Employee and Employer Goals Should Align in a 401(k) Plan

March 17, 2016

 

My conversation with Hugh O’Toole of the Viability Advisor Group got started with a bang, right out of the gate he said that his goal is to ensure that employee and employer goals in a 401(k) plan align.  Below are my notes from our very       informative conversation!

  1. Hugh commented that HR has generally supported the concept of retirement readiness to ensure that employees are able to make a timely and successful transition into retirement, the finance side of organizations have struggled with how that benefits the employer.  

  2. Hugh and his firm are pursuing the financial argument for why having employees who are able to retire in a timely fashion creates a financial benefit for the employer.  

  3. An employee who is “Retirement Ready” is generally able to replace 75% of their pre-retirement income in retirement.

  4. The biggest obstacles to employees achieving retirement readiness are not different than some of the challenges that companies have had over the years in maintaining defined benefit plans are: 

    1. Adequate funding, or contribution level

    2. Investment allocations/risk levels

  5. Best way to improve retirement readiness is to have all parties at the employer aligned and understanding that this is a critical aspect of organizational health.  Keys to success are:

    1. Get agreement that this is the right thing to do

    2. Use the employer’s current data on their retirement and healthcare data to create a specific financial argument of how job locked employees impact organizational costs.

    3. Compare differences in marginal costs between an older worker and a younger worker.

    4. Once specific data is crunched, it becomes much easier to align the organization around this concept. 

  6. Employer liability for job locked employees can be mitigated without raising employer costs.  Strategies include:

    1. Taking advantage of behavioral finance techniques. 

    2. Automatic enrollment

    3. Automatic increases

    4. Stretch match

  7. For companies that have declined automatic enrollment in the past, but want to revisit, the following work in your favor:

    1. The industry now has data to support the high stick rate of automatic enrollment

    2. Specific case studies by industry are available

    3. Show that improving participation and contribution rates will positively impact both employees and employers by using their specific data to show the impact on the financial statement of the employer.  

  8. In terms of employee retirement age, is age 70 the new 65 when it comes to retirement:

    1. The workforce is definitely aging

    2. There is nothing wrong with an aging workforce

    3. However, the employee who does not have their hand, heart and mind in their job, add to wage costs, healthcare premiums, workers comp, productivity levels and overall risk.  

    4. The goal should be to help employees reach retirement age and have the option to make the transition into retirement, or continue in the workforce on a voluntary basis as positive contributors to the organization.  

    5. Employees spending more time in the workforce to make-up for a savings problem is not always an option.  

  9. Financial wellness is a broad topic employers are starting to tackle.  This means dealing with debt, college education, long-term care, elder care, budgeting and other issues. 

  10. Overview of a specific case study where a trucking company deployed financial wellness to help address financial stress w