My annual family summer trip gave me time to observe the people working at the various destinations, as well as the opportunity to talk to several employees. One gentleman stuck out to me as being more interested in retirement than many of the others. He was a tour bus driver and commented that if only he had enough money, he would retire. This is the fundamental issue employees and employers will deal with in the coming years. So how do we help employees get to the point they can feel they can retire?
First, I believe plans need to automate their plans. Even though participants know they need to save, getting them started is the hardest thing to do. Auto enrollment and auto escalation help participants with inertia bias to start saving and begin engaging with the plan. This, however, is not where you can stop with employees. Life happens; and for one reason or another employees get distracted and either stop or reduce their contribution with the belief that they will start again somewhere down the road. They may even take that dreaded hardship withdrawal or loan from the plan thinking they will make it up later.
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The problem is that time comes and goes and the participant never seems to get restarted or if they do not at a percentage they need to be at. Keep in mind life does happen and participants will get distracted from their goal. We need to find ways to keep or reengage participants in this process.
This is why I believe a good adviser adds value in engaging employees by helping committees think about the outcomes and how they come together through review or by working with plan sponsors on educational topics that would be beneficial to the employee pool.
An indirect path
We have had great success working with plan sponsors talking about topics that, while not directly talking about retirement, lead to a discussion in the end that does lead to it. Topics ranging from the basics of financial planning, ways to save for college, or even social security have helped build the overall education that can help keep employees engaged in the plan.
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So where does this all lead after a summertime vacation with the family? This is the framework of shaping the thought and decision processes around the retirement plan and relates it to what a participant does in their everyday life to plan their summertime vacation. That is, when on a summer road trip, they have to map out the route that they take. Sometimes there are detours and adjustments that need to be made. But, ultimately, the destination remains the same. Retirement planning is the same way.
It seems so simple. But the simpler you make it for participants to get started or reengage with the plan in tangible steps they have to take, the better the outcomes you are likely to see.
Ludwig, ChFC, AIF, CRPS, is an LPL Financial advisor with LHD Retirement. He can be reached at firstname.lastname@example.org.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does adviser assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
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