The 20 Rising Stars of Retirement Plan Advisors 2007 - (Page 21) sponsored article To help solve working America’s retirement challenge, Fidelity proposes a new approach. By embracing three cornerstones of success, Fidelity believes that employers can help put their employees on the right path to retirement: • Automate your plan design to help employees overcome inertia and get started on the right path to retirement readiness; • Engage your employees with step-by-step guidance to help them take the “next, best step” toward their retirement goals; • Optimize your benefits to provide maximum value for both you and your employees. AUTOMATE YOUR PLAN DESIGN Fidelity believes that the goal for retirement readiness should be an 85% income replacement rate—from all retirement income sources. But as DC plans become the primary source of retirement income for millions of Americans, it’s critical that we help ensure the effectiveness of these plans for all employees. With the advent of the Pension Protection Act (PPA) in 2006, Congress has provided employers with “safe harbor” protection for instituting automated features including automatic enrollment, automatic increase, and automatic default to lifecycle, managed account, or balanced investments. Companies across the country are recognizing the need to set in place these automated “guard rails” to help ensure their workers don’t make the all-too-common mistakes of not participating, not saving enough and not diversifying.2 OPTIMIZE YOUR BENEFITS Health care benefits now make up nearly 45% of total benefit spending by employers today, compared with less than 10% in 19504. This severe crunch on benefit dollars is forcing employers to manage costs more optimally, and to provide greater value both to themselves and their employees. A consumer-driven health care plan is one option that can help control costs while providing longer-term value to employees. Offering a high-deductible health plan (HDHP) can save premium dollars while motivating employees to become cost-conscious health care consumers5. Likewise, a health savings account (HSA), offered in conjunction with an HDHP, provides employees with a tax-advantaged account to save for future qualified medical expenses—this year, next year, or even in retirement. Employers can further optimize their benefits by providing more compensation in tax-advantaged deferred compensation such as 401(k)s and HSAs, creating higher total compensation and significant “The future of retire- tax advantages for both employers and employees—while at the same ment security for time increasing employees' retirement American workers is readiness. CONCLUSION Having employees who are financially ready to retire helps companies control costs and manage talent more effectively—in addition to improving employees’ job satisfaction and outlook for retirement at the end of their work life. to simplify and automate the retirement planning process to help ensure that all workers participate.” ENGAGE YOUR EMPLOYEES Companies and retirement service providers have tried for years to increase engagement in retirement savings plans with extensive communications and education programs. Despite these efforts, participation and contribution rates have remained static or even declined.3 To help break through the complexity of retirement planning, we need to create a new experience with online guidance that will help individuals take small, simple steps toward their retirement goals. With the launch of myPlanSM, Fidelity has begun to make this employee experience a reality. Through the use of simple and personalized suggestions delivered via the Web, individuals can take action with the equivalent of a “Do It Now” button—and see the potential impact of their action then and there. [1] [2] The future of retirement security for American workers is to simplify and automate the retirement planning process to help ensure that all workers participate. If we make it easier and less daunting to create a plan, we can help millions overcome the inertia that keeps them from saving and investing for their future. Working together, employers and financial services providers can help bring a majority of employees closer to full retirement readiness, and by doing so solve a major portion of working America’s retirement challenge. Fidelity Investments Institutional Services Company, Inc. 468953 Alicia Munnell and Annika Sunden, “401(k) plans are still coming up short,” Center for Retirement Research at Boston College, 2006 Over one third of all eligible employees don’t participate in their 401(k) plan; most don’t maximize their contributions, and about 20% fail to ever diversify or rebalance their savings. Building Futures Volume VIII, Fidelity Investments, 2007 [3] Participation rates of eligible employees in 401(k) plans declined from 60.8% to 56.6% between 2002 and 2006 and average deferral rates have remained steady at about 7%. Building Futures Volume VIII, Fidelity Investments, 2007 [4] Finance of Employee Benefits: EBRI Notes, Dec. 2006 [5] HDHP plans cost an average of $1,922 less for family coverage and $1,143 less for individual coverage than traditional health plans. Source: Kaiser Family Foundation, 2006. SEPTEMBER 2007 RETIREMENT PLAN ADVISORS RISING STARS 21
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