8/29/2013 0 Comments
Recent legislation and a flurry of merger & acquisition (M&A) activity have led to dynamic changes in the healthcare industry. The Affordable Care Act (ACA) is resulting in many healthcare employers reexamining their organizational structures and operations. The related pharmaceutical industry similarly has seen significant M&A momentum. Fidelity has released a report, Defining Excellence: Plan Design and Retirement Readiness in the Not-For-Profit Healthcare Industry, that focuses on the challenges faced by these plan sponsors. Data was gathered from 600+ plans serviced by Fidelity, representing about 2 million participants and $72 billion in plan assets. One particularly interesting trend reported by Fidelity is that as employee tenure increases, the gap in participation levels tends to narrow between those in plans with automatic enrollment (AE) and those in plans without AE. While this result is somewhat to be expected as few tend to opt out of participating in their employer's plan, what is notable is that the gap never fully closes, even for employees with 25+ years with their employer. In AE plans, the participation rate hovers within four percentage points on either side of 80%, regardless of tenure. By contrast, in non-AE plans, the participation rate for employees with one to three years of tenure is only 35%. This does improve to 70% for those with 25+ years, but still falls short of the 84% for those in AE plans with a similar tenure.
Surfing Boomers. Another interesting finding in the Fidelity study is that across all age groups except those 70+, participants preferred engaging with their plan through Fidelity's participant website than via phone. The level is very consistent for those in their 30's through those in their 60's, with a slight uptick as one approaches age 65. WIth the continued growth of the smartphone and tablet markets, it would appear that access through a portal will remain strong for the foreseeable future.
Once upon a time, in the 1990s, most retirement-related transactions had to be initiated via a phone call to a toll-free number. The default option would bring you to a voice response unit (VRU), often also known as interactive voice response (IVR). The caller typically would be offered a menu of options, the last of which would be to speak to a call center representative. Today, with the prominence of the internet and the advent of tablets and smartphones, the VRU/IVR is clearly a thing of the past. According to the latest data from Vanguard's How America Saves, series, VRU access is minimal at best when it comes to retirement plan transactions. Four out of five transactions (82%) are done online, Only 15% are done via a call center representative. A mere 3% are via the VRU. According to Vanguard, 90% or more of deferral rate changes, contribution allocation changes, and exchanges are done online. The one area that had a moderately substantial degree of VRU access was the initiation of plan loans (13%). Additionally, many participants spoke with call center representatives when withdrawing their account balances (46%). The Vanguard data reflects the company's client base, encompassing over 3 million participants. There are many other interesting findings, including the rebound of account balances from five years ago and the increasing prevalence of participant preference for professionally managed accounts.
Aon Hewitt has been looking at its client base for slightly over a decade to gauge the performance of the retirement plans it services. The focus is primarily on the large plan market, with an average of almost 25,000 eligible employees per plan. According to 2013 Universe Benchmarks: Measuring Employee Savings and Investing Behavior in Defined Contribution Plans (Highlights), while participants for the most part are not actively involved with their retirement plans, automated features are meeting with substantial success in improving the outlook for a secure retirement.
Key findings by Aon Hewitt include:
Key recommendations include:
"One of the dominant themes of Aon Hewitt’s 2013 Hot Topics in Retirement report is that plan sponsors are embracing a more holistic perspective on their retirement programs. They are focusing on financial wellness and measuring projected retirement income adequacy, instead of merely concentrating on current participation and savings levels."
Recognizing that employees do in fact want to save for retirement but are finding it difficult to do so should go a long way toward resolving that challenge.
Several factors are converging to make individuals think more about having an income stream in retirement. Longer life expectancies mean that people will be spending more time in retirement. Account balances are in the lower five-digit range, while many experts suggest balances in the six-figure (if not seven-figure) range would lead to a more secure retirement. In many cases, the expectations about retirement savings are diverging from the reality. A new study from ING U.S. Research finds that for those who have already retired, 33% report that they are experiencing a lower standard of living than when they were working. A mere 8% of pre-retirees thought they would have a lower standard of living as they moved into retirement. Four out of five (80%) would trade spending money today for a steady retirement income in the future. Some 37% believed that they would run out of money to support their desired lifestyle in retirement. Slightly over one-third believe that $500,000 would be sufficient in savings to allow for a steady, comfortable income in retirement, or had no idea how much would be needed, The importance of an income stream is echoed by a report from SSgA, which discovered that 55% value a stable income the highest as they approach retirement, versus 33% for protecting the value of one's savings, and 12% for having ready access to cash.
To address the important goal of generating a retirement income stream, it is important to also address the current financial pressures that many individuals are facing. Solving these sometimes-competing challenges should be an important element in reaching more secure retirements for more participants.
Blog Author - Ken Felsher
With over 25 years of writing, editing, and research experience. I enjoy sharing with my readers my love of working with content on a variety of subjects.
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