Can an employer afford to sit on the sideline?

Why the sideline matters to me

I love basketball.  I should be more specific.  I love watching basketball.  I’m not tall, or athletic, so my forte is being a spectator. I’ve watched my nephew play for years.  Unlike his aunt, my nephew is athletic. Now that he’s in eighth grade, he plays for two teams—one with school and a club team.

As his basketball season continues, so does the NCAA’s.  Every year, I look forward to March Madness…the games, the brackets, and the hope that my college alma mater will be included.

March Madness

As I’ve watched basketball over the years, I haven’t just focused on the playing court.  I’ve also watched the sidelines, especially in recent years when my brother-in-law, became my nephews coach. I’ve noticed that my brother in law, and other teams’ coaches, don’t spend the whole game just sitting on the sidelines.  They stand up and stay involved. There’s continued interaction. Whether I’m watching one of my nephew’s games or NCAA basketball, this trend exists.

Why every retirement plan should have a coach

During a game, the coach follows his (or her) team up and down the court.  Whether winning or losing, a coach strives to provide his team with the right balance of encouragement, instruction and direction, right when his team needs it.  If more involvement is needed, the coach calls a time-out for all to regroup. The coach is an important team member.

In some ways, an employer, as plan sponsor of the retirement program, can take on a similar role.

And statistics suggest that an employer cannot afford to sit on the sideline as a spectator.

  • 63% of plan sponsors say they measure plan success on its ability to prepare participants to retire with adequate/secure income.
  • 94% of employers are very/somewhat concerned about their participants’ probabilities of achieving an adequate and secure retirement income.
  • 85% of employers think they need to spend more time helping their participants plan their retirement incomes than they do today.1

More game time, doesn’t always equal more success

Employers need to watch the time clock.  They need to be aware of what it can mean if their employees continue working past their normal retirement dates. Just like when a basketball game goes into overtime, the pressure increases and the time allotted on the clock is shortened. It’s moments before hearing the buzzer.

Delayed retirement and continued employment can mean:

  • Increased health care costs; insurance and claims
  • Increased salary and benefit costs, including worker’s compensation and severance
  • Lower performance: decreased productivity and increased absenteeism
  • Diminished morale: decline in motivation by both younger and older employees
  • Cost to train replacement workers

This helps show how important it is for employers to make retirement readiness part of their game plan.  Just as a coach wouldn’t let his team play a game without being prepared, an employer shouldn’t let their employees be unprepared for retirement.

Retirement can span over 30 years for some individuals. Ample time and preparation is needed to ensure those decades of retirement can be enjoyed.

Oftentimes, an employer just isn’t sure how to help. They don’t want to sit on the sidelines, but aren’t sure how to help with the layup.  That’s where our retirement consultants can help employers come up with a game plan.

How to set players up for success

There are ways an employer can pro-actively help their employees be adequately ready for retirement.

Use retirement ready plan design features. Just like a coach’s play book, there are steps to take that help make an adequate retirement a slam dunk:

  • Automatic enrollment with at least 6% elective deferral default
  • Automatic escalation of at least 1% per year up to at least 10%
  • Stretching the match to encourage employees to defer at higher levels to get the full employer match; without increasing your matching contribution costs
  • Naming a diversified investment option(s) as the qualified default investment alternative (QDIA)
  • Involve your entire service team: human resources/benefits departments, financial professionals and vendors to utilize their expertise
  • Don’t under-estimate the power of a participant education plan; and put that plan into action. At least annually, take a time-out. Review & revise that education plan to ensure it still meets goals

Practice, practice, practice.   A basketball team has many practice sessions before each game.  Similarly, multiple conversations on retirement readiness are needed to win the game.

Start those conversations now. Don’t sit on the sidelines and let the clock run out.

FINE PRINT: This blog was tested and enjoyed by 4 cats and 1 Labrador.  The Labrador especially loves the several mentions of “ball,” as any Retriever would.  Blog was not tested on nephew. Blog author has a birthday at the end of March and welcomes happy birthday wishes as she becomes another year closer to being retirement ready. Blog author does not share birthday cake with animals.

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Sources:

1 Brightwork Partners’ Supporting Retirement Savings survey, Sept. 2013

Affiliation Disclosures

No investment strategy, such as asset allocation or diversification, can guarantee a profit or protect against loss in periods of declining values. The ultimate decision as to whether an asset allocation choice is an appropriate investment option for a plan and whether it can serve as a QDIA belongs to the appropriate retirement plan fiduciaries. The selection of any investment options on behalf of a plan is the fiduciary responsibility of the appropriate plan fiduciary, which is not Principal Life. Plan fiduciaries remain subject to a varying amount of ongoing responsibility, depending on the structure of the plan the fiduciary serves and the nature of the plan fiduciary’s position. Please consult with your counsel or other adviser as to the responsibility of a plan fiduciary with regard to the selection or retention of any plan investment option by a plan fiduciary.

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