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Why Plan Sponsors Should Do Everything They Can to Retain Participants Through RetirementBy: Bob Beasley, CRC, CIC, Communication Consultant If you have a stake in a state or local government's workforce, you may be facing an important dilemma: whether or not to take a more active role in retaining current employees as participants in your deferred compensation plan into and throughout retirement. This question may have seemed absurd just a decade ago; few money managers were actively pursuing participants' retirement assets, and rollovers from deferred compensation plans weren't easy. It may seem even more absurd today, given the inverse is true - there are plenty of product providers who'll gladly take those assets off your hands. Several tax law revisions since 2000 actually encourage rollovers out of employer-sponsored retirement plans. At Nationwide, we believe it is in your best interest to help your employees not only pursue asset accumulation with deferred compensation throughout their careers, but also to help them better understand how to manage their assets as they prepare for and enter retirement. Getting plan participants to stay Sixty-eight percent of employer-respondents to a recent survey conducted by Ernst & Young say retaining key employees and maintaining intellectual capital were the human capital issues of most concern, yet 62% of respondents say retirements would cause a talent gap or brain drain. 1 Public employers are not immune to this growing challenge. However, through programs encouraging pre-retirees to continue deferred compensation participation, you can open the door to other income solutions such as phased retirement, or post-retirement part-time or seasonal work. These avenues may allow you to tap the knowledge and experience of your retirees, without adding "new employee" costs onto your budget. You can also earn employee goodwill. When you openly promote your plan's services as a way to help retiring employees prepare for the transition, you show current employees that they will remain valued through their careers and into retirement. So the question may not be whether or not to take a more active role in retaining current employees as participants in your deferred compensation plan into and through retirement. It may be how to do it effectively. Your employees need your help Today's workers are likely to live a long time in retirement. At age 65, average life expectancy is 17 years for American men and 20 for women. Thirty percent of all women and almost 20% of men age 65 can expect to reach 90. 2 Unfortunately, medical costs for retirees over 65 not covered by Medicare may exceed $1 million for a couple over their lifetimes. 3 According to a recent report by The Commonwealth Fund, over the period 1980-2005 annual inflation in the U.S. for all items has ranged from 1.1% to 8.9%, and has averaged 3.3%. For medical care, the annual average has been 6.4%. 4 Yet, several targeted investments could improve the health and financial security of older adults. 5 The National Retirement Risk Index - a calculation based on research conducted by the Center for Retirement Research at Boston College and underwritten by Nationwide - has shown that even if households work to age 65 and annuitize all their financial assets, 44 percent will be 'at risk' of being unable to maintain their standard of living in retirement. More realistic assumptions put the percentage 'at risk' even higher. And once health care is considered explicitly, the percentage of households that will be 'at risk' rises from 44 percent to 61 percent. 6 All current workers need to invest now to overcome that risk - a major selling point for encouraging enrollment - and all pre-retirees need to recognize and account for that risk as they develop their retirement-income plans. Your employees need to know you can help In its March 2006 report, the Nationwide Retirement Education InstituteSM found data showing that few pre-retirees establish an income plan or are familiar with an income annuity, yet most recent retirees wish they'd had an income and distribution strategy. 7 At the same time, they may feel besieged by enticements for rollovers or, potentially worse, more dubious options for their assets. You, as plan sponsor, have already established a trusted role by providing retirement-planning services that are not motivated by profit. You can help future retirees see how they benefit by staying in your deferred compensation plan after they leave your employment. As The Early Show financial adviser Ray Martin reported for CBS News, there are at least three advantages for them:
But, as Martin points out, retiring employees need to know your plan offers these (and other) advantages to them. 8 You need to tell them!As a leading provider of governmental supplemental retirement programs, Nationwide can help you with your participant retention. To get started, contact your Nationwide representative. References 1 2007 U.S. Aging Workforce Survey, page 3, Ernst & Young, webcast.ey.com/thoughtcenter/default.aspx?pid=802. 2 "Key Findings and Issues: The Impact of Retirement Risk on Women", 2005 Risks and Process of Retirement Survey Report, page 2, citing US Life Tables 2002, Society of Actuaries, August 2006, research.soa.org/WomensShortReportfinal.pdf. 3 "Key Findings and Issues: The Impact of Retirement Risk on Women", 2005 Risks and Process of Retirement Survey Report, page 2, citing US Life Tables 2002, Society of Actuaries, August 2006, research.soa.org/WomensShortReportfinal.pdf. 4 "Will You Still Need Me? The Health And Financial Security Of Older Americans: Findings From The Commonwealth Fund Survey Of Older Adults", pp. xiii-xiv, The Commonwealth Fund pub. no. 840., June 2005, citing Consumer Price Indices, US Bureau of Labor Statistics, Bureau of Labor Statistics. 5 "Will You Still Need Me? The Health And Financial Security Of Older Americans: Findings From The Commonwealth Fund Survey Of Older Adults", pp. xiii-xiv, The Commonwealth Fund pub. no. 840., June 2005, www.commonwealthfund.org/publications/publications_show.htm?doc_id=282096. 6 "Health Care Costs Drive Up The National Retirement Risk Index", page 3, Center for Retirement Research at Boston College, February 2008, crr.bc.edu/images/stories/Briefs/IB_8-3.pdf. 7 "Trends in Public Sector Retirement Plans", America's Retirement Voice, Page 66, March 2006. 8 "Retirement Plan Versus Rollover IRAs", CBS News, Feb. 1, 2006, www.cbsnews.com/stories/2006/01/31/earlyshow/contributors/raymartin/printable1263713.shtml. Nationwide, the Nationwide framemark, Nationwide Financial, and On Your Side are federally registered service marks of Nationwide Mutual Insurance Company. The Nationwide Retirement Education Institute is a service mark of Nationwide Mutual Insurance Company. |
