November 8, 2013 (PLANSPONSOR.com) – In an effort to improve its financial situation, the Archdiocese of Philadelphia is freezing its defined benefit plan for lay employees.
The
Archdiocese said it remains committed to assisting its employees in retirement,
so after the freeze date, the Archdiocese will establish a defined contribution
plan. The Archdiocese will contribute a percentage of individuals’ annual
compensation to their defined contribution plan accounts. The amount of the Archdiocesan
contribution will be discretionary and will be determined on an annual basis, but
a contribution of 4.5% of each employee’s annual compensation is expected
initially. Employees will also have the opportunity to make pre-tax
contributions to their individual accounts.
According
to the Archdiocese’s announcement, beginning last summer, a series of steps
were taken to begin to remedy fiscal challenges, including selling a number of
real estate assets, and reducing the workforce at the Archdiocesan Pastoral
Center by 25%.
All
measures were essential in order for the Catholic Church to maintain a viable
presence in the Philadelphia region and provide for all those in need through
its various ministries, the Archdiocese said.
Among
the balance sheet liabilities outlined this past summer was the Lay Employees’
Retirement Plan (LERP). At that time, it was underfunded by approximately $150
million (i.e. approximately $630 million in actuarially determined liabilities
versus $478 million in plan assets). While the funding level is sufficient to
meet the current and medium-term benefit payments, action must be taken now to
ensure the plan can meet its long-term obligations to future retirees, the
announcement said.
The Archdiocese
engaged a human resources and benefits consulting firm, to conduct an
independent study of the plan with the objectives of assessing plan viability
and the ability of the Archdiocese to maintain a defined benefit plan in the
future. Following this study, a recommendation was provided to freeze the LERP.
This recommendation was reviewed and accepted by the Board of the LERP and the
Archdiocesan Finance Council. Final approval was made by Archbishop Chaput.
November 7, 2013 (PLANSPONSOR.com) – Plan sponsors need to change the message of
retirement to one of empowerment—not a dismal single life event—for plan
participants.
“Retirement is exciting if you have a plan and you
know where you’re going,” Nick Ventura, president and CEO of Ventura Wealth
Management , a registered investment advisory in Ewing, New Jersey, told PLANSPONSOR.
Participants who don’t have a plan and have not thought ahead to where they can
go are likelier to find retirement frightening.
“The message is that retirement is not a single
event but a series of life stages,” Ventura says. Each stage can be anticipated
and planned for, to minimize anxiety and help participants look forward with
enjoyment to a new chapter.
The way people think about retirement seems to be
lagging the changes in retirement over the past couple of decades. Ventura
points to several contributing factors. Medical advances, improvements in diet
and corporate wellness programs have all increased longevity. “People can
receive Social Security for at least 20 to 30 years, in some cases,” he says.
Retirement can almost match the length of a career.
Helping people realize how long retirement can
last is critical, Ventura says. Plan sponsors can encourage their participants
to save to the maximum extent possible. The medical techniques and technology
are part of the positive message, Ventura feels. People are going to live
longer and healthier lives, but first the older mentality must be swept away
and the retirement years planned for.
More people have become used to a higher standard
of living, Ventura says, and this should be part of the newer and more positive
message of retirement. “It would be great for people to think, as they reach
retirement, ‘I’ve had the right advice, and I’ve saved enough. I don’t have to
cut back.’”
Plan participants fear the retirement phase,
Ventura says, noting that fear and greed are the world’s greatest motivators.
“But fear causes irrational behavior. Participants don’t save enough. They
don’t monitor their investments. They don’t participate in a workplace savings
plan, even one with an employer match,” Ventura says. “The first thing advisers
should tell plan participants is to think of retirement as another phase of
living. It’s empowering. It’s not an end—it’s the beginning of the next phase
of your life.”
Plan sponsors can also help by changing the
message in education materials and using a positive tone. “Participants should
hear that retirement can be the next exciting part of their lives, and that in
order to enjoy it, they need to prepare by saving adequately. The combination
of inadequate savings and fear of an inactive, unengaged retirement is the
reason so many people find thinking about retirement depressing, which in turn
can choke off positive savings behaviors.
Three Stages of Retirement
Ventura says retirement can be divided into three
distinct stages. He calls the first one “self-renewal,” and describes it as a
period of adjustment to a new paradigm. The demands of a working career give
way to introspection and new goals. Many people use this time to revisit
decisions about how and where to live. Some begin a second career; others
become more involved in family activities or volunteer work—all help define
what retirement means on a personal level.
Ventura tells of one client with more than enough in assets,
but who faced the prospect of retirement in her mid-50s with utter panic. She
simply hadn’t thought of about what the next stage of life would be like,
without the daily demands of an absorbing career. The centerpiece to planning
this stage is making a draft of what the participant wants his life to be.
During the “retirement journey,” a phase that comprises the
activities that add to an enriching retirement, many retirees blend leisure and
productive activities with family time. The lack of strict timetables and
deadlines can make it a very enjoyable time of life. “People are incredibly
busy during this time,” Ventura says. “They’re traveling, they’re in
businesses, they’re in nonprofits, sometimes they are busier than when they
were working.”
In the “closing chapter,” retirees can plan for their care
better than before. The question to ask, Ventura says, is “How do I comfortably
end my life on this planet?” In this final stage, Ventura says, “too often
people abruptly come to an illness or misfortune and they are thrust in before
even considering what that environment should be.” Before reaching that stage
is the time to plan for long-term care, assisted care, and where to live.
Planning Is Essential
The lack of focus on the plan participant is a failing of
some corporate retirement plans, feels Dan McElwee, manager and executive vice
president of Ventura Wealth Management, who supports institutional plans in the
small-plan market. “We include financial planning for all participants,”
McElwee says, and one-on-one meetings get the best results.
The plan sponsor takes on a lot of liability by taking on
the responsibility of a retirement plan, and Ventura takes a holistic approach
that involves frequent monitoring, weekly e-mails and weekly blog posts. “We try
to keep everyone up to date with the financial markets,” McElwee says.
When people aren’t fully informed, they are more likely to
make an irrational investment decisions, he cautions. “The closer you get
to retirement, the more likely you are to make an emotional decision with
possibly drastic consequences.”
McElwee suggests advisers have plain, direct
conversations with their plan sponsors about the need to provide education and
advice to plan participants. “It’s important for participants to have ongoing
interaction with their advisers,” he says, “not just when things are good or
bad. And financial advisers should recognize that it is important to build a
relationship with the plan sponsor , the plan and the plan participants.”
At least half the investors in the affluent families in
Ventura’s wealth management line are in some stage of retirement, Ventura says,
and the ones who are enjoying their retirement have several things in common:
they have made a plan, saved enough and have planned for the final phase.
“They’ve got their long-term care situation
squared away,” Ventura says. “They’ve thought about who should have living
wills, powers of attorney. To people who haven’t done all the work, retirement
becomes very taxing, very burdensome,” Ventura observes. “Final-phase planning
is very important.”