9 1/2 QUESTIONS
I won’t say “never” but I would be
hard pressed to forsee the government
mandating employers to sponsor
retirement plans (I won’t say never
because ObamaCare is very close to
that on the health side). Currently, there
is not a requirement for an employer
to sponsor a plan and the fiduciary
requirements if they sponsor a plan
does not say that they have to cover
everyone nor does it say it has to be a
minimum level of benefit. It is still a
voluntary retirement system.
There are employers that are interested
in helping their employees achieve
success and have made it a priority
in their benefits package they provide
to employees (having a plan design
that would help employees achieve
successful outcomes).
It seems that auto enrollment combined
with auto escalation of deferral rates
are important contributors to a more
prepared employee. What are your
thoughts and what are Principal’s
with regards this concept?
We (both The Principal and I) agree with
the importance of automatic enrollment
with automatic escalation to help create
better savers. Our retirement ready plan
design features those two concepts along
with a few others to help jumpstart
retirement readiness improvement.
Others include:
•
automatic escalation of 1%
annually up to at least 10%
•
at least a one-time sweep of
those non-participants and
those deferring below the plan
automatic enrollment default
Other approaches include conversations
with plan sponsors about stretching
employer matching contribution formulas
to better incent participants to save more
18 | SUMMER 2014
10
2013
to receive the full match. There is also
an opportunity to name a diversified
investment option as a plan qualified
default investment alternative. It gives
the participant the ease of mind knowing
that the plan sponsor has chosen a
diversified, well-allocated investment
line-up.
could be different for different groups.
It really depends upon the objective of
the employer and who they believe needs
the most help getting retirement ready.
Plan sponsors are feeling maxed
out when it comes to total employee
benefit compensation. Are you seeing
employers doing anything interesting
when it comes to recharacterizing
the match or other non-discretionary
contributions?
Periodically we prepare a retirement
adequacy analysis which shows at
what age our employees are targeted to
reach a replacement ratio (adjusted to
factor in the potential erosive impact of
inflation) of 85% of their final projected
compensation. Depending on the
company-provided defined benefit
pension formula the employee participates
under along with the company provided
401(k) benefit (based on the employee’s
current actual deferral rate projected
forward) and estimated Social Security
our employee population, as a whole,
is projected to be retirement ready
between ages 62 and 64.
Cost does not have to be an issue when
it comes to designing a retirement plan
that will enable participants to have
more successful outcomes. Whatever
the employer’s budget, a plan design can
be created to help employees achieve
their retirement goals.
One of the ways many employers have
chose to encourage employees to save
more is to stretch their match. For
example, instead of a match of 100%
on 4%, they stretch it to 50% on 8%.
This encourages employees to save
more which improves their outcomes.
Many employees need help getting
started and increasing their savings.
That is why many employers have also
implemented auto enrollment and auto
increases to get people into the plan and
to make annual increases thereafter. The
employers realize that their employees
may not necessarily do these things on
their own, but know they should to be
able to have successful outcomes.
I have also seen employers give an
employer contribution to everyone
but also have a match to encourage
savings by employees. The employer
contribution can be the same for all or it
1/2 Question: How many of Principal’s
own employees are deemed to be
retirement ready?
Additional comments: The Principal
has a 94% participation but that doesn’t
necessaril HYX[