WINTER 2016

128 THE DISTRIBUTOR’S LINK
JIM TRUESDELL THE EMPLOYER’S ROLE IN SUPPORTING SUCCESSFUL RETIREMENT PLANS from page 46
The company makes no promise of specific benefits
and turns over to the worker the decision of how much to
set aside in savings and, subject to a menu of investment
choices, just how these funds will be put to work. In lieu of
what was once the funding of premiums, employers often
provide the equivalent of profit sharing which may be in the
form of discretionary contributions to the 401K balance or
a matching of the employer contributions up to a certain
amount.
So, since the 401K's were intended to take the place of
the once widespread private pension plans, why are so
many workers approaching retirement with little or nothing
saved? There are quite a few reasons.
[1] Since the basic impetus for savings growth must
come from employee savings, if workers do not, or cannot
afford to contribute then they will not amass savings. Even
if companies match contributions there will be none if the
employee does not get things going by starting to make
elective contributions.
[2] Fluctuating stock markets have not only hit
accumulated employee balances hard, but market
“crashes” in 1987, 2001 and 2008 have scared off many
small investors from balancing their portfolios with the
equity stock funds that give a chance at long-term
appreciation.
[3] Years of unexpected near “0” interest rates have
limited the growth of those with very conservative bond and
fixed income portfolios.
[4] A healthier population expects to live longer, thus
making what might have been an adequate retirement next
egg insufficient for projected needs.
[5] As companies have sought to hold down expenses
in an increasingly lean and mean business environment,
their profit sharing contributions have not kept pace with
what would otherwise probably have been an “indexed to
inflation” rise in benefits had the private pension plans not
ended.
As the defined benefit pension plan has disappeared
from the world of private for-profit companies it still remains
a staple of public employee compensation programs.
Negotiated by public employee unions with political leaders
who would not be around to see the plans fail in later years
(or whose constituent base included affected union
members and public employees) these public plans are
beginning to place unbearable burdens on government
budgets. The political will is usually not there to do what
private businesses en masse did during the 1990's and
early 2000's---- that is convert their retirement plans to
defined contribution programs in the form of 401K's.
So, what are companies (and in particular small
distribution firms like ours) to do as they see their workers
failing to amass adequate retirement savings?
Companies can and should increase their education
efforts to encourage employees to begin saving, and the
earlier in a career the better. Communication programs
should emphasize the company's profit sharing
component, matching if it exists (or consider adding that
feature), and the power of long-term compounding on
savings.
Investment options can be increased to provide
desirable options for employees in all various
circumstances. The ability to easily access and interact
with investment choices with few restrictions is helpful.
Time restrictions and frequency limits of trading by
participants on-line should be kept to a minimum so
participants feel fully in control of their money. The ability to
access funds through loans and hardship withdrawals
should be fully explained so people do not feel they are
“trapped” in the 401K until the magic permitted withdrawal
age of 59 1/2 arrives.
The concept of automatic enrollment might be
considered whereby a set percentage of employee
paychecks will be contributed unless the employee
specifically “opts out” of contributing. Apparently studies
have shown that the majority of employees will just let it
ride, and thus they start on the road to building retirement
savings.
If employees are encouraged to make earlier and
larger contributions to their retirement plan it will lead to
increased satisfaction with the benefits their company is
offering. It will allow them to move steadily to a retirement
at reasonable expected ages without many of them being
forced to “hang over” for years of limited work productivity
which might impede upward mobility for younger staff
seeking to move up within the organization through
promotions. Further, it helps you as the employer to truly
help meet the social obligation which the nation expects
companies to fulfill in providing a counterpoint to Social
Security as a financial foundation of a successful postprofessional
life for our citizens!
JIM TRUESDELL