TIAA Exec Reflects on History of Retirement Plans

By John Manganaro | July 11, 2017
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On Pressman’s analysis, a given individual saving for retirement today will only get roughly 40% income replacement out of Social Security. “This is a good base,” he feels, “but it is far from enough to ensure folks will be able to maintain their standard of living in retirement. In terms of private savings, we see only 55% of Baby Boomers have any substantial retirement savings. The Gen X cohort has median savings of just $60,000—and that’s just for those who are proactively saving. Millennials have time on their side but they are saddled with more debt than the previous generations.”

Facing these core challenges, Pressman says there are five best practices that retirement plans can implement to help turn the picture around. These include encouraging strong savings rates; embedding lifetime income programming into the retirement programming itself; ensuring the money being saved can be put into strong, long term investment vehicles that can take advantage of the illiquidity premium; not allowing money to come out of plans prematurely; and government incentives that have helped spark good savings behaviors.

“We often encourage people to review the Australian’s national superannuitization program as a prime example of a program that considers all these issues,” he adds. 

Pressman further explains TIAA “has an increasingly large number of plan sponsor clients in our base, especially in higher education, who closely resemble what is offered at the national level in places like Australia or New Zealand. Those programs prove that if you prod employees regularly to save and you give them incentives to do so, the uptake will be dramatic. Those kinds of programs are really inspiring to see. In this sense we also like to argue that many 401(k) programs could benefit by thinking a little more like a 403(b) program, at least when it comes to the generosity of matching contributions and the offering of lifetime income planning solutions that are also tied to long-term equity investment options.”

Pressman concludes with a message for plan sponsor readers who might be hesitant to start offering in-plan lifetime income options: “Most of our plan sponsors have adopted annuity options over time and, if they felt challenged at first, they are now very excited about what annuities can do for people and their lifetime financial outlook. When investors move into these products they are getting a very long-duration profile that can take advantage of as much as a 15% exposure to alternatives. Participants can get a much stronger yield over time compared with what a fixed-income investment might achieve.”