Americans Aren’t Prepared to Retire—But Retirement Plan Sponsors Can Nudge Participants in the Right Direction

More Americans in today’s workplace are planning to defer retirement until later in life or to forego retiring at all. In fact, one in five Americans aged 65 and over are currently working due to financial need, the need for health insurance benefits, or a desire to stay mentally, physically or socially active.

What factors are contributing to this trend? One consideration: health insurance. Retiree health benefits can affect the timing of employees’ retirement decisions; employers that offer retiree health benefits may see employees retiring earlier in life and even saving for retirement less rigorously. However, a Kaiser Family Foundation study found that fewer than 25 percent of plan sponsors offered retiree health benefits last year—a rapid and steady decline from 66 percent in 1988. Most employees approaching retirement express urgent concern about whether they will be financially able to pay for health care in retirement; therefore, employees may defer retirement to avoid ending up dependent on Medicare or Medigap and Medicare Advantage plans.

Lack of financial preparation for retirement is another factor. While over half of employees aged 51 to 64 are worried about covering out-of-pocket medical costs in retirement, the same number are worried about potentially outliving retirement savings. While most full-time employees have access to employer-sponsored retirement plans, and voluntary defined contribution plans (like 401(k)s) are the most popular retirement savings option, employees simply aren’t saving enough. While plan participants are worried about retirement readiness, employees who lack financial literacy end up saving at rates that won’t be sufficient to support them in retirement. Generally, Americans don’t realize that saving for retirement as early as possible and as consistently as possible is key to a stable future; studies show that individuals underestimate the importance of compound interest, too.

How can retirement plan sponsors encourage plan participants to save robustly?
Participant education is key, especially on often-misunderstood subjects like compound interest, matching contributions and taxation. Some retirement plan sponsors are taking an even broader view of overall participant financial fitness, with a focus on helping employees reduce financial stress and increase financial literacy. Plan sponsors can also ensure that the plan is being run responsibly and offering maximum value to participants—for example, by examining plan fees. The TIAA Institute (the research arm of the organization formerly known as TIAA-CREF) has noted that many retirement plan sponsors use multiple service providers and third-party administrators instead of one single service provider, which can sometimes lead to unreasonable or unfair fee structures for plan sponsors and participants.

Plan sponsors aiming to nudge plan participants towards a comfortable retirement should keep changing regulatory requirements in mind, too. In April, the U.S. Department of Labor published a final rule laying out new regulations regarding fiduciary responsibility and retirement plan investment advice. The purpose of the rule is to define the difference between specific investment advice and general investment education and to require that retirement professionals give advice that is in the best interest of the plan and plan participants.

About The Boon Group

The Boon Group® is a full service employee benefits company specializing in the design, implementation and administration of cost-effective fringe benefit plans for federal, state and local government contractors. Since 1982, The Boon Group has developed a partnership philosophy that expands beyond the products and services we offer. We stand with the employers and employees who, just like all who work at The Boon Group, are faced with the daunting task of navigating the U.S. healthcare system. Together, we can find a better way for all Americans to access healthcare. The Boon Group, Inc. is the parent holding company of The Boon Insurance Agency, Inc., Boon Administrative Services, Inc. (formerly named CEBA), Boon Insurance Management Services, L.P., Health & Welfare Benefit Systems, Inc. and Boon Investment Group, Inc. The Boon Group was formed to support and strengthen the position of these companies as a wholesaler of exclusive products and services. www.boongroup.com
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