PLANSPONSOR - September 2017 - 2

Insights
Inside Assumptions
I
n my last column ( " Taking Responsibility, " PLANSPONSOR,
July/August 2017), I wrote about the challenges our industry
faces when narratives take hold that aren't entirely true. My
focus in that piece, a response to another website's op/ed piece,
was defined benefit (DB) plans-how prevalent were they really
decades ago, how many people qualified, and how much did they,
or didn't they, have to save for retirement?
As the editor of a publication on employer-sponsored retirement
plans, I like to think I do a decent job of monitoring
misconceptions. However, I've become increasingly aware of
many, more implicit assumptions threading through our articles
and industry coverage, whether in the data included, papers
DC plan exposure, you run the risk of decreasing their savings
instead of increasing it. Your data analytics may look positive, as
people stay in the plan to participate and maybe even increase
their savings rate, but for their personal retirement readiness,
the numbers show the opposite trend.
Across the industry, retirement plan providers offer much
better access to analytics tools for sponsors and participants than
ever before-tools for calculating individual plan retirement
readiness scores.
A behavioral economist I met a couple of years ago was
talking about maximizing data usage to improve retirement
readiness at a particular retirement plan. I asked him what he
Much as the notion of " the good old days of pension plans "
misconstrues what those plans really looked like, so does
the discussion of employees and participants as if they are
all new hires with their first job post-high-school or -college.
quoted or the comments of industry professionals. Some of these
notions seem fairly innocuous at first, but once we, as reporters
and editors, start to question them, we see how we can dig a little
deeper and question a little further to bring you more complete-
and valuable-information.
The most significant of these assumptions relate to plan
design and participant behavior. In this issue, we have a feature
about leveraging data and how plan sponsors can use analytic
tools to improve their plans and make more informed decisions.
Getting the right data is only half the battle, however. What I
mean is this: What assumptions do you make when determining
what data to consider?
For example, since your plan adopted automatic enrollment,
have you inquired whether participants were previously enrolled
in a defined contribution (DC) plan, or do you assume they are
completely new to the work force? If the former, your plan might
use a higher default rate, say 6%, considering that an employee
had likely been participating at a rate higher than the 3% typically
used for those just starting out. Or instead, should you
consider what Dr. Punam Keller of the Tuck School of Business
at Dartmouth College suggests and ask new hires to make an
affirmative choice to participate, engaging them by asking what
they were contributing at their past employer?
By assuming that all participants come without former
2 PLANSPONSOR.com September 2017
thought about the assertion that retirement readiness assumptions
were too low for people invested in multiple retirement
plans. He responded that because everyone cashes out, there was
no reason to worry about prior retirement plans.
Yes, it is true that the industry has a problem with leakage,
but do the vast majority of retirement plan participants cash out
their plan account when they leave a job? I think not. In fact,
when most employees leave a company, they're moving from one
job to another and probably don't need the money-they likely
took a job for similar pay and therefore don't need to raid the
retirement plan.
Much as the notion of " the good old days of pension plans "
misconstrues what those plans really looked like, so does the
discussion of employees and participants as if they are all new
hires with their first job post-high-school or -college.
There's an old saying, " When you assume, you make an ass
out of you and me. " That's not a pleasant thought, but it's true
probably more often than not-after all, that's why the saying is
in our vernacular. Our role is to bring you information based on
fact, and we will continue to work hard to challenge the implicit
assumptions found in information we source for our articles,
and provide the proper context so, as plan sponsors, you can
make the right decisions for your plan.
-Alison Cooke Mintzer, Editor-in-Chief
http://www.plansponsordigital.com/plansponsor/july-august_2017?pg=4#pg4 http://www.plansponsordigital.com/plansponsor/july-august_2017?pg=4#pg4 http://www.PLANSPONSOR.com
PLANSPONSOR - September 2017

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