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February 17, 2021
Cerity Partners’ Plan Health consulting approach offers a counterweight to the regular stream of articles chastising Americans’ poor savings habits or lamenting the overall state of the U.S. retirement system, especially compared to other countries. In the absence of any major structural changes to the country’s current retirement system, the crisis can and will only be solved incrementally, one plan at a time.
By implementing and following a plan health approach and making simple changes today, plan sponsors can dramatically alter the arc of most participants’ retirement readiness ten or twenty years down the line.
Millions of working folks can achieve retirement security or, at the very least, significantly improve their overall retirement readiness if plan sponsors and their advisors make the changes outlined here.
We need to start the process of radically restructuring the typical 401(k) plan, to shift the framing of retirement from one of just savings to a more specific, goal-based approach focused on achieving retirement security by using the simple yet powerful methodology of income replacement. This means that if a worker earns $55,000 before retiring, they will need to generate somewhere between 70% and 80% of their preretirement income (i.e., $38,500–$44,000) to achieve retirement security. A large part of this shift towards a goal-based approach to retirement security means encouraging plan sponsors to reengineer their plan’s basic structure.
Sponsors create the conditions that will lead most participants to a brighter retirement future. They are the primary architects and gatekeepers of plan design, investments, fees, and financial education and advice. Participants need the help of good, smart, committed plan sponsors and advisors who understand that the decisions made today can materially affect participants’ future retirement lives. By making the necessary structural changes to address the well-documented structural flaws of first-generation, laissez-faire 401(k) plans, sponsors can redesign their plans with the explicit goal of putting the majority of participants on track for retirement security. This, in turn, will create a win-win situation for both employers and employees.
To discover how you can put your employees on track for a dignified retirement and reduce your organizational risk, request your complimentary Plan Health SmartCard Report.*
* Your complimentary analysis is not contingent on using any of Cerity Partners’ services.
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Ty is a Partner and Practice Leader of Cerity Partners’ Retirement Plan Services Group where he specializes in helping public, private, and nonprofit organizations design...
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