There’s a lot of exciting initiatives under way to help defined contribution (DC) plan sponsors to get their employees ready for retirement. Behavioral finance has given us the auto or ideal plan which the government gave us permission to institute through the 2006 Pension Protection Act, and there are a growing number of advisors and record keepers ready, willing and able to help. But there’s one key element still missing that will slow, and even inhibit, dramatic improvement in retirement readiness – buy in from senior management who have yet to fully realize the ticking time bomb of Baby Boomers not ready to retire with a line of generations stacked up behind them.
Let’s start with the good news:
- Automatic enrollment, re-enrollment, auto escalation and the stretch match have proven to be extremely effective in dramatically improving account balance.
- Professional managed investments like TDFs are improving returns and managing participant behavior so they are not moving in and out of funds at the wrong time – technology should help us to make these investments even more personal.
- There are a growing number of specialist plan advisors more ready than ever to institute the ideal plan while engaging participants through financial wellness programs.
- Though record keeper consolidation can be painful for those involved, the end result is providers with more resources, expertise and higher levels of service.
So what’s holding us back? The answer is quite simple: buy-in from senior management especially the CFO concerned with short term results. Until we can show real numbers for each company about their DC liability which is the combination of increased costs for healthcare, disability, absenteeism and higher wages as well as lower productivity from workers ready to retire but unable to do so, companies will not invest time, energy and resources into their DC plan. Even if we could show the CFO that making substantial if not dramatic improvements to their DC plan mitigating employee liability through participant funded programs, CFOs will not act until they see real numbers. In addition, we need to offer better fiduciary training to the people running the DC plan – would companies put people in charge of the DB plan without the right skill set or training?
So before advisors and providers can unleash the power of the ideal plan and better engage employees through financial wellness programs, we need buy in from senior management. Otherwise, we will continue to hit our heads against the wall. That’s why we decided to focus the monthly TPSU Master Class to air April 27th at 4:00 ET on “Engaging Senior Management in their Coampany’s DC Plan”. Learn from Hugh O’Toole how he is using a company’s actual data to create a detailed report calculating the hidden liability of people not likely to be able to retire as well from elite advisors Joe DeNoyior and John Spach about how they are successfully engaging senior management. Because if we don’t get this right, nothing else really matters.
