Philadelphia Archdiocese Moving to 403(b)

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%.

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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.

Positive Messaging Can Empower Participants

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.

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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.”

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