Pub. 6 2015 Issue 2

www.wvbankers.org 16 West Virginia Banker Planning for a Successful Retirement— The Ultimate Outcome By Mark Hogan, Regional Director, Pentegra Retirement Services With 401(k) plans becoming the sole retirement plan for many employees today, it is more important than ever to ensure that these plans are designed to help participants meet their income goals for a secure, comfortable, and enjoyable retirement. A s with most things in life, there is nothing more important than knowl- edge ... and when it comes to influencing participant behavior regard- ing their retirement, that knowledge comes in the form of personal education. This is not to say that every plan participant needs to become an expert on the ins and outs of retirement planning; however, with a relatively simple approach taken by employers, participants should be able to under- stand their options in a relatively simple and coherent manner. The need for education is underscored by a survey we conducted with Har- ris Interactive, which revealed that, while 75% of U.S. employees currently enrolled in a 401(k) think that such plans are the most important source of one's retirement income, 65% do not believe, or are not sure, that their 401(k) plan will provide enough money for them to be able to retire when they want/plan to. But the retirement planning industry has learned that education alone does not drive participant behavior; real plan effectiveness needs to be measured in terms of whether participants are on track to succeed. Therefore, ensuring successful participant outcomes begins with progressive plan design that maximizes positive participant behaviors. Plans with automatic features that better meet the needs of plan participants and plan sponsors help drive successful outcomes by helping participants hit the all-important 10% savings rate that we believe is crucial. Participants benefit as they experience higher levels of retirement success and retirement readiness; plan sponsors benefit as participants become more engaged with their plan and are better prepared for the long term prospect of saving for retirement. Improved defined contribution plan outcomes also serve to ease the loss of the traditional defined benefit pension plan -- that may have been closed, frozen or cut back. Automatic 401(k) plan features include automatic enrollment, automatic escalation of salary deferrals, auto rebalancing and utilization of qualified default investment vehicles. These features help plan participants set a reasonable level of salary savings, increase their contributions over time, achieve proper investment diversification, and make better use of a plan’s investment alternatives. Placing participants in an appropriate investment option at a pre-selected contribution rate that increases annually essentially replaces some of the most important features of a defined benefit plan, such as automatic coverage and professional investment management. Strong participation rates start with eligibility features that make it easy for participants to take advantage of a 401(k) plan from the start. Getting employees enrolled in the plan right away, and giving them an “ownership” R ETIREMENT S ERVICES P entegra