PSNC 2018: Retirement Security at an Inflection Point, Part 2

Building on his presentation from a year earlier, Joe Ready, head of Wells Fargo Retirement and Trust, outlined for attendees of the 2018 PLANSPONSOR National Conference, in Washington, D.C., the broad retirement security challenges faced by the U.S. work force—taking time to highlight the most effective efforts by defined contribution (DC) plan providers, sponsors and advisers to solve participants’ pressing issues.

Ready pointed out that, while he has spent 20 years working on retirement security issues, the current environment is “easily the most dynamic and exciting that I have seen during my career.”

“Doing their job on the ground, plan sponsors hardly have to be told that the retirement plan industry and the U.S. work force in general have reached the point of a major sea change,” Ready said. “There is more emphasis than ever before in the DC plan space on identifying the best way to offer a benefit that is not just a to-retirement program, but also a through-retirement program. And at the same time, sponsors are being called on to support the broader health and financial wellness of employees. It’s a lot to manage, clearly.”

Ready acknowledged that most employers have moved out of the game of guaranteeing an adequate retirement paycheck via defined benefit (DB) pensions, instead embracing the DC model that fixes longevity and investment risk squarely on the shoulders of participants. Even so, Ready warned, the trust and expectation that employees place in their employers to help them prepare effectively for retirement is stronger than ever—and this is both a burden and an opportunity for plan sponsors. In order to be effective in their role, he suggested, sponsors must proactively create and implement a unique philosophy about what this new level of trust and expectation means to them.

“This philosophy about what you want your plan to accomplish and how you want participants to use it must be the main driver of how you think about plan design during this period of flux,” Ready continued. “I can tell you that for us at Wells Fargo, as a plan provider, we’re equally engaged with this question.”

With the increased expectations from participants has come a dramatic expansion in possible sources of guidance and support from providers, advisers, investment managers and others, Ready explained.

“I am particularly excited about the emerging capabilities for predictive analytics,” he said. “Artificial intelligence and big data are helping us understand participants and plans in real time, to a degree that was not remotely possible before. This is a really big breakthrough for our industry, and it should be a great benefit to outcomes in the coming years.”

One specific tip Ready shared in this area is to “go beyond just looking at averages.”

“I think we all have to become more sophisticated in how we view and digest plan and participant data,” he mused. “I should also note, throughout all of this digital expansion, the personal relationships between advisers, sponsors and participants will remain very important. Technology is reshaping everything about retirement plans, but it is not going to replace the crucial interpersonal collaboration that is at the heart of our industry.”

He went on to highlight the increased focus on the topic of retirement income planning and decumulation of DC accounts.

“If you think saving and investing is hard to talk about, wait until you start focusing on things such as optimal withdrawal rates, Social Security claiming, tax optimization, sequence of returns risk, longevity hedging, and on and on. It’s an incredibly tough equation that individuals face, and they are expecting their employers to help. As we say at Wells Fargo, a well-designed DC plan today must be able to accommodate a 60- or 65-year savings journey—helping participants navigate through each inflection point.”

Ready also noted that he still takes time, even in his role leading the Wells Fargo retirement business, to piggyback on participant contacts of the call center.

“Besides the fact that people are just screaming out for guidance and help on all of these topics, I would also say there is a tremendous amount of headline ‘clutter’ out there, distracting and distressing people,” he said. “Participants are focused on so many things they can’t control, from the direction of the economy to interest rates, potential stock market downturns and geopolitical risk. For plan sponsors, the message is that we have to drill down on the things that matter and that we can control. This would be such items as when individuals start saving, what the QDIA [qualified default investment alternative] is, what the automatic deferral percentage is. Focus on what you can control, and try to get participants to do the same.”