What it really means is that the interests of employee and employers are more closely aligned than ever before. Employees need help preparing for retirement, and employers want desperately to help them do so.
When working with a 401(k) or other defined contribution retirement plan, there are essentially two ways to solve this dilemma: Incorporate plan designs that drive positive savings behaviors, and implement marketing tactics that drive positive results.
Advisors, working with CFOs and other plan sponsors, should encourage plan design changes such as auto enrollment or automatic escalation of savings rates. Anecdotal evidence shows that the design of the retirement plan accounts for two-thirds of the plan’s success or lack thereof.
Effective plan designs that put employee participation in retirement savings plans on automatic pilot are targeted at overcoming three behavioral obstacles: inertia or the preference for the status quo, loss aversion such as fear of losing money in the stock market and myopia or the inability to focus on the future.
The remaining third of a plan’s success is influenced by targeted employee action programs. The most advanced retirement plan providers can assist with direct marketing programs that segment employees by generation, gender and life stage and connect with retirement savers on their own terms. Making this connection is more important than ever as consumers’ attention spans—and wallets—are increasingly being distracted by the latest electronic gizmos, shiny new cars, must-have fashions and other trappings of today’s immediate gratification society.
CFOs know this story all too well as larger numbers of older employees resist taking the retirement plunge. Advisors can help change this dynamic by working with employers to build more effective retirement plans and getting more of their employees on track for retirement. Doing so just might help more CFOs avoid early retirement—or at least help more retire on their own terms.
E. Thomas Foster Jr. is assistant vice president, strategy and relationships, for MassMutual Retirement Services, a division of Massachusetts Mutual Life Insurance Co. Inc.