|
Guest Article
Retirement Crisis in America: The Journey to Dignity or Despair
By Richard A Campbell, CFA. Mr. Campbell is the President and Senior Consultant of Dover Consulting Group located in Dayton, OH. You may contact Mr. Campbell at rich@dover-consulting.com or by calling 937.643.2866.
As most forms of defined benefit plans face extinction, the participant directed 401k plan, for most of us, will become (or already is) our only retirement vehicle. As employees, we are all entering a period where we will have near total financial control of our retirement futures. Most everyone will agree it is a good thing to save for our retirement years. However, many of us only talk a good game and don't follow through on our savings plan. And the large majority of those who do save don't save nearly enough.
As service providers for retirement plans, we know (with nearly absolute certainty) that:
- Most employees will spend nearly their entire retirement lives financially crippled.
- Far too many employees do not participate in currently available retirement plans either through their employer or individually.
- Those who do participate do not save anywhere near enough money.
- They do not want to be educated regarding appropriate financial decisions.
- Too many make no choices for fear of being wrong.
- When they do make choices on their own, they are often bad ones.
- In most cases, because retirement is so far in the future, employees simply don't feel an urgency to take action . . . so they do nothing.
What can be done?
Simply put, if employees won't or can't do it for themselves, employers and retirement professionals must do it for them! We need to develop a simple program and an easy way to implement its structure to accomplish the goal of providing each employee a reasonable opportunity to retire with dignity. This part really isn't hard since the retirement industry after many years of experience with 401k plans is reasonably certain what doesn't work. Likewise, there have been numerous articles written and studies conducted about what does work.
At the core of what does work is the premise that it must be done for the employee, not by the employee. Adopting this concept is absolutely critical to any successful program.
The "Twenty Easy Steps to Retirement with Dignity" outlined below do not exhaust all possibilities. It is not an epiphany, but a collection of current ideas and experiences. This approach will cost plan sponsors some money to implement, but not much. And, if they don't want to pay, the expense can be made a participant charge where appropriate. The bottom-line is it is desperately needed now! And the majority of participants will be better off with it than without it even if they have to pay for it themselves.
Twenty Easy Steps to Retirement With Dignity
- Wholeheartedly commit to the goal of providing every employee an opportunity to retire with financial dignity through his/her retirement plan.
- Carefully interview professional and knowledgeable service providers who can assist you in implementing this plan.
- Require complete and full disclosure of every fee, every commission and every expense from every potential plan provider during your interview process.
- Compare your plan expenses to national averages to insure you are not paying too much.
- Hire only those firms who charge reasonable expenses for their services and, importantly, are motivated by service to the plan sponsor and participants . . . not by fees or commissions they will earn on the plan.
- Establish a written statement of plan goals and governance describing the administrative goals of the plan, how the plan operates, how trustees are appointed and, generally, who is responsible for various aspects of the plan and to what standards they will be held. Review annually.
- Establish a written statement of objectives describing the investment goals of your retirement plan, a summary of what type of investments will be offered, establishment of comparative benchmarks to be used and what will happen if these goals are not met. Review annually.
- Institute automatic enrollment in the plan by all employees. This may be a somewhat controversial aspect, but it is absolutely critical to success if a good faith effort is to be made to reach all eligible employees.
- Annually increase participant deferral percentages on an automatic basis.
- Outsource all possible retirement plan activities to your service providers. They do this everyday, you do not.
- Include an employer match whenever possible, no matter how small participant contribution rates may be.
- Offer six to fifteen investment options. Less is better. Too many are confusing.
- Low cost index funds should be a large component of investment options.
- Low cost, managed portfolios should round out the remainder of the investment menu.
- Independent, unbiased investment advice should be available to participants.
- A 'balanced' managed portfolio should be the plan's default option.
- Investment reviews (i.e., education) should be completed regularly.
- Monitor closely and regularly the services of all of your plan providers and the performance of your investment options.
- Remove providers and investments that are not measuring up to previously established standards.
- Communicate regularly and clearly with participant updates. An in-house newsletter would be ideal.
The Need to Restructure the Average 401k Plan
A well structured, simple and low cost retirement plan giving each employee an opportunity to reach financial success in his/her retirement years does not require rocket science to establish. What will be required is a structural change to most plans, a deep commitment on the part of a plan sponsor to reach the goal and the careful selection of expert, outside assistance to monitor the plan to make sure the goal is realized.
If the goal is to be accomplished, the two most critical issues are: (1) instituting automatic employee enrollment in the plan, and (2) making future increases in participant deferral percentages automatic. The decisions to include these "automatic" aspects within a plan are typically "settlor" functions and (as a result) are not within the fiduciary obligations of a plan sponsor or trustee. They are plan design decisions made by the sponsor and are (usually) relatively easy to implement.
So, what are YOU waiting for? Will it be a journey to Despair filled with poverty and distress or to Dignity with the ability to live in retirement financially secure? We know what is wrong; we have the power to make it right. Set your course for Dignity! See you there.
###
401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise.
|
