NEW ORLEANS (March 19, 2012) – “Retirement readiness” is the new buzzword in the world of retirement planning. But as retirement advisors and plan sponsors know, getting participants across the finish line can be challenging: How do you encourage participants to defer more from their salary, or get off the sidelines in a volatile market? These are some of the questions that Robert Kaplan, Vice President, National Training Consultant for ING, and Mitch Anthony, President of Advisor Insights, Inc., addressed at ASPPA’s 401(k) Summit in New Orleans last month.
The first line of defense in helping participants occurs during the accumulation phase of retirement planning. Mr. Kaplan offered several examples of how plans can be designed to overcome some of the most common hurdles that stand in the way of adequate retirement savings. Auto-enrollment, for example, has proved an extremely effective tool: 90% of new participants who are auto-enrolled choose not to opt out of the plan.
Mr. Kaplan stated that auto-enrollment is clearly not for everyone, and that he hasn’t seen a large increase in the number of plans offering this feature beyond the large and mega markets. One plan feature that has begun to pick up, however, is auto-escalation, wherein a participant’s deferral amount is gradually increased over time. Mr. Kaplan has found this is most successful when participants are given ample notice of the coming change (preferably nine to 12 months). Other possible plan features include auto-rebalancing, which helps investors avoid the mistake of buying low and selling high; target date funds, which continue to gain ground and are seeing more money coming in since the Pension Protection Act of 2006 allowed them as a qualified default investment alternative (QDIA); and managed accounts, which, although beginning to be offered in more plans, are showing slow growth in the number of participants taking advantage of them.
Plan structure isn’t the only way advisors can assist participants in the accumulation phase. Enhancing communication strategies through new technology has been successfully used by ING, which handed out iPads during smaller enrollment meetings to allow the employee to enroll in the plan on the spot. This removes the procrastination element and has resulted in an average of 97% of attendees walking away as participants. There’s also increasing interest in the use of mobile apps to engage participants, as well as the possibility of creating video games that might entice people to save more.
Mr. Kaplan also advocated using the findings of behavioral finance to improve participant outcomes in the accumulation phase. ING has created a research institute with academics outside the company that seeks to answer why participants do what they do. ING also has a tool whereby data from 5.8 million participants can help investors see where they stand compared to others in their same age, gender and salary range.
Mitch Anthony then addressed how advisors can positively influence participant outcomes in the distribution phase. He’s most interested in how the human condition both affects and is affected by the issue of retirement. He believes advisors need to have conversations that go beyond numbers and facts, because those don’t drive people to act. They should instead focus on helping investors envision the experience and lifestyle they’re looking for in retirement. Investors are beginning to rethink the concept of retirement entirely, moving beyond the idea of a vacation-focused retirement.
He believes retirees are beginning to see the law of diminishing returns on leisure because without work, leisure tends to lose its meaning. A recent Rand study estimated that almost 60% of people who retire this year will be back at work part-time within 12 months. While some return to work because they need the money, many go back because they’ve suddenly realized the virtue of work – as Mr. Anthony puts it, “Work stops being a four-letter word.” Mr. Anthony believes it’s essential for advisors to start including the possibility of work in their retirement conversations with clients.
Once advisors can focus pre-retirees on that essential question: “What do you want to do with your time?” the numbers conversation will take on new meaning. And that, in turn, will prompt investors to begin taking action to improve their retirement situation.
-Cindy D. Fontno
Senior Channel Marketer – Retirement Plans
SUMMIT Attendee since 2008
Category: Member Focus