WASHINGTON, DC — Plan sponsors and American employees are locked into an antiquated retirement system that has not kept pace with changing demographics — and according to industry experts, US lawmakers and new strategies can help.
“Traditional retirement policy needs to be revisited and updated with an eye toward addressing longer lives, an aging society, employer concerns over fiduciary and financial risks, increased individual responsibility for managing retirement income and other challenges facing current and future retirees,” said Josh Shapiro, American Academy of Actuaries vice president Friday at the “Modernizing the U.S. Retirement System” forum here.
Retirement remains a complex challenge for employees and plan sponsors alike. As a generation of baby boomers retire and Generation X-ers see the end of their working lives in the distance, new paradigms are emerging that have an impact on how workers need to prepare for their post-work years.
Behavioral issues are becoming an important piece of the retirement puzzle, added Ted Goldman, American Academy of Actuaries Senior Pension Fellow. He equated today’s process of asking workers to plan for their own retirement to asking them to build their own car from a set of parts.
Some winners in the financial wellness space are employer-sponsored plans. What has worked well are employer plans and workplace basis for savings, said Mark Iwry, nonresident senior fellow in economic studies at the Brookings Institution and former senior advisor to the Secretary of the Treasury.
Tens of millions of middle class families have augmented their social security with meaningful employer-funded benefits, he said. However, he noted, there close to 55 million employees who don’t have access to an employer plan. While automatic enrollment and auto strategies have worked rather dramatically in the 401(k) system, he said, but what about IRAs?
They’re working well but not helping to close the gap, he added. A nationwide roll out of IRAs proposed by the Obama administration, known as “MyRA” was halted, in part, because of divisiveness in Congress following passage of the ACA.
States started to take it up, with six states that have legislated to adopt auto-IRA template.
“As smaller states especially join, we may see consortia,” he said. “Regional programs that ultimately congress assembles into a nation-wide program per the original plan, and provides employers tax credit to go down easily, that would be a great platform for lifetime income.”
But employer contributions cannot be ignored or downplayed. “Telling employees to save 10% of your pay is terrific, but the employer match should not be allowed to quietly walk off stage while we’re emphasizing auto enrollment,” he emphasized. “We didn’t approve auto enrollment as a substitution for employer contributions.”
Keep employer contribution on our radar screen, he noted, even though it’s entirely a voluntary matter from a legal standpoint.
But we can’t talk about retirement in a vacuum, Goldman added. “You lose a big chunk of people who don’t have retirement on mind. Employers need to balance real life with retirement solutions.”
When it comes to auto enrollment and escalation programs, technology will be a key player in the years to come.
“We know a lot about employees through technology,” he said. “We have a lot of the important pieces of info, but auto enrollment treats everyone the same.”
Plan sponsors and employers know they can take those measurements and start an auto enrollment at a personalized rate, said Goldman. For example, Employee A might be enrolled at 8% and Employee B at 12% if Employee B hasn’t saved enough. And periodically, contributions are adjusted based on where that worker is, or if the market has changed for the better or worse.
The data gives plan sponsors a way of putting workers on a secure path toward retirement.
“You’re in a program that starts you where you are and keeps you on a path for a secured retirement. We need policy to support this and break down barriers,” said Goldman.
