Transition to a Smarter Plan Design

Change is difficult. And I’m not talking about the shirt I changed this morning because my wife said the buttons were holding on for dear life. No, I mean the kind of change that reinvents the very foundation we have grown accustomed to for so many years. The foundation that maybe we helped create and have used to thrive under for the better part of our careers.

We know it’s necessary. It’s the right thing to do.

Many believe we’re nearing a crossroads in the retirement services industry. Participants simply aren’t saving enough. And despite the bells and whistles each service provider is coming up with to support employee education, the reality is that if left to their own device, individuals are not making the necessary decisions to control their own retirement destiny. 

So how do we change this inertia?  Most retirement professionals already know the answer – the issue needs stronger direction:

  • Automatic enrollment with salary deferral increases each year.
  • Annual re-enrollment to sweep in those participants who chose to opt-out the previous year.
  • QDIA options to support appropriate growth for retirement for participants uncertain how best to allocate their assets.

It seems simple – but it is far from it. Plan sponsors have had plans in place for many years and a proposed change today just means more work.  Or a higher cost with increased matching contributions.  Or risk of upsetting current participants by increasing their current deferrals to a higher rate and re-enrolling those not participating today.

This is the kind of change plan design I was talking about earlier. It’s probably necessary, but so very difficult.  Once implemented the role of a trusted advisor increases significantly, but how does an advisor navigate those first few steps?

Initially, find a catalyst.

Maybe a catalyst is a discussion with the retirement committee around increasing participation and the advisor suggests stretching the match from 50% up to 4% to 25% up to 8%?  Following this discussion would be an easy transition into an auto-enrollment feature.

And speaking of transition, what better catalyst for a new direction in plan design once a change in service providers is already underway?  A really great opportunity for any plan sponsor to upgrade their current plan design is during the transition process.  A transition is already a good time to point out positive changes, and deciding to enhance retirement offerings, with the goal of helping to maximize every participant’s chance at retirement success, can be better received by everyone.

Helping to create an optimal plan design for retirement outcomes is a key driver to success.  And finding an already available catalyst, like a retirement transition, just might be the best opportunity to initiative real, positive changes to further solidify the relationship between a plan sponsor and their trusted advisor.

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Affiliation Disclosures

The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice.  You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

 Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.