Today we’re sharing insight from guest blogger Peter Welsh, Director of Retirement Services for Thurston Springer. We hope you enjoy Peter's wisdom and perspective.
The “qualified plan” world is constantly changing. For employers that means staying on your toes. If you are a larger employer with a fully staffed team of individuals charged with managing the benefit programs, staying on top of trends is certainly easier. However, most employers do not have such robust benefit departments and can often miss out on macro trends that are occurring. Today I want to cover 3 trends that have crept into the qualified space in the last couple of years.
Employee Education – It Ain’t What It Used To Be
I have been practicing in the qualified plan space for over 25 years, and I have yet to hear that providing less education and financial literacy to employees is a good thing. Who would say that, right? However, I have also witnessed 25 years of 401k providers, outside consultants, employers, and advisors throw all they have at employee education, and have, by and large, only marginally move the needle.
The presumption around employee education has been that if we just provide enough “stuff” either in paper form or on the website, employees will voluntarily embrace these learning opportunities and educate themselves on investing, budgeting, financial planning, and retirement planning. This will make them more financially confident, independent, and secure…and we can “check the box” on employee education.
It hasn’t worked that way, but not for lack of trying. Hundreds of millions of dollars have been spent in pursuit of this vision and we still have a majority of employees doubting their financial IQ. Research, released this past spring from the National Association of Retirement Plan Participants, suggests that only 18% of employees feel comfortable planning for retirement, and 33% of them have even tried to reduce debt or make a budget.
Amidst this somewhat alarming news, what are employers beginning to do? What’s the new trend? More and more employers are realizing that tools and website, while nice, do not take the place of an advisor helping their employees. Employees almost universally feel more confident in their decisions when they meet with a professional advisor. If you are not hosting 1-on-1 meetings at the worksite for your employees, now might be the time to consider doing so.
Saving For Retirement vs Repaying Student Loans
It may not surprise you that young workers are increasingly saddled with a very large debt load. The student debt in this country is over $1.5 Trillion and rising. This is a relatively modern phenomenon and has caught many employers off guard. Even though these debts are their employees’ responsibilities, they bring their concerns and fears around repaying these depts to the workplace.
Precisely because of the effect student loans are having on younger employees, employers are beginning to address ways to assist them. Very few employers are paying the loans off directly, which is probably good news to most of you reading this. However, this doesn’t mean that other creative solutions are not coming to market.
One recent trend is modifying 401k plans to allow employers to put 401k “matching contributions” into the plan on an employee’s behalf while the employee is repaying the student loan. This has been a very much embraced solution as it helps start an employee off on the retirement journey by getting some qualified retirement money into the account and growing without costing the employer any more than it was already prepared to spend if the employee had actually been deferring into the 401k plan. This is a win-win solution and is increasingly being used by employers to differentiate themselves in a tight labor market.
Other softer trends around the student debt challenge is offering that 1-on-1 advice to help employees with budgeting and money management decisions. Most employees straight out of college are on their own for the first time and budgeting is not something that is intuitive. If you think such information would have already be imparted on them by their parent(s), you should know that the majority of older adults are not in much better shape, and very few operate on a budget.
Distributing Your 401K
401k programs have been around for almost 40 years, and throughout this time employees have been educated, encouraged, and sometimes harangued to “save for retirement”. And indeed, many employees have accumulated sizable account balances, but sizable account balances are not the goal of a retirement plan. The goal of a “Retirement Plan” is to provide income in retirement. The problem is that most of the last 40 years has been spent focusing on the “accumulation” aspect of the retirement plan and not on the “distribution” aspect.
Today, and indeed for quite a while, when employees retire, their 401k balances are often the largest liquid asset they own. However, they have no idea how to turn this asset into an income that will last for the rest of their lives. The stories are sad in a multitude of different ways. Sometimes, employees overspend their account balances and find that they have little more than Social Security available with many years left to live. Alternatively, some employees are so scared to spend down any of their account that they don’t allow themselves to have the sort of retirement that they had been saving for all along.
Employers are beginning to recognize these challenges and work with employees nearing retirement to put together a plan on how to properly spend the account balance for which they have worked so hard. The solutions are varied, of course, but can often include a lifetime annuity for some of the money which ensures the employee will never outlive this supplemental income. Other components include mutual fund payout strategies that allow the employee to create a third income stream while leaving them in control of the assets. Good advisors are working with employers daily on solving this challenge for both the employer and employee.
I’ve only touched on a few of the emerging trends in the ever-changing retirement plan world. And while I’d love to do a deep dive into all of them, I hope you have been able to pick up a few opportunities for your company and employees. It is also important to note that employee behaviors change slowly. The time between implementing an initiative and seeing positive changes takes time. The good news is that more and more advisors are beginning to understand these challenges and work with their clients to begin these journeys. I wish you well on your journey.
This content was written and shared by guest blogger Peter Welsh.
Pete was born and raised in Marion, Indiana. He received his undergraduate degree in Finance from the University of Notre Dame and his Law Degree from Indiana University Robert McKinney School of Law in Indianapolis. In the 90s, Pete practiced with Geo. S. Olive & Co where he earned his Certified Public Accountant designation and focused his practice on business retirement plans.
From 1997-2010, Pete worked in Chicago for Transamerica Retirement Services as part of their senior management team and was responsible for all aspects of distribution for the company. In 2010, Pete moved back to Indianapolis to work for OneAmerica where he was Vice President of Distribution until the end of 2018. Most recently, Pete has affiliated with Thurston Springer to run their Retirement Services Division.
Pete has 2 grown children and a 1 year old grandchild. He is an avid runner having qualified for and finished the Boston Marathon, and he is also an Instrument Rated Private Pilot. He resides in Indianapolis with his wife Sarah and two dogs, Guinness and Dylan.