The Right Ratio for Retirement Readiness
We are extremely passionate about positive plan outcomes for plan sponsors and their participants. We believe the auto features are not enough, which is why we developed our own financial wellness program that not only utilizes traditional group education but also includes interactive online tools, and individual advice services.
We’ve engaged in group education for over 20 years. It’s nothing new, but we’ve taken it to the next level by implementing action plans at the participant level, as well as encouraging plan sponsors to support the program while providing them with measurable management reports.
The key is our “90/10/90 rule,” where we strive for 90 percent participation rate, 10 percent deferral rates and 90 percent diversification. It’s measured by our proprietary Financial Wellness Scorecard, which uses plan analytical data. In addition to high-level measures, it allows us to drill down to the participant level to help us further analyze what’s happening in the plan.
The Financial Wellness Scorecard weights three different factors—savings rates, diversification and whether early distributions or withdrawals are taken. We believe plans should measure whether or not employees are on the right track, and that sponsors should understand the cost of delaying retirements. Studies show that a one-year delay in retirement can cost the employer $50,000 per employee each year, if not more.
We typically use an 80 percent replacement ratio for retirement readiness. This is measured by our Retirement Readiness Scorecard. We use auto enrollment and auto escalation when feasible but we still believe in group and one-on-one education.
A long-term client of ours owns several high-end resorts around the country. They have lower-paid hourly staff as well as a number of non-English speaking participants. We heard their Spanish-speaking employees were hesitant to join the plan because of the language barrier. We, therefore, turned all our relevant education and marketing into Spanish.
We also obviously wanted to raise the participation and deferral rates, so we developed an enrollment program and form that was a simple check-the-box format to join and contribute, one that utilizes model portfolios.
We put it in the hands of the general managers to introduce at their respective various resort properties. As simple as it sounds, the company awarded a $250 bonus to the general manager with the highest increase across the board. They included recognition for the manager at their national conference, and it created the “Super Bowl” of manager competitions—engaging, fun and effective.
In a six-month period, the plan sponsor had an increase from 32 percent to 78 percent in overall participation and, largely as a result of the increase, just recently made the commitment to implement auto enrollment with auto escalation.
Charles Langowski is principal and CEO of Minneapolis-based Advanced Capital Group.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
