"Is There a Future for Retirement?" was the provocative topic addressed at a May 12, 2011, policy forum sponsored by the not-for-profit Employee Benefit Research Institute (EBRI) in Washington, D.C.
"Some people are going to find out at the last moment they can't afford to retire when they finally go to HR and ask for an explanation of their benefits," said Susan R. Meisinger, SPHR, former president and CEO of the Society for Human Resource Management and a consultant on HR leadership issues. "When they sit down to figure out their budget and what they're going to get from their 401(k), they realize they will have to stay at work. Employees with fewer skills, in particular, will be staying on board and aging in place, creating challenges for employers as they deal with issues such as age-related disabilities."
Often, Meisinger noted, HR—especially at small and mid-sized companies—assumes that it's illegal to ask employees about their plans to retire. "It's not illegal. You have to do it carefully, because if you use the information inappropriately you can make yourself vulnerable. But done correctly, conversations with individuals about their plans are going to be critical" to help employees evaluate their preparedness to retire—and for employers who are engaged in long-term workforce planning, as they should be, she said.
Meisinger encouraged a holistic approach to employee retirement education. "Employers will frequently educate employees about their benefits plans, but there is a growing need to educate employees about Social Security and Medicare. It's important to help employees have a realistic picture of what they are going to need for income security when they retire and to help employees understand the role of time and savings on their ability to retire," she pointed out.
EBRI President Dallas Salisbury said his organization's annual Retirement Confidence Survey reveals what he termed "a tremendous amount of false confidence" about retirement. "Of those already in retirement, well below 50 percent had ever done a calculation prior to retirement of whether or not they really should be retiring," he noted. "If only 23 percent say they have done an actual calculation vs. a guess, and only 41 percent have said they ever thought about how much they would need," then it's vital for employers to direct employees to basic tools such as online calculators that can help to "bring real numbers to the decision process."
Easing into Retirement
Meisinger urged that phased retirement—allowing older employees to work on a reduced or modified basis as they approach retirement—be taken more seriously by employers. Among innovative approaches:
• CVS and Home Depot have created "snowbird" programs that let an older worker sign up for six months at a store in the north and get a similar job in the south in the winter, which saves the employer training costs.
• Insurance firm Travelers offers "unretirement" parties to entice its retirees and other older adults to join a pool of part-time and temporary workers to meet the organization's temporary staffing needs.
• Aerospace Corp. allows skilled retirees to work up to 1,000 hours each year without jeopardizing their pension benefits.
On a cautionary note, employers should be prepared for an increase in age discrimination litigation as the workforce ages and more workers can't afford to retire, Meisinger warned.
Steps to Take
Among the advice from experts who addressed the EBRI policy forum, "Is There a Future for Retirement":
Former Society for Human Resource Management President and CEO Sue Meisinger recommended:
• Help employees develop a realistic picture of retirement income security needs by providing outside expertise.
• Allow workers to phase out of full-time employment until they can afford to completely retire (and allow them to collect some portion of their pension benefits while they continue to work).
• Consider subsidizing long-term care insurance as an employee benefit (and expect growing pressure from employees to do so).
(View Meisinger's presentation slides.)
Lori Lucas, executive vice president and defined contribution practice leader at Callan Associates, a provider of research and support services for institutional investors, pointed out that:
• Retirement savings “success” is a real-income replacement rate of at least 80 percent of salary at retirement.
• A 3 percent initial automatic deferral rate is not very robust; consider 6 percent (research indicates an adequate savings rate is a minimum 10 percent of salary, and then only if saving starts early enough at that level; otherwise, a much higher rate is needed later).
• Escalate employee deferral at a rate of at least 2 percent annually.
• Don’t cap auto escalation at 6 percent salary deferral, as many employers do (just because that’s the limit for their match). Keep going.
(View Lucas's presentation slides.)
Stacy Schaus, a senior vice president and leader of the DC plan practice at global investment firm PIMCO, advised:
• The “new normal” means slower global growth, lower returns and more government intervention. Help participants to understand that a higher savings rate is needed in the “new normal.”
• Defined contribution plans should be modified to succeed in the “new normal” economic environment. Remedies include encouraging increased savings but also seeking investment options likely to provide higher returns while diversifying risk.
• To achieve that goal, add diversifying assets such as TIPS (Treasury Inflation-Protected Securities), commodities, REITS (real estate investment trusts) and global bonds.
(View Schaus's presentation slides.)
View the Forum
Streaming video of the EBRI 2011 Spring Policy Forum on Retirement Issues may be viewed here.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Setting Retirement Savings Goals Leads to Increased Engagement, SHRM Online Benefits Discipline, May 2011
Benefits Directors: Help Employees with Retirement Transition, SHRM Online Benefits Discipline, May 2011
It's Complicated: Coordinating Medicare, Employer Health Plans, SHRM Online Benefits Discipline, April 2011
Employee Retirement Confidence Drops to Record Low, SHRM Online Benefits Discipline, March 2011
Retirement Coaching Gives Employees a Handle on Future, SHRM Online Benefits Discipline, March 2011
Employers Offering More Help to Meet Retirement Goals, SHRM Online Benefits Discipline, February 2011
The New Retirement: Working, TransAmerica Center for Retirement Studies, May 2011
2011 Retirement Confidence Survey: Confidence Drops to Record Lows, Reflecting “the New Normal,” Employee Benefit Research Institute, March 2011
SHRM Online Benefits Discipline