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Performance Management

Published May 2009

Retirement 101: Helping Employees Help Themselves

 

  Tess Malone

Employees with choices are well-informed economic agents that act rationally to maximize their self-interests. It is assumed they can interpret and weigh information presented regarding benefits options, appropriately evaluate and balance these choices and then make informed decisions. The reality is very different. Employees can be their own worst enemies when it comes to making decisions about planning for their retirements.

Certain types of decisions and problems may be simply too complex for some employees to master on their own. Many employees have the best intentions, but they lack the willpower to carry out the appropriate changes in behavior.

The good news is once talent managers understand what keeps employees from successfully saving for retirement, they can determine how to help employees help themselves.

Plan sponsors must design, regulate and evaluate the institutions that help millions of Americans provide for their economic retirement security. One of the most powerful things plan sponsors can do effectively is utilize framing mechanisms that make it easy for employees to succeed at being the CFO for their retirement plans.

Talent managers have a unique opportunity to craft new strategies that will empower and guide employees toward their retirement goals. How they do this will affect their organizations' ability to recruit, retain and motivate the best workers. It also will determine the financial future of the next generation of retirees.

Three major forces are converging to reshape the retirement landscape. First, life expectancy has improved dramatically. In the 20th century, the average lifespan rose from 47 to 78. Older Americans are healthier than ever before. Retirement, once a few years' respite at the end of life, now commonly lasts 20 years or more. New generations of retirees are challenged to imagine what they want to do and achieve, and to prepare wisely to support the lives they want.

Second, while the economy has reduced these figures somewhat, the number of retirees in the 77 million-member baby-boom generation is the largest in history to leave the workforce. Comparatively, younger population groups will grow modestly or even shrink during the next decade.

Third, the responsibility for retirement saving has shifted to the individual. Earlier generations often could count on an employer-defined benefit plan, or employer-paid pension, to see them through their retirement years. But according to a November 2008 article titled "The Financial Crisis and Private Defined Benefit Plans" by the Center for Retirement Research, since 1980, the percentage of workers with only defined contribution plans has multiplied almost fourfold. And those with only defined benefit plans fell from 60 to 8 percent in 2006. Meanwhile, the age of eligibility for Social Security has risen, along with worries about the federal government's ability to fund entitlement programs at current benefit levels for future generations.