1st Quarter 2018
Defined contribution (DC) participants who simply have not saved enough cannot expect any available solutions to magically create a cushy retirement income stream out of nothing. However, plan sponsors can be proactive in working with participants to counter magical thinking, help them set reasonable goals and develop a coherent path to and through retirement. This article explains some of the key drivers of DC participants’ retirement decision making, common missteps by those making retirement decisions and how employers can help workers formulate a better retirement plan.
Employers must strike the right balance in providing benefits that are valuable and attractive enough to manage an orderly succession and turnover of their workforce while also achieving greater control in the management of costs and long-term commitments. This article describes changes in the retirement benefits landscape, the importance of understanding how today’s employees perceive their benefits, risk shifting under defined contribution (DC) plans and how DC plans can be “pensionized” in order to provide successful outcomes for participants. The author also discusses funding nonqualified retiree benefits such as employer-paid retiree life insurance, executive benefits, deferred compensation and employer-paid retiree medical.
By far, the most common form of allocation help for defined contribution plan participants is currently delivered in the form of target-date funds, which have been phenomenally successful in the marketplace. However, providers of managed account solutions are promoting new approaches and claiming that the benefits within these solutions more than outweigh their higher cost, especially in light of the declining costs of managed account services. At the same time, both managed account and target-date fund solutions are evolving to better serve a wide variety of participants, yet Department of Labor (DOL) guidance on the fiduciary aspects of selecting and monitoring these products has not kept pace. As a result, plan sponsors are faced with difficult yet highly consequential decisions within a complex and litigious market. This article explains what plan sponsors must do to meet this challenge.
Defined contribution (DC) plans are the primary retirement planning vehicle for U.S. workers, and target-date funds (TDFs) are currently popular for many DC participants. However, no two TDFs are the same and, as a result, returns have varied widely. For plan sponsors to help participants pursue their retirement income goals and help reduce the risk of litigation, they need to understand the methodology behind TDFs, the right questions to ask of providers and the framework DOL has provided for selecting and monitoring TDFs. Managed accounts also are emerging as a qualified default investment alternative (QDIA) that offers participants a more customized asset allocation than is available in a TDF. This article is designed to help plan sponsors that want to understand the best practices for evaluating and managing TDFs and managed accounts in order to offer the most beneficial DC plan possible to their employees.
A targeted retirement plan, coupled with financial wellness guidance, can help employees build an achievable vision for life after work. To succeed, however, employees must avoid five common retirement investing mistakes: (1) starting too late, (2) not saving enough, (3) investing too conservatively, (4) failing to prioritize retirement savings over other financial goals and (5) timing the market. This article describes each mistake, outlines what steps employers can take to help employees avoid them and identifies the business case for why employers should take those steps.
Changes in the Governmental Accounting Standards Board (GASB) reporting requirements will increase the liabilities of many state and local governments’ health plans in 2018. Although many public employers already have taken steps to control their retiree health benefit liabilities, additional actions may be helpful in the near future. The private sector has experienced similar changes and has been very aggressive in working to minimize their effect. This article describes strategies that many private companies have used to avoid a significant liability increase and can serve as a road map for public sector employers in dealing with GASB changes.
When we think about longevity and how long people are living today, we often think about money and financial calculations. However, there also are many human aspects to longevity that we should consider, including people’s perceptions of longevity and how to maintain social engagement as we age. Employees have to consider longevity not only when planning for themselves but also when planning for how to help their parents. Several projects conducted or supported by the Society of Actuaries (SOA) focus on the human side of longevity. This article provides insights on that research and helps employers assist their employees to think about the related issues.
The level of future Social Security benefits is an important aspect of retirement readiness. This article argues that for purposes of financial planning and retirement readiness, there is no justification for the assumption commonly made in studies and online advice that benefits will not be reduced for future retirees. We argue that the retirement readiness problem is worse than is commonly measured because the value of future Social Security benefits is often overstated.