A new survey reveals that worker confidence in public and private pensions has plummeted.
By Jeff Miller
During the last two years of economic volatility, the underfunding of pension plans has become an all-too-familiar news theme. So it’s not surprising to learn that fewer employees are counting on any income from their defined-benefit (DB) pension plans once they retire. That’s a key finding of our annual Mercer Workplace Survey, which tracks employee attitudes toward employer-sponsored retirement as well as health and benefit programs.
The 2010 survey interviewed more than 1,500 active retirement-plan participants and found that only 19 percent of those who also have an employer-sponsored DB plan are “very confident” that their pension benefits will be there when they retire. That figure is down significantly from 24 percent in 2008, while just under half of the 2010 survey participants are “somewhat confident” (35 percent) or “not at all confident” (11 percent) that they will receive DB pension income.
Supporting these attitudes are the findings of the Employee Benefit Research Institute (EBRI) 2010 Retirement Confidence Survey, which found that only 7 percent of EBRI’s respondents are very confident that they will receive Social Security payments equal to today’s benefit. Clearly, there’s an ever-shrinking population of people who believe in the continued existence and sustainability of private and public retirement plans.
And yet, beyond the understandable factor of societal anxiety, what do these studies really tell us? To me, this broad drop-off in confidence is complicated by something that employers and their providers should be keenly aware of: a significant disconnect between participants who are part of pension plans and their understanding of how these plans work.
And this points to opportunity for administrative providers. The Mercer Workplace Survey tells us that DB plan sponsors need to better educate their participants—not just about the complexities and very real benefits of DB, but about the full array of retirement plan offerings, including defined contribution plans, annuities, and the like. Indeed, plan sponsors have never needed their benefits outsourcing partners more than they do now. They must rely on outsourcers’ state-of-the-art self-service tools, targeted education, and technology platforms to not only promote the existence of DB plans but also to highlight their long-term value as part of a total rewards and a total retirement planning program that includes 401(k)s, IRAs, and other investments.
As I’ve said before in these columns, the economic climate has triggered a new focus on retirement readiness among plan participants, young and old. The 2010 Mercer Workplace Survey further highlights these generational concerns, with workers over the age of 50 losing faith in the capacity of their 401(k)s to provide a secure retirement, while younger workers are counting on Social Security to cover no more than 20 percent of their retirement costs.
Now, in the wake of some of the most contentious midterm elections we’ve seen in the United States, the debate on everything from healthcare reform to the future solvency of Social Security and Medicare can only add to the anxiety. Yes, the recent precipitous declines in the value of many 401(k)s have rebounded for many participants—but other factors, such as the troubled real estate market, continue to make retirement a far more challenging and intimidating prospect for many more employees now than before the economic crisis.
Thus our opportunity—to keep broadening the conversation about retirement readiness, moving from an emphasis on pension income to the total retirement perspective, encompassing the potential of DC plans as well as the certainties of DB, along with outside assets and options such as IRAs and annuities.
That’s in our DNA as a total benefits outsourcing (TBO) provider, emphasizing total retirement in our communications with both plan sponsors and plan participants. But the time is now for all outsourcing providers and employers to encourage and educate employees to consider—and comprehend—all their streams of retirement income and benefits, along with the healthcare costs they are likely to incur in retirement and their options for meeting those costs.
Thus, the TBO approach to benefits and retirement outsourcing should be more than an administrative tool that drives cost efficiency. Focusing on total retirement, outsourcing providers can offer a powerful platform for consistent communication across the enterprise, working with employers and plan sponsors to educate employees about what they can and can’t expect to achieve as retirement approaches. Meanwhile, outsourcers can also help employers to better understand employee demographics and age cohorts, and more fully engage diverse employee segments in the total retirement conversation. It might not be easy to do, but overcoming the disconnects—and connecting the dots of total retirement—should be one of our prime goals for today and tomorrow.
Jeff Miller is the president of Mercer’s outsourcing business based in Norwood, MA. He may be reached at email@example.com.