At the crossroads -- and in search of a road map -- might be the best way to describe the situation that many retirement-plan participants find themselves in these days.
For example, increasing life expectancies and extended retirement ages -- particularly among the vast baby-boomer population -- will only lead to increased costs in funding traditional defined-benefit pension plans.
Meanwhile, the recently enacted federal Pension Protection Act of 2006, a landmark piece of legislation, spells out new requirements in terms of funding and pension management for employers.
Amid these changes, employees must grapple with their own challenge: how to maximize the benefit of defined-contribution plans (DC), such as 401(k)s, which have increasingly taken the place of defined benefit (DB) plans. Employee inertia and confusion are very real byproducts of these new pressures to calculate and save effectively for a comfortable retirement.
Companies that have managed their own retirement plans over the years, or have outsourced the DC plan while continuing to manage a DB plan in-house, are recognizing these challenges and are looking for a single solution to address all of their retirement needs -- ideally, a total retirement-outsourcing solution that relieves them of the burden of administering DC and DB plans separately.
The consolidated annual growth rate for this "total retirement" outsourcing is projected to be almost 20% through 2007, according to a June 2006 study. Logically, this can help free HR executives to focus on core business strategy, while providing solutions across all the touch points of retirement management -- from plan design to employee communication and education, through governance and fiduciary reviews.
There's a lot to consider when it comes to outsourcing retirement programs. For example, DB plans that have been closed out or frozen to new participants don't simply exist in states of suspended animation; instead, they carry ongoing liability and require ongoing management.
Managing a DC plan carries its own set of fiduciary responsibilities and requires ongoing communication and employee education. Clearly, the outsourced solution is no mere hand-off; it calls for a truly strategic partnership, and the HR executives and C-suite leaders who sign off on a retirement-outsourcing contract should know what to expect.
Leaders should know that their employees are looking to them for retirement guidance more than ever before, according to the 2006 survey of employee attitudes and behaviors concerning company-sponsored benefit plans that queries a national cross-section of more than 1,700 active 401(k) participants.
The survey revealed that participants are struggling to find the money to save, and their confidence in their ability to plan for retirement is waning. In fact, just under half are confident they will be ready for retirement financially, and only 52 percent say they know how to calculate how much money they'll need in retirement.
Meanwhile, since 2003, survey participants report an increasing reliance on their employers and the financial-services companies that service their 401(k)s for information about investing for retirement (see chart).
Perhaps surprisingly, other sources of information have declined dramatically in importance since 2003, including friends and family (from 35 to 23%of respondents), and their own research via the Internet, television, and newspapers or magazines (from 50 to 26%).
What all this points to is an opportunity for employers and their service partners to educate employees on the basics of retirement planning and to motivate them to participate in their retirement plans and take proactive steps to achieve their goals for a successful retirement. It also points to the need for a partner that combines strategic insight with the tools and resources necessary to deliver results.
While the results of an effective retirement strategy are a satisfied workforce and reduced cost and risk for the company, the components that make up that strategy are complex...see next posting
Source(s): Mercer, Chatham Partners, LRP Publications