QUESTION: What was the challenge you were facing in working with employers on retirement plans?
A few years ago, I realized there can often be a disconnect between the CFO and Human Resources (HR) regarding the company’s retirement plan. Working in sales at MassMutual, I would notice how, when talking to plan sponsors about the retirement plan—its design, investments and participant information, the CFO was simply not engaged in how that could potentially affect the company’s bottom line.
Applying findings from academic studies, we tried to determine how to fully engage the CFO. By showing the impact on a company’s business when the objectives of their defined contribution (DC) plan fell short of meeting its objectives, we fascinated the chief executive officer (CEO), executive director and HR staff but really did nothing to invigorate that CFO or finance person.
After my departure from MassMutual, I embarked on my own mission, meeting with CFOs and speaking at conferences in hopes of getting to the bottom of the problem. Ultimately, I found it. It became very clear that CFOs often did not correlate a successful employer-sponsored retirement plan and a healthy financial statement and balance sheet. Working with my son, academics and consultants, I set out to find a way to help individuals make that connection.
QUESTION: How did you develop a tool and a story that CFOs were interested in?
Rather than using numerals in academic studies to explain financial statements, my team and I then began to utilize employer data figures, including date-of-birth, date-of-hire, account balance, deferral rates and Social Security integration. We found that words and academic studies were not the means by which CFOs make decisions; they wanted to see the numbers. We built our patent-pending Viability analysis tool to help highlight and quantify the impact that a lack of employee retirement readiness can potentially have on an employer’s bottom line—and to provide advisers with a simple and effective way to help make this connection clear for CFOs. Viability is all about providing CFOs with an unexpected “A-ha!” moment.
Viability helps evaluate an employee population in terms of its current retirement readiness, and how that may correlate to a potential liability of a work force that is financially unprepared for retirement on each individual employee’s own terms. Employers understand that workers who are fully engaged are well worth continuing their employment due to the leadership and knowledge they bring to the employer and other employees. Viability can help pinpoint the costs of ineffective retirement benefit programs, so that benefits brokers and other advisers can help prescribe improvements. A Retirement Readiness Report is applied to each employee’s data, and all data are then rolled up to show an overview at the employer level. Therefore, the readiness report of the population is shown by age band to help improve the data available for the broker and other advisers to prescribe improvements to benefit programs.
QUESTION: How does Viability work?
Once the report is generated for an employer, we look at two distinct populations—those ages 62 and above and those age 25 to 50—according to wage, health care and workers’ compensation premium costs. The groups are analyzed, and marginal differences in those specified costs between the two populations are calculated. We compare the average costs of employees from the 62 and above population to the average costs of employees from the 25- to 50-year-old population. This total marginal difference, other data inputs and model assumptions are used to project the employer’s potential costs of associated with delayed retirements—meaning the potential liability of an employer’s population for the next 50 years. This is the method used to estimate how many employees will not be prepared to retire on their own terms at the age of their choosing and may instead need to remain at work for financial reasons. We believe that both the employee and the employer benefit when workers are in a position to choose when they want to retire, and that is possible if they are taking the right steps throughout their working years. Viability is designed to help educate employers on the value of an effective retirement savings plan and benefits package, enhance overall financial wellness, and help more employees retire on their own terms.