PLANSPONSOR - August/September 2019 - 22

Upfront
Remedies for a Retirement Crisis?
WHEN Roger Ferguson, CEO of TIAA
appraises the retirement situation in this
country, he sees a " very serious challenge "
that could well " migrate into a crisis if we
don't act. " The challenge is three-pronged,
consisting of a coverage gap, a savings gap
and a guaranteed income gap, he says.
Among workers who are offered a
retirement plan, the system works pretty
well, says Lew Minsky, president and CEO
of the Defined Contribution Institutional
Investment Association (DCIIA). " But
we have to continue to close the gap and
broaden the pool of people who have
access to workplace retirement plans. "
Only half of Americans do get offered
such a plan, says Ferguson. This means
the rest will be totally dependent on Social
Security, which he contends will not be
enough. Therefore, companies with no
employee retirement plan need to seriously
consider offering one, he says.
Once employers add a plan, it should
automatically enroll participants at a
deferral rate of 6% or higher and include
automatic escalation, says Jeff Winn,
managing partner at International Assets
Advisory. It is incumbent on sponsors to
encourage and enable people to save as
much as they can, Winn says.
" Sponsors are the ones that should
be doing the education on saving for
one's retirement, " Winn says. " They have
stepped up to the plate with low-cost
investments, but if there is any area where
they are falling down on, it's educating
people about the need to save adequately
for retirement. "
To put this need in perspective, the
Federal Reserve and the Government
Accountability Office (GAO) have estimated
the retirement savings shortfall
in the U.S. to be between $4 trillion and
$7 trillion, Ferguson says. " A recent GAO
report says that 30% of households where
the head is between the ages of 55 and
64 have no retirement savings or defined
benefit [DB] plan, and among those who
do have savings, the median amount is
$104,000, which translates into $310 a
month in income-that tells you the degree
to which the savings shortfall is [serious]. "
" Companies need to help their
employees understand the critical need to
save and encourage them to start early, "
Winn says.
Plan sponsors also need to think
about offering in-plan annuities that
guarantee lifetime income, Ferguson
says. " People are living longer, which
means they need to be provided guaranteed
income they cannot outlive, " he says.
" More than half of 65-year-old men will
live to 85, and one-third will reach 90.
Two-thirds of 65-year-old women will live
to 85 and half to 90. "
Ferguson says he is encouraged that
the Setting Every Community Up for
Retirement Enhancement (SECURE) Act
of 2019 includes a safe harbor provision for
in-plan annuities, which are the most costeffective
way to purchase them.
" For most Americans, being able to
guarantee a level of lifetime income is
of nearly paramount importance, " says
John Lowell, a partner with October
TALKING POINT
Low-Earners Want Savings Tools
75%
... said, if offered a
workplace savings
program for their
raises, they'd be less
stressed and more
confident about
their finances.
63%
... said they
would like the
opportunity to split
their direct deposit
between checking
and savings
accounts.
Source: Commonwealth, " Rise With the Raise: The promise of straightforward employer
benefits for building lower-wage employee financial security "
Three. While in-plan annuities are rare,
he is hopeful that the increasing discussion
about reliable retirement income
will lead to designs that facilitate offering
these products.
Plan sponsors can also help encourage
lawmakers to shore up Social Security,
says Ric Edelman, executive chairman
of Edelman Financial Engines LLC in
Fairfax, Virginia. For those Americans
who make $40,000 or less, Social Security
will provide a substantial amount of their
money in retirement, he says.
" The typical American retiree gets the
bulk of their income from Social Security,
and if Congress doesn't act, in 2035, the
benefits will be cut by 23%, meaning that
$1,400 a month will become $1,000, "
Edelman says. " Should that occur, millions
of American retirees would lose their
homes and be unable to buy adequate
medicine or food. "
This is why Edelman has launched
the Funding Our Futures coalition, which
sponsors may join, he says. The coalition, is
working to educate Americans about how
the Social Security trust fund is in danger
of being depleted, so they will turn to their
Congressional representatives to ask them
to take action. -Lee Barney
22 PLANSPONSOR.com August - September 2019
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