Communicating well is remarkably difficult.
Anyone who has experienced miscommunication in the workplace knows it can raise stress levels, delay projects, limit innovation, and produce a variety of other unwelcome consequences.
On the other hand, effective communication brings a myriad of benefits that may include rapid problem resolution, stronger workplace relationships, and higher overall productivity.
Corporate communications around retirement plans may become more complex, as plan sponsors decide how, and whether, to support participants as they move from work into retirement.
Early this year, Cerulli identified potential retirement plan trends for 2018.
In the United States specifically, the firm saw signs of “…plan sponsors thawing to the concept of the defined contribution (DC) plan as a retirement income solution. Firms must take stock of how to address obstacles, including plan design, product complexity, and trade-offs in product offerings.”
Here are three of the issues plan sponsors should consider:
- Philosophy
The first step for many plan sponsors may be developing a policy or philosophy that will guide plan decisions for retired participants and retirement income solutions.
Often, the policy or philosophy will be influenced by company culture and demographics.
In its December 2015 guide for plan sponsors, the Defined Contribution Institutional Investment Association (DCIIA) suggested that a company with a mature workforce, strong defined contribution plan participation, and sizeable participant account balances may be inclined to adopt solutions that keep assets in the plan after retirement and provide significant support throughout retirement.
On the other hand, the DCIIA recommended that an employer with a young and transient workforce, and participation driven by automatic enrollment, may prefer to offer planning and referral services for plan participants, and actively encourage distribution of assets at separation from employment.
- Solutions
The retirement plan solutions—in-plan, out-of-plan, guaranteed, or non-guaranteed—should be considered within the context of the plan’s retirement income philosophy.
Plans that have adopted solutions piecemeal, before a philosophy or policy was developed, may need to re-confirm their choices.
The 2018 Callan Defined Contribution Trends Survey reported more than two-thirds of plans have retirement income solutions in place.
Plans participating in the survey offered:
- 33 percent – access to a defined contribution plan
- 1 percent – drawdown modeling or calculators
- 5 percent – managed accounts with drawdown solutions
- 6 percent – annuities as a form of distribution payment
- 9 percent – in-plan guaranteed income for life products (primarily available through government plans)
- 8 percent – annuity placement services
A small percentage of the 2017 survey’s respondents offered qualified longevity annuity contracts or longevity insurance, but none of the survey’s current respondents did so.
More than 85 percent of plan sponsors surveyed were offering target-date retirement funds as default investment options.
Callan suggested that target date fund providers could facilitate asset drawdowns by offering information about the yield and distribution frequency of their income options.
- Communication and education
Plan sponsors who adopt one or more retirement income solutions will also be making a commitment to ongoing education and communication. They will need to develop and communicate the plan’s retirement income philosophy, as well as the solutions it offers.
Defining terms and using them consistently will be critical. Product providers apply a variety of terms including ‘retirement income,’ ‘lifetime income,’ ‘sustainable income,’ and ‘guaranteed income’ to the products they offer.
It will be important for plan sponsors to understand exactly what these labels mean and accurately communicate the meaning to participants.
In addition, plan sponsors will need to be careful about the language they use when crafting presentations and communications.
All too often, what plan sponsors say is not what plan participants hear.
For example, a survey of language used by financial advisors when talking with investors found that almost three-fourths of investors believed ‘guaranteed income’ was desirable, unless the word annuity was included in the description. When an annuity was involved, interest fell by one-third.
Effective plan communications, like effective workplace communications, require an understanding of the emotion attached to language choices, as well as other factors, such as differences in personal communication styles and generational preferences.
Defined contribution plans are evolving. It’s important to make sure the changes your plan makes are thoughtful and well documented.
Before retirement, Terry Dunne was the senior vice president and managing director of Retirement Services at Millennium Trust Company, LLC. Mr. Dunne has over 40 years of consulting experience in the financial services industry. He has written extensively on retirement planning, industry trends, technology, and legislation. Millennium Trust performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.
