their workplace retirement plans more than once a year, but only 44% actually get together with their adviser to do it, according to a study by MassMutual Retirement Services.
Part of the problem is that when plan sponsors want to conduct a plan review, they are doing it for the wrong reasons, says Tom Foster, national spokesperson and practice management leader for retirement services at MassMutual.
MassMutual polled 565 employers that sponsor retirement plans, including 449 that worked with an adviser and 116 that did not. The plans had assets ranging from under $1 million to as much as $75 million. The research was conducted by Greenwald & Associates.
The survey found that many employers conduct retirement plan reviews because they are worried about high fees or plan investments. The one category that got the least amount of attention was employee retirement readiness.
While it is important to keep fees down and review plan investments, the one thing plan sponsors should be reviewing that they are not is how employees are doing with their retirement savings goals, Foster says.
The MassMutual poll found that only one in four plan sponsors reviews its plan to determine whether employees are actually saving enough to retire, Foster says.
Quote“We need to focus more on the effectiveness of the retirement plan and educational programs to help ensure that working Americans are saving enough.”
“This points to a missed opportunity on the part of both advisers and sponsors. We need to focus more on the effectiveness of the retirement plan and educational programs to help ensure that working Americans are saving enough to retire on their own terms,” he added.
Foster gives talks across the country to plan sponsors, advisers and plan participants. He always asks plan sponsors how many of their employees are on track for retirement at age 67 with the ability to replace 75-80% of their income in retirement.
He suggests that advisers analyze the current state of a retirement plan before making suggestions about how to fix it. If employees are not on track, show employers a tangible way to identify who is and isn’t ready for retirement.
Once plan sponsors have analyzed the plan and how individual employees are doing, it is time to prescribe a solution, says Foster. It can’t be a generalized solution. It must target each employee to help them do a better job of saving toward their own retirement.
The last thing is to follow up with the plan and each employee to see if the prescribed solution brought their retirement savings back on track.
“Doing follow up is the key to success because one of the biggest issues is that if I can’t do that analysis, how can I possibly be able to determine the health of my plan if everything is in general terms or hypotheticals?” he asks, adding it’s up to advisers to get specific.
Quote" Rather than focus on participation, we need to focus on outcomes. In our industry that is a problem."
“We’ve got to be more specific in the way we engage employers. Rather than focus on participation, we need to focus on outcomes. In our industry that is a problem. We are so hung up on participation, but outcomes dictate plan health,” Foster said.
If employees can’t retire on their own terms, it will have major repercussions for employers. Older employees have more health problems and higher salaries, but a lot of times productivity goes down as people age. It pays to be more involved with employees on the front end to make sure they are retirement ready than to do nothing and suffer the expensive consequences later.
Foster says there are two ways to drive better retirement outcomes: Plan design and how companies engage employees. It is very important that employers make sure their plan meets the goals and objectives of the employees the company has today.
Many plans were set up more than a decade ago for employees with different demographics and different goals. Many companies now have a younger workforce and younger management teams so it is important that a company’s plan design keeps up with employees’ current retirement savings objectives, he says.
Plan reviews can lead to improvements in plan design that will better meet employers’ objectives.
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