By Michelle Hicks
Dolan Media Newswires
Boise, Idaho — Prior to his State of the Union Address to Congress and the American people, President Obama outlined for the middle class retirement security initiatives that include significant implications for employers.
One proposal is aimed at employers that do not offer retirement plans. They would be required to offer employees an automatic IRA. A direct deposit withdrawal would be made from an employee’s paycheck, unless he or she opted out of the plan.
There are other proposals that would affect companies that offer such retirement plans as 401(k)s. The intent of these proposals is to provide more transparency to employees regarding hidden plan administration fees.
In addition, other proposals would require the company provide unbiased investment advice, promote annuities or other guaranteed life income vehicles and review target date funds.
Target date funds started receiving a lot of attention after last year’s stock market collapse. The funds are designed to essentially be an all-in-one portfolio for participants with a glide path that reallocates the investment mix based on an employee’s anticipated age of retirement.
But a recent study by the Employee Benefit Research Institute found evidence that participants might not understand the plan’s design. As a result, employees are putting some of their account money in the appropriate target fund and then investing the other part in nontarget funds.
According to the EBRI’s study, this behavior “could lead to an unexpected result of ending up with a potentially inferior portfolio in terms of risk/return tradeoff from more assets allocated to some sectors than the designers of the target date funds had planned.”
One outcome of the president’s proposals could be to require employers provide more communication and education efforts around target date funds.
Why should employers, the president and Congress be concerned about retirement planning for Americans? Because it is an issue employees care about.
An EBRI retirement confidence survey found 55 percent of Americans believe they are behind schedule for retirement savings, and, although 70 percent of Americans have started saving, many have saved less than $25,000.
Retirement savings is an issue of concern for the middle class, and employers sensitive to that will create a partnership with employees that generates loyalty and commitment in the work force.
Michelle Hicks is a communications consultant with Buck Consultants and ACS Co.