It is no secret that people are not doing enough to ensure they will have a secure retirement. During National Retirement Planning Week, April 13-17, employers, financial advisers, plan providers and others are attempting to bring awareness to the retirement readiness problem by targeting both employees and employers.
Matt Sommer, director of retirement strategy at Janus Capital in Denver, encourages plan sponsors to help their employees see the big picture when it comes to retirement.
Plan sponsors need to get the word out about the new retirement plan contribution limits for 2015. Individuals can contribute $18,000 to their workplace-sponsored retirement plan in 2015, an increase of $500. If a person is age 50 or older, they can add an additional $6,000 in catchup contributions to their account.
We are also seeing more interest among plan sponsors in helping employees think about personal finance and, more specifically, debt management, Sommer said.
Employers are keeping better track of loans and hardship distributions from their retirement accounts. They also are watching to see if people who leave their company are taking a lump sum distribution or rolling it over into an IRA or other workplace retirement account.
Theres a lot more emphasis on helping to keep those monies inside of a tax-deferred arrangement so it is not subject to taxes and penalties, he said.
Employees and employers need to make sure their 401(k), 403(b) and 457 plan assets are in the right allocations for where they are in life. That means revisiting those allocations on a regular basis. For those on the cusp of retirement or who have already retired and chose to leave money behind in their workplace plan, they need to make sure their assets are still aligned with what they want to accomplish, Sommer added.
People are concerned they wont have enough money in retirement.
The question becomes, how do we alleviate some of these concerns and fears? Sommer asked. Employers have started offering comprehensive financial planning education to employees so they are able to make better decisions.
Different employers have different feelings about what is their level of responsibility [when it comes to financial planning]. I think where we are getting to as an industry is the whole idea of retirement readiness and whether or not plans are doing a good job in helping employees replace their income in retirement, he said. If they are not, why do we have these plans in the first place?
Companies are making strides in how they evaluate the success of their workplace retirement plans. In the past, companies looked at metrics like average deferral rate and average participation rate. They also looked at how their plan compared across plans and the industry as a whole, he said.
These metrics are still important, but now employers want to know if their employees are on track to replace 60% of their income in retirement. If they arent, what can we do to improve their experience so they are closer to replacing their income over their 30-year retirement period?
Many employers are being proactive in helping their employees see the big picture by converting 401(k) account balances into a monthly income figure. For instance, $250,000 may seem like a lot of money to retire on, but spread out over 20 to 30 years, it may not be enough.
In May 2013, the U.S. Department of Labor proposed making it mandatory for plan sponsors to include lifetime income illustrations on their 401(k) account statements to help employees make better decisions about their retirement savings.
Another option that can help employees see where they stand in retirement is consolidating orphaned defined contribution plans into one retirement savings vehicle, either an IRA or their current employers workplace retirement plan, Sommer said. That way, all of their money is in one place. They get one statement, can keep tabs on their investments and see how they are doing, he added.
Employees need to be sure they update their beneficiaries on all of their retirement accounts. For 401(k) plans, a person needs to get the consent of their spouse before they can designate someone else as the beneficiary. For an IRA, an individual can name anyone they want as a beneficiary.
What we are seeing in the marketplace is the whole notion of retirement readiness and income replacement. At the end of the day that is the best measure of whether a 401(k) is doing what a 401(k) is meant to do, Sommer said. It is a good opportunity for plan sponsors to benchmark their progress and work with providers on areas of improvement moving forward.
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