Retirement Plans

Special Report: Tuning Up the 401(k)

With workers causing havoc by delaying retirement, employers must press to get them ready.
David McCannDecember 4, 2014
Special Report: Tuning Up the 401(k)

When I began covering employee benefits in 2008, I wondered whether employers really cared whether their workers were well prepared for retirement, as they said they did. When I asked experts, their responses were along the lines of, “The better a 401(k) plan is, the more value it has as a talent attraction and retention tool.”

Then baby boomers starting reaching retirement age — except many of them, with retirement accounts depleted by the financial crisis, decided not to retire.

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IntroArtThat’s left many companies with more older workers than they’re comfortable with. The entire conversation has changed. Now, helping employees with retirement readiness has very practical, hard-dollar implications. Many older employees are highly paid for their positions. Their health-care costs tend to be greater than those of younger workers. Depending on the position held, their productivity may be falling off.

Perhaps the most troublesome long-term implication of having an older workforce is that younger high-potential and high-achieving employees may be blocked from promotions and, for that reason, tempted to jump ship. That’s an ironic, 180-degree twist on the concept of a retirement plan as a retention tool.

If you can’t just let go of all your older people — and of course, you can’t — then you need to do something else. All of the articles in this special report are in large measure about what companies can do differently in order to position employees to retire at a reasonably young age.

For some of these strategies it’s early days, but hope looms. For example, lifetime-income investment options within 401(k) plans are just getting under way, and neither plan sponsors nor plan participants are quite ready to embrace them. Current regulatory events, though, hold promise for turning that scenario around.

Custom target-date funds, constructed specifically with a plan sponsor’s specific retirement-benefits portfolio and participant demographics in mind, are starting to gain traction. Even a downward trend in recordkeeping fees is an advantage for employees, as many employers pay those costs out of plan assets.

Overall, these developments make for a rather heartwarming story: corporate strategy and social justice, marching hand in hand.