What is the retirement crisis? In brief, it is the fact that the majority of American workers today are financially unprepared to maintain their preretirement lifestyle at retirement. They are overly reliant on Social Security, underestimate future medical costs, and lack a clear strategy on how to spend down the retirement assets they do have. This lack of retirement preparedness is less an issue of personal choice than the net result of a series of systemic failures in first-generation 401(k) plans. And every year that goes by means there is less time to fix the problem, and the cost of waiting means more retirees will face an unnecessarily diminished retirement.
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.
How do you create that win-win situation?
A plan health consulting approach lays out a strategic framework for evaluating 401(k) plans and provides a series of best practices to materially improve those plans.
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.
Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with offices in California, Colorado, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal investment advice. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security.
Meet the Author
Matt is a Partner in the Chicago office. He is a well-known speaker, author and innovator in the retirement plan industry with more than 28 years of experience. Matt specializes in simplifying complex retirement issues for his plan sponsor clients by utilizing his deep experience to drive better outcomes for participants and reduced liability for plan sponsors. His areas of expertise include strategic plan design, fiduciary best practices, employee financial wellness, investment menu design, fee analysis and negotiation and multinational savings plans.
Prior to joining Cerity Partners, he founded Blue Prairie Group, a leading ERISA-focused RIA firm serving hundreds of corporate, not-for-profit and government clients throughout the country. He is the author of two books on retirement plans: 401(k) Best Practices: A Guidebook for Plan Sponsors (2020) and Smart Choices: Selecting and Administering a Safe 401(k) Plan (2002.)
Matt holds a Bachelor of Arts degree from the University of Wisconsin-Madison and a Bachelor of Science from the University of Minnesota, Carlson School of Management.
Partner Matthew Gnabasik draws on his 30 years of experience to provide you with a strategic framework for transforming your 401(k) plan into a powerful engine for retirement readiness. Inside you’ll find actionable tips for reconfiguring plan design, employing financial wellness, finding a good advisor, and much more.
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