Less than half of workers report they and/or their spouse have ever tried to calculate how much money they will need to have saved so that they can live comfortably, said Sally Bradley-Golding, vice-president, strategic alliances, Financial Engines, at this year’s CPBI Forum in New York City. That’s according to the 2014 Retirement Confidence Survey by the Employee Benefit Research Institute.
In the U.S., there’s an increasing awareness that the solution isn’t to make plan members into investment experts, since most people have neither the time nor the inclination for it. “At the end of the day, what we realized was, education only gets you so far,” said Bradley-Golding.
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That’s why the U.S. government now supports initiatives to help people “succeed in spite of themselves,” she explained. With the Employee Retirement Income Security Act in place, which protects the plan sponsor by allowing the provider to assume the fiduciary duty, many plan sponsors are moving toward “auto-pilot” solutions, she said. These include auto-enrollment, automatic sweeps (enrolling existing employees who haven’t joined the plan or who have previously opted out) and auto-increase of contributions.
There are participant solutions, too. According to a survey by Cerulli Associates, 66 of plans offer target-date funds, 69% offer online advice and 47% offer managed accounts.
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Why offer investment advice?
A study of seven large plan sponsors (working with Aon Hewitt and Financial Engines) reveals 60% of plan members who weren’t getting this help had risk levels that were either too low or too high, noted Bradley-Golding.
Proper investment advice should be independent and unbiased, be personalized to the individual and avoid market timing, she explained. And it needs to reflect the impact of expenses, investment constraints and taxes. “We think expenses really matter,” she added.
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With 10,000 boomers in the U.S. retiring every day, it’s also time to look at the decumulation stage. People tend to make two incorrect assumptions when it comes to retirement planning, said Bradley-Golding: they think they’ll retire later than they actually do (often due to job- or health-related factors), and they live longer than they thought they would. “So what does that do to your retirement income story?”
It’s still a bit of a black box, so decumulation is the next area of focus for U.S. DC providers and plan sponsors.”We’re trying to figure out how to bring income solutions into the 401(k) plan,” added Bradley-Golding. “I believe there’s a place for some guaranteed lifetime income, and we need to find more ways to do that.”