As more baby boomers edge toward retirement, one question grows more urgent: Are financial services providers meeting the needs of workers participating in employer-sponsored retirement plans?
The findings of my research for my recent feature on worksite planning provide reasons to cheer. But they also raise troubling questions about unmet needs.
Unquestionably, the services and online tools that retirement plan providers are offering employees are improving. As I note in the feature, that's true of both MetLife's PlanSmart and retirewise offering and ING U.S.' Retirement Readiness program.
Both of these initiatives help educate retirement plan participants about their companies' employee benefits, thus aiding in boosting employee enrollment and plan contribution rates. The programs also avail employees of supplemental, face-to-face financial planning services independent of the company 401(k).
As an estimated 10,000 of the nation's 78 million-plus baby boomers daily transition to retirement, the planning increasingly embraces not only wealth accumulation, but also retirement income planning.
"The conversation is no longer just about 'how much'," says Phil Michalowski, a vice president, for MassMutual Financial Group, Springfield, Mass. "It now includes what you want your housing, activities and lifestyle to look like in retirement so you can map out how you can efficiently and effectively build a retirement income stream to cover your anticipated non-discretionary and discretionary expenses."
Why the continuing gap
The retirement programs from ING U.S., MassMutual and MetLife, among other providers, are to be commended. And yet Americans' retirement preparedness, is in the main, woefully lacking — a fact point out not only by a recent EBRI survey, but other studies that regularly cross my desk.
Clearly, the macro-economic factors I cite in my feature account in part for the lack of confidence. Bare-bones employee benefit packages, either in respect to the retirement plan or individual planning services intended to supplement the company 40(k), also helps to explain the shortfall.
Consider, for example, employer contributions into plan participants' 401(k) accounts. Allianz Life, I learned, matches dollar-for-dollar up to 7 percent of their employees' plan contributions. That's a generous offering, and one that less cash-rich businesses, in particular small businesses that operate on thin margins, might find difficult to replicate.
There's also this to weigh: a general failure of advisors to connect with employees who need planning. Many life insurance and financial service professionals don't target the 401(k) market. That's in part because they view the worksite space as insufficiently lucrative, given that many rank-and-file employees are outside their target market (read: the high net worth).
This is an issue that MetLife has encountered. Jeffrey Tulloch, vice president of MetLife's PlanSmart and retirewise programs, says that during a panel discussion for retirewise advisors, one of the program's recruits questioned whether serving employees who have little money saved is worth the time and effort. A veteran on the panel responded as I would: that such thinking is both self-serving and short-sighted.
Building a practice requires a dedicated commitment to helping individuals of all income levels, among them people of lower net worth whose business may lead to profitable referrals or greater planning in the future due to their own career and financial advancement.
Another misconception among advisors is that the worksite market is too complex to navigate because of ERISA and Department of Labor rules governing employer-sponsored plans. Jason Frain, vice president of 401(k) product development and management at Guardian Life Insurance Company of America, New York, says that most 401(k) plan providers (Guardian among them) have the internal expertise and educational resources to help advisors stay in compliance with federal regulations bearing on such plans.
This message evidently needs to be more widely communicated. Frain estimates that only 15 to 20 of advisors do any 401(k)-related business annually.
Advisors in the main also need to boost their planning expertise to better serve pre-retirees. While (to Michalowski's point) income planning is becoming more pervasive, the huge wave of boomers now transitioning from work to retirement may overwhelm advisors' ability to meet the demand unless more of them add distribution expertise to their traditional focus on wealth accumulation.
Finally, advisors and the employers they serve may need to take a more parental role to expanding employees' use of comprehensive financial planning. So in additional to auto enrollment in the company 401(k), mull over this suggestion: that businesses make an "auto appointment" with an advisor part of the retirement plan package.
Perhaps then Americans' retirement preparedness, as reported by EBRI and other research outfits, would take a marked turn for the better.
For more from Warren Hersch, see:
- How (and why) to bring better retirement planning to the worksite
- Retail outlets hold promise for life sales
- Advisors optimistic about post-fiscal cliff environment