Benefits Column

Retirement Innovations

Vendors are bringing innovative approaches to retirement benefits as the impact of mature employees on the workplace is better understood and retirement plans are finally offered through a private benefits exchange.

Monday, October 19, 2015
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It's been more than five years since I last wrote about employee-retirement plans. To be honest, there was no reason to consider the topic because no one was bringing any innovation worth discussing to the table.

We ended our last conversation with a summary of strategies human resource executives explored, including: auto-enrollment and auto-escalation, interactive education programs, target-date funds, removal of the loan capability from defined contribution plans, and 70 percent employer matches on the first 8 percent invested, instead of 100 percent on the first 6 percent. A lot of people are still discussing these tactics -- mainly because they are effective in getting employees to participate in and save more in defined-contribution retirement plans.

What factors concerning employee retirement benefits bring me back to this topic? Three things: the continued trend of older employees remaining in the workplace, a new way to visualize the marginal costs associated with delayed retirement and the inclusion of DC plans in a private-benefits exchange.

Older workers increase in numbers. The National Institute of Occupational Safety and Health introduced its new National Center for Productive Aging and Health in September 2015 because, currently, one in every five American workers is over 65 years of age, and in 2022, the Bureau of Labor Statistics predicts approximately one-third of people between 65 and 74 years old will be employed.

In 2014, 62 percent of employees over 65 were working full-time. Employment of people aged 65 or older grew by 117 percent between 1994 and 2014, including individuals 75 years or older whose employment grew at the same rate. Between 2012 and 2022, the percentage of people in the 65-to-74 and 75-plus categories will increase by 72 percent and 85 percent, respectively.

The value of helping Americans retire by age 65. Hugh O'Toole, founder and president of Viability Advisory Group, is helping HR leaders and CFOs, through their benefits advisers, to quantify the risk of defined-contribution plans.

There is a common misperception that employers eliminated financial risk with their switch from defined-benefits to DC retirement plans. What companies didn't factor into the equation was the financial impact associated with employees who remain in the workplace after age 65.

Mature employees (62 to 70 years of age) typically have increased healthcare costs and higher income levels -- especially as this group compares with employees between the ages of 25 and 50. Viability Advisory Group first takes an employer's actual employee data and calculates the marginal cost of delayed retirement. If an employee retires before age 65, the employer saves money. If the worker retires at 65 years old, there is no cost. But, if the employee leaves the company after 65, the employer experiences increasing levels of marginal cost.

The next step of the analysis converts the employees' “retirement readiness” to a financial forecast of the expected average retirement ages -- in other words, the costs an employer can anticipate relative to when employees leave work based upon their financial readiness.

Viability Advisory Group then works with the benefits adviser to present a prescriptive solution, with a year-over-year analysis, that demonstrates the impact of a minimal improvement in DC savings (using tried-and-true behavioral techniques, such as auto enrollment and auto escalation) on retirement readiness.

In an ideal world, O'Toole says, people should continue to work later in life because they choose to do so, not because they can't afford to retire. Companies that help employees improve their retirement readiness give workers that choice.

Retirement benefits become part of the private-benefits exchange. I've written a few times about private health and benefits exchanges. Until recently, these exchanges did not include retirement products. That changed in early October 2015 when MassMutual launched a limited pilot for its private-benefits exchange called BeneClick! -- using Maxwell Health's administration and enrollment platform. This exchange gives employees one place to go for all their benefits purchases, including health, retirement and supplementary benefits.

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The exchange uses MassMutual's choice architecture tool, MapMyBenefits, to help employees understand their optimal benefits mix as well as the products and services they can currently afford. At times, given the person's “life stage,” the tool may guide an employee to fund his or her health, life and disability plans instead of a retirement plan.

When the tool recommends a retirement strategy, it optimizes an approach based upon a retirement age of 67 years old with 75 percent replacement income.

I would best describe BeneClick! as a hybrid private exchange -- one that is a bridge between a true marketplace and a single-carrier exchange -- since it uses Maxwell Health's partners to provide benefits not offered by MassMutual such as healthcare insurance with MassMutual-only products.

Currently, MassMutual limits its private-exchange pilot to a chosen distribution network and employers with fewer than 1,000 workers.

Both Viability Advisory Group and MassMutual are targeting “middle-market” employees whose salaries range somewhere between $35,000 and $40,000 to $125,00 and $150,000 per year. It's important to keep an employee's life stage in mind, however, when creating recommendations for workers who make less than $35,000. People who are early in their careers would be wise to get in the habit of saving for retirement despite their initial low income levels.

Carol Harnett is a widely respected consultant, speaker, writer and trendspotter in the fields of employee benefits, health and productivity management, health and performance innovation, and value-based health. Follow her on Twitter via @carolharnett and on her video blog, The Work.Love.Play.Daily.


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