Developments in the Field of Retirement Plans

There are various types of benefits offered by companies of all sizes, with Retirement plans being the second most sought after benefit of health care. To address this need, many employers offer their employees 401 k plans or other retirement plans (SIMPLE IRAs, SIMPLE 401(k) s or SEPs) as a way to prepare for retirement. While these plans are increasing in popularity as we see strong markets and companies adjust to rising health insurance cost, we are also seeing a decline in traditional pension plans. As we see 401 k plans become the primary way employees save for retirement, there is still a lot of room for improvement when it comes to helping you and your employees meet your retirement goals. Some of the challenges many of us will face in retirement planning are:

1. As we see life expectancy increase, retirement lifestyles are changing with it. As a result of the rise in life expectancy retirement services provided by the government, resources are changing, and quickly. Governments across developed nations are increasing the retirement age, due to the rise in life expectancy for their populations and the demands those retirees have on government programs. As we see these programs change, we will see significant changes in the retirement plans offered by employers as they start to see an older workforce unwilling or unable to retire. In the past, retirement was viewed as leisure time where financial security was the primary concern, but current generations will need to focus on retirement income, delaying retirement, or changing their view of retirement to one that includes working later or a part-time job as part of their retirement.
2. In Corporate America, the most common retirement plans are defined contribution (DC) plans, most commonly identified with the IRS code that created them, 401(k)’s. While the name 401k may be exclusive to America, even most multinational companies have conducted elaborate research and planning to meet the needs of their employees. Because of this planning, many of these companies have established DC plans for their employees across the world. Even though most countries around the world still use or require defined benefit (DB) plans as the USA did in the past, it is expected that future retirement plans will be a lot different. As we saw with many pension plans of old or current government pensions, they would over extend their commitments and become underfunded and thus much more expensive than originally planned, so expect DB plans to continue to dwindle. Combined with less generous government programs, like reductions in Social Security benefits, expect to see the need for Defined Contribution plans increase across the world to bridge the retirement income gap.

3. Financial planning services, programs and strategies offered by companies greatly increase employee responsibility. Due to this shift in responsibility for retirement planning to the individual, it has been widely observed that there is a big gap in knowledge on the employee’s part about how to ensure financial stability in retirement. Employees, who are already overwhelmed with the hustle and bustle of today’s information age, are even more overwhelmed when given too many choices on a complex topic like retirement planning. Things like, what contribution rate to start at, what investments to choose, or even what to do with the money when you are ready to retire, lead many employees to freeze like a deer in headlights, as they know they need to save but are afraid of wasting their hard earned paycheck in a system they don’t understand. This leads many employees to start their contributions later in life, investing too little and too conservatively, leading many to retire too soon. While some may view this as the employee’s problem, many companies are designing their plans with these pitfalls in mind so they can set their employees on the right track. This can also have a positive impact on the companies that enact these designs as their older and more expensive employees (wages and health care costs) will be able to retire sooner and be replaced by less expensive younger employees.

4. While retirement plans like 401(k) plans can do a lot to set someone up for meeting their retirement goals, individuals still need to take responsibility in their own finances. Due to this, retirement planning should also involve personal savings, budgeting, income management and planning, and debt management. After all, if you have a large 401(k) account, but have debt that matches it, it will be very hard to survive in retirement without substantial cuts to your current lifestyle. While many of us may love our jobs, many people don’t want to do it into their 70s, 80s, or 90s. That is why it’s important to plan now and get on the right financial path for a successful retirement on your own terms.

For employers who are seeing unemployment rates fall, and competition for talented employees increase, retirement plans can be a great way to attract and retain talent in an economical way with things like vesting schedules of up to 6 years for employer contributions. Again, not all retirement plans are designed or run the same so make sure your plan is meeting your current goals and design for future company needs.

We are dedicated to simplifying your retirement plan while addressing the unique problems and solutions that come with them.