Back in the 1990s, the concept of 360-degree feedback really started to resonate with those in the human resources industry, particularly in the United States. The idea is fairly simple – that the true gauge of an employee’s performance should be based not solely upon the opinion of their manager, but rather on an amalgam of feedback from superiors, subordinates, and peers. The intent is to create a circle of input from those above, below, and around the employee to provide valuable feedback that will allow the employee to improve. As we now stride towards the midpoint of the Twenty-First Century’s second decade, it is the U.S. retirement industry that must adapt this concept to build upon successes of the Pension Protection Act of 2006 (2006 Act) in the goal of creating better retirement outcomes for U.S. savers. This is the primary finding of “A 360 Degree Approach to Preparing for Retirement,” a report authored by my firm, CREATE-Research, and sponsored by the Principal Financial Group.
As defined benefit plans gave way to defined contribution plans, the 2006 Act made great advances in getting U.S. workers enrolled and productively investing for retirement; however, it only went part of the way to help Americans secure better retirements. Improvement of the retirement system cannot reset solely on the backs of plan participants. Nor can the burden of improvement be borne only by plan sponsors, or by financial advisors, or by asset managers. Rather, it will take a 360-degree approach that incorporates input and assistance from all of these stakeholders.
Asset managers need to contribute innovative product-based solutions that demonstrate an understanding of the needs and risk tolerances of their end-clients. Plan sponsors need to improve plan designs to make diversified saving more convenient and intuitive, while also enhancing the participants’ outcomes through better communication and education. Financial advisors’ primary goal for improving the U.S. retirement landscape is to solidify a retirement strategy in the minds of their clients. Too often, retirement is a far-distant goal that remains ill-defined until too late. It is the advisors’ task to help their clients visualize retirement goals and keep them on track towards achieving them. The last and most important stakeholders are the plan participants. The one thing that participants can do to improve their retirement outcomes is this – become more active in retirement planning. This means pushing for more educational activities, developing detailed retirement plans, advocating “autopilot” features like target-date, target-risk, or target-income options.
No one of these stakeholder groups can improve the system on their own. It will only be through purposeful collaboration that the United States can move the needle on retirement preparedness. I encourage you to read the entire report for all the details.
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