Tam Burgau has a dream. As director of Human Resources for Jackson County, Wis., she wants to sit down with every one of the 500 employees of her rural community and talk to them about planning for retirement, investing their retirement assets and getting ready for the days when they are no longer working. “It’s a goal,” she says. “I hope we can do it if we work really hard.”
Many officials that oversee retirement benefit plans for state and local governments share Burgau’s sentiment. Connecting with employees using all tools at their disposal is helping plan administrators increase participation in retirement benefit programs. And, as defined contribution benefit plans become a larger piece of workers’ retirement portfolios, employees need more information about their investment options.
What’s the big deal?
The importance of helping workers build their retirement foundation has never been greater, particularly in the public sector. A study released last fall by the Washington-based Employee Benefit Research Institute (EBRI) shows that while the percentage of public sector workers who participate in employment-based retirement plans (74.8 percent) remains significantly higher than in the private sector (41.7 percent), there has been a decline in recent years. And, participation is at its second lowest level of the last 18 years, according to data from the March 2006 U.S. Census Bureau’s Current Population Survey.
As president of the Lexington, Ky.-based National Association for Government Defined Contribution Administrators (NAGDCA), Ralph Marsh, chairman of Houston’s Deferred Compensation Advisory Committee, has seen more new initiatives from his colleagues as they grapple with the significance of statistics like EBRI’s. “We are trying to get employees to see the benefits that these plans afford over the long term as they prepare for retirement,” he says. “We are beginning to see initiatives at the employer level to provide additional resources — online, advice, instruction, counselors. We want to get the message out that planning early is paramount.”
State and local workers also are concerned about the prospects for their retirement, even if they have begun to save. According to a survey by Washington-based ICMA-RC, four out of five public sector workers do not believe their defined benefit pensions will support their desired standard of living when they retire. In addition, a significant minority (33 percent) report that even with accumulated personal savings, they still face a shortfall. Some of the problem lies in their own saving habits. Four in 10 of those questioned waited until their 40s to begin saving, even though half said they planned to retire by age 60.
And, while a majority of workers say they prefer a standard of living in retirement that is the same or better than in their working years, half think they can maintain a comfortable retirement on 70 percent of their pre-retirement income, according to EBRI’s most recent annual survey of retirement confidence among American workers. However, a 2004 Replacement Ratio study by Chicago-based Aon Consulting and Georgia State University found that retirees need 80 percent, 90 percent or even more to maintain their lifestyle, especially in light of rising health care costs and declining coverage during retirement.
Even in the face of such daunting changes to the retirement scene, the EBRI survey continues to find that one-quarter of workers are very confident about their financial security in retirement, while 44 percent are somewhat confident. However, at least some of those who say they are very confident may be overconfident, the report concludes. Twenty-two percent of very confident workers are not currently saving for retirement, 39 percent have less than $50,000 in savings and 37 percent have not even calculated their retirement needs.
HR directors like Jackson County’s Burgau understand the difficult task before them as they try to encourage their employees to make retirement planning as high a priority as saving for their first house or finding money to pay for their children’s education. When needs like those are pressing, retirement seems so far off. “It’s a simple concept,” she says, “but it’s one of the hardest things for people to understand.”
To help make retirement plan participation as painless as possible, Burgau has proposed that the county build contributions to retirement plans into employee pay raises. Because about 95 percent of the county’s employees are covered by collective bargaining, she has been urging unions to accept proposals like contributions of retroactive pay increases in contracts. So far, it has been an uphill battle. “You can’t force the employees,” she says.
The 2006 Pension Protection Act (PPA) gives employers the option of automatically enrolling new employees in defined contribution plans unless the employee refuses. Automatic enrollments have become popular in the private sector but have not caught on in the public sector, partly because of some legislative obstacles.
The PPA also protects employers that offer investment advice to participants, recognizing that individuals probably need it. In fact, investments by defined benefit pensions — those managed by experts — generally outperformed investments by defined contribution plans — those managed by average workers — by 2 to 4 percent, according to New York-based Mercer Investment Consulting.
‘How should I invest my money?’
In the meantime, several initiatives are emerging that help plan administrators answer employees’ first question after, “How much should I contribute?” Moneca Allen, program manager for King County, Wash.’s deferred compensation plan, hears the same thing from employees all the time. “‘Tell me what to do,’ [they ask.] They really want to be told what to do,” she says.
To help, King County has introduced target date funds, which match the risk level of a mix of funds to the date when the participant anticipates needing the assets. As the target date of the fund approaches, the mix grows increasingly conservative. In addition to the fund innovations, the county holds group meetings to answer employee questions. King County’s sessions focus on four different topics: plan basics, asset allocation, advanced investment strategy and near-retirement decision-making.
And, the county has tried unusual marketing in its effort to increase enrollment that is now about 41 percent of employees. For the past several years, it has conducted fairs every other year to promote the program. In 2005, the county created a new fair theme and a mascot, Professor Investor, to encourage employees to think about the future and remind them that retirement saving is not “rocket science.” The theme was promoted on postcards mailed to employees, posters in county buildings, announcements on the county Web site, invitations and agenda flyers.
The full-day fair included give-away items and raffle prizes, and the plan’s fund providers offered presentations, question-and-answer panels and meetings with representatives. Besides appealing to current employees, the fair also addressed retired employees’ interests and encouraged them to remain enrolled. Increased employee interest demonstrated that attendees are becoming more aware of the plan and more interested in learning about preparing for their financial futures.
Milwaukee also organizes seminars to help pre-retirees determine their income needs and understand their retirement income gaps. It also displays graphs on the walls of the city’s lunchrooms to show the percentage increases of various assets.
Milwaukee’s 457 plan has enrolled 72 percent of all city employees, which is about twice the average. The high enrollment is a point of pride for Bill Thompson, executive director of the Deferred Compensation Board, who says the city does not have a match or other special incentives. Rather, he attributes the participation to his department’s consistent effort to bring in participants. “We just constantly use the reps from the provider [Columbus, Ohio-based Nationwide Retirement Services], and get to places where [employees] are,” he says. “We try to be in their ear and tell them why they need it.”
Marsh says that all the efforts will pay off if the nation keeps discussing retirement issues. “People are realizing that they may have to manage their money for 20 or 30 years in retirement,” he says. “They have to manage their investments so they don’t outlive their money. It’s a huge, very vibrant topic. [Employees are] demanding more attention than they have demanded in the past.”
Robert Barkin is a Bethesda, Md.-based freelance writer.