Will Employers Be The Income Planning Epicenter?

Roughly 70% of workers in employer-sponsored retirement plans will need to make some kind of decision about what to do with their money once they retire, said David L. Wray at a meeting here.

Many will have lump sums available from their plans, explained Wray, who is president of the Profit Sharing/401(k) Council of America, Chicago, Ill. That includes not only 401(k), 457 and 403(b) plans but also defined benefit plans, many of which he said now permit lump sum payouts.

As a result, the workplace increasingly is becoming the focus for retirement income solutions for the mid-market, indicated Betty Meredith, director-education and research for International Foundation for Retirement Education, in the Ann Arbor, Mich., office.

Wray and Meredith were speaking in a one-on-one public conversation during the annual Retirement Industry Conference co-sponsored by LIMRA, LOMA and Society of Actuaries.

The mid-market historically has been difficult to serve with retirement income solutions, Meredith said. Yet, at the employer level, opportunity exists to reach workers and to do so at a reduced cost.

Wray said most large employers already are offering automatic enrollment of workers into defined contribution benefit programs. “You’ll see more auto-escalation programs, too,” where employee contributions rise gradually to the employer match.

He cited these as examples of things that employers already are doing to help ensure employees have funds available at retirement.

Roughly 70% of workers are accepting auto-enrollment, he noted. That is not advice, he allowed, but it does show that workers are willing to let the employer make the decision.

It wasn’t always that way. In 1995, Wray recalled, people wanted to do their own investing and retirement planning. There was even talk of offering brokerage opt-out programs for 401(k)s, he recalled.

No one wanted advice with their plans, Wray added, and, if it was offered, “no one used it.”

Employers were hesitant about advice programs, too. This was due to perceived fiduciary risk, Wray continued, noting employees might get mad at the employer if something went wrong with an advice-related activity. At the time, employers saw “all cost and no benefit,” he said.

But after the recession in the early 2000s, this changed. Today’s workers want advice to be sure their funds are managed properly, he said. And companies are starting to offer it–via Internet services, telephone call centers and on-site advisors.

The advice provided so far is investment advice, Meredith noted, but legislation now in Congress would allow a broader approach, including retirement planning and advice.