Giving workers a retirement readiness grade—whether it's good news or bad—wasn’t working for Komatsu America Corp.
For those who were doing well at the Rolling Meadows, Illinois-based construction equipment manufacturer, contributions to their 401(k) dropped. It was as if these workers felt they could take a break from saving for retirement. The ones who were falling behind in their retirement savings schedule felt like they were seeing a scary, big number, says Ira Finn, Komatsu’s senior benefits manager.
To add to the misery, Finn says employees’ eyes glazed over during workshops where they learned about asset allocation, the power of compounded interest and other concepts that would help accumulate enough assets to last throughout retirement.
“Our employees build machines, and they didn’t understand all the differences with investments,” Finn says, adding that participants tended to invest too conservatively.
Komatsu decided to do mandatory financial workshops for its 2,400 employees, whose average age is 47. After the workshop, 15 percent of attendees took advantage of free, individualized help. Meanwhile, 30 percent of employees took Komatsu’s financial wellness assessment; 60 percent said they felt they were on the right road for retirement, Finn says.
“We decided to flip the focus,” Finn says. “The past is the past. We asked [workers]: How do we start new to help you meet the goals you want to achieve?”
Retiring today isn’t as easy as it used to be. People are living longer, making it much harder to save enough money to last for what could be 25 years or more in retirement.
With defined benefit plans, workers received a benefit, usually based on an equation that considered salary and years of service, that would last throughout their lifetime. Today, the increased use of defined contribution plans has put the burden of making their money last through retirement on the worker, and many don’t feel they have the tools to figure this out, a new study found.
While 91 percent of 1,014 participants said they were responsible for their financial future, a J.P. Morgan Retirement Plan Services study released in June found nearly two-thirds didn’t know how much they should be saving. Half of the respondents said they feared they would outlive their retirement savings, and most said they didn’t understand how to get their 401(k) savings to last throughout retirement.
“This is the first experience we’re having with people retiring on these types of plans,” says Diane Gallagher, vice president for product development in the Kansas City, Missouri, office of J.P. Morgan Retirement Plan Services. “Employers have a great opportunity to help.”
Figuring out how to make what they’ve accumulated during their working years last throughout retirement is a serious issue for employees, says Fred Reish, a partner and employee benefits expert at Drinker Biddle & Reath in Los Angeles. In a recent white paper for the Institutional Retirement Income Council, Reish says workers need to understand they have a very good chance of living 25 years or more in retirement.
“Most people are taking steps that are going to cause them to run out of money, and that’s sad,” Reish says. “Plan sponsors and participants need to better understand longevity and the impact on retirement savings.”
But how and when that information is presented to workers is critical, experts say.
“It’s really about getting people at their precise point of need,” says benefits communications expert Jennifer Benz, chief strategist and founder of San Francisco-based Benz Communications. “Someone in their early 20s has different things to consider as opposed to someone nearing retirement.”
Younger workers should be focused on general finances, like budgeting and debt, says Liz Davidson, founder and CEO of Financial Finesse, an El Segundo, California-based provider of financial education services. Those people in midcareer have competing priorities, like a home purchase or elder care, so retirement education should focus on improving their current strategy.
Those with only a few years left to work should analyze whether they have saved enough and how they plan to make those dollars last, Davidson says.
Older workers tend to be at their peak salary point, so they “can make changes that don’t require downsizing their retirement,” Davidson says. “It’s important to really focus on in-depth financial planning and counseling to get them to understand the reality of their situation.”
Like Komatsu, the Timken Co. started offering financial workshops for all of its associates last year. In one case, the Canton, Ohio-based manufacturing company saw only 8 percent attendance out of 1,400 employees. But 40 percent of those who came took the next step in meeting with a free financial consultant, says Ken Koczwara, principal total rewards analyst for Timken.
“Connecting [workers] with advisers is key to helping them know where they want to go and to create that spend-down plan,” Koczwara says, adding that while it was a small percentage of attendees, Timken succeeded in reaching 112 employees. “It’s making a difference one person at a time.”
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