Staying on the Job
Staying on the Job | Human Resource Executive Online
The downturn in the stock market, the tightening of credit and the increased emphasis by workers on increasing savings will have an impact on employers. Working longer has become the No. 1 retirement-planning strategy for the future.
By Dallas Salisbury
The economic crisis appears to have created a number of sea changes that will affect employers for decades to come.
First and foremost is the awakening of individuals to how meager their savings were before the markets crashed, let alone afterward.
Second, and most important for the employer and the workforce, is an appreciation of the new reality that the easiest way to cope is to work longer, since it is likely too late for most workers to get to a retirement-savings goal by the time they sharpen their focus.
Surveys suggest that focus on retirement saving comes in the early 50s, or much later for many.
A recent McKinsey and Co. report, Restoring Americans' Retirement Security: A Shared Responsibility opens with: "Even before the financial crisis that began in the fall of 2008, Americans were woefully unprepared for retirement."
Reality, yes, but it's a reality that was unappreciated by the vast majority of workers who continued to claim Social Security payments beginning at age 62; a vast majority that simply thought that having a retirement plan at work meant they could afford to retire as soon as some paperwork said they were eligible.
Prior to the crash, articles in USA Today, Money Magazine, BusinessWeek and othersproclaimed the existence of "401(k) millionaires" and extolled the magic of the 401(k) plan as an assurance of a comfortable retirement. Far too many workers believed those headlines.
More than half never bothered to plan for or calculate the adequacy of their savings before making a retirement decision, according to many years of Retirement Confidence Survey findings, and nearly one-third that did do a pre-retirement calculation say they guessed at the numbers.
Being ready to retire was not about having sufficient income and savings, it was about being ready to leave when eligible. Multiple surveys released this year suggest that workers of all ages have woken up to the painful reality that being eligible says nothing about being financially ready.
Given the size of the shortfalls in retirement-savings adequacy, most workers should work five years longer than has been the pattern of the 1970s, 1980s, 1990s, and the first years of this new century.
Employers are living this new reality along with those now non-retiring workers. Any hope that things will return to normal with an economic recovery, however, appear to be misplaced if the surveys of 2009 are to be believed.
A sea change in retirement expectations is the more likely outcome. And, along with it, another sea change in understanding what one does not understand about investments.
Prior to the crash, 401(k) plan sponsors moved as a mass to offer target-date investment funds. Pick the year that matches when you plan to retire and all will be taken care of for you -- that was the belief.
It took the market crash for participants to learn that it was not a promise of enough money to retire, as officials of the Securities and Exchange Commission and the Department of Labor learned from
survey results testified
to during a hearing on June 18.
Instead, it simply meant that an asset manager would decide how to allocate your money across asset classes and rebalance it over time.
The same survey, by Behavioral Research Associates, based in Evanston, Ill., found that participants thought a 2010 fund would have a very conservative asset allocation with low risk of losses. Instead, they discovered that it only means such a fund is less risky that one targeted to, for example, 2020 or 2030, not that it is low risk.
There is now a new understanding of the magnitude of equity losses that can occur very quickly, as trillions in "paper gains" were built as the Dow Jones Industrial Average reached 14,000 and then were lost when it dropped back to where it was more than a decade ago.
This understanding, combined with the end of easy borrowing, suggests a new 'financial reality' is settling in, surveys suggest. The implications are for a permanent reduction in consumer debt, consumer spending and retirement patterns.
Employers will be affected by each of these sea changes. Sales and profits will be affected by changes in debt and spending, which will in turn affect workforce needs.
Delayed retirement plans, particularly if by several years, will affect all aspects of hiring, promotion and circumstances of exit.
New understanding of savings inadequacy will bring pressure for help. Knowledge of market volatility and investment options will likely lead to 401(k) plan changes and a new focus on financial-planning advice.
In short, human resource challenges galore.
And that doesn't even include, as I discussed previously, the sea change that will arrive should
Social Security
or
comprehensive health reform
be enacted.
Dallas Salisbury, an expert on economic-security issues, is president and CEO of the nonpartisan
Employee Benefit Research Institute
in Washington. The views expressed, however, are his own and should not be attributed to EBRI or others.
August 3, 2009 Copyright 2009© LRP Publications
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