The recent past and the challenging present have had a variety of consequences for retirement plans and participants. A panel of experts in a recent webinar discussed where we are and what can be done to improve retirement saving.
The experts, all from T. Rowe Price, included Joshua Dietch, Vice President and Group Manager of Retirement Thought Leadership; Michael Doshier, Senior Retirement Strategist; Lorie Latham, Senior DC Strategist; Wyatt Lee, Head of Target Date Strategies; and Rachel Weker, Senior Retirement Manager.
Following are highlights of the discussion.
Retirement Plan Access and Adequacy
Access to retirement plan coverage has improved because of what the industry has been doing so far, Doshier said. Still, other panelists suggested that there is work to be done to improve access. “We should be thinking about how to provide access to all workers,” said Dietch, adding that “access to retirement plans is unequal.”
But access is only part of the equation, Weker suggested, remarking that 64% of the private sector has access to plans “but even those may come up short.” Latham, too, was concerned about adequacy of retirement plan coverage, which she defines as “making sure individuals don’t run out of money.” She noted that “We tend to advocate for a 15% deferral rate,” but observed that “most people don’t save at that rate.”
And Dietch struck a positive note, observing that there is $37 trillion in retirement assets, and that two-thirds of that is attributable to defined contribution plans and IRAs. In light of that, he said, “It’s hard to call defined contribution plans a failure” based on that lens.
Why?
The panel focused on recent events and their effects in looking at the state of retirement saving and where it is headed.
Dietch noted that in June 2020, 40% of those they surveyed said that they had lost money because of the pandemic. And he added that people are not saving at a higher rate because they have other goals such as education, housing and paying their mortgages. Almost half of employees surveyed experienced financial stress of various kinds in the last year, according to Dietch, who added that it “has real consequences.”
Weker observed that there is “significant leakage” from retirement savings due to people who took distributions from retirement plans.
But there also was some good news in 2020 according to Lee, who said that investors took advantage of market conditions, especially regarding target date funds. There is a “broad misperception” that defined contribution investors behave badly in times of crisis, but they did not find that to have been the case during the pandemic, he added.
Looking Ahead
The panel had a variety of observations regarding the near future and what they anticipate.
Latham highlighted challenges. She noted that increasing longevity spells more than longer lifespans—it means, she said, that many will live 20 years after retiring. Longevity risk is “leading the charge” in assessments of how adequate retirement saving is and will be, she said.
Latham also indicated that increasing saving will take tough medicine. “There are unattractive things that can be done,” she said. She argued that people need to save more, and that it “can be done.” Said Latham, “People can adapt. People are adaptable,” adding that they tend to adjust their spending over time.
Not only do individuals need to save more, said Lee, they also need to be careful in making investments. Market cycles ebb and flow, he reminded attendees. “Diversify as much as you can,” he said, in order to build returns and reduce risk. Doshier struck a hopeful note, remarking that there is a “pretty strong tailwind” helping DC investors.
But Dietch indicated that employers also have a role in improving saving rates; for instance, by helping employees find solutions to sources of financial stress. And that, he suggested, is a silver lining. “Glass half full—employers are interested” in helping employees in that manner, he remarked, adding that it is “providing the impetus to help address situations that will help saving in the long run.” Latham expressed a similar view, arguing that plan design is another critical means to improve saving, as is auto-escalation.
And those employers, Weker says, are competing hard for employees, which she says gives benefits plans heightened importance as a means to attract employees.
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