Anna Rappaport, FSA, MAAA is a member of the Pension Research Council Advisory Board, and the chairperson of the Society of Actuaries Committee on Post-Retirement Needs and Risks.
In the wake of the pandemic, the global workplace has become increasingly competitive. Individuals often have multiple job opportunities, and existing employees are changing jobs more frequently than in the past. As a result, many employers are confronting talent shortages, leading them to seek new ways to attract and retain employees.
Against this backdrop, retirement benefits are becoming progressively more important both to employees and their firms. In a recent study, What Retirement Plan Features Do Employees Really Want?, the Society of Actuaries conducted an analysis of key retirement plan features most important to employees. The survey performed by Deloitte Consulting LLP used conjoint analysis to examine how 2,493 survey respondents rated plan features based on importance. This is a statistical technique to help assess how people value a range of attributes offered by individual products and services.
The Big Picture
This study asked respondents to compare and rank packages of retirement plan features. In particular, 15 characteristics were highlighted, including when benefits could be accessed, the form of benefit payment, who paid for the benefits, and what types of benefits were offered. The following key topics were of interest:
- Planning for retirement
- Availability and funding of retirement vehicles
- Accessing retirement benefits
- Savings and financial fragility
- Risk tolerance
- Leaving a legacy
- Health and wellness
Testing Alternative Situations
These features may be assembled into a traditional defined benefit (DB) or a defined contribution (DC) structure, or even integrated into a new plan design combining risk and plan obligations in different ways. Moreover, while some of these designs are feasible under current U.S. law, others would likely require changing the law to permit them.
The study also included a Choice Simulator Tool permitting respondents to compare alternative plan feature combinations. Additionally, the tool allows different types of employees as well as employers to test varying options, a useful development since many employers design plans despite lacking information on the features that could be most valuable in meeting employee needs and desires.
Using the Results
The study identified a number of areas where employers could do better responding to employee interests, improving plans and their administration, and boosting employee satisfaction.
Key points included:
Expand advice and financial education: Relatively few respondents actually looked to employers as sources of advice on retirement savings and use of plan assets, particularly with regard to using assets post-retirement. To help employees plan for retirement and then transition into retirement, their employers can enhance employee’s financial well-being. Responses underscored gaps in knowledge about retirement and identified opportunities for enhanced retirement education. For example, 25% of respondents age 18-24 did not know what retirement benefits their employers offered. Respondents also lacked knowledge about Social Security.
Explain information about retirement age: The age when full benefits are available is a critical factor in determining benefit values. Overall, respondents indicated that retirement ages of 67 or lower were preferred. The Tool also permits employers to test and fine-tune reactions to different ages in combination with other benefits.
Discuss post-retirement medical benefits: Plan sponsors may be able to improve plan reception by modifying their offerings in this area. Respondents placed some value on access to post-retirement medical plans, but they valued a 50% subsidy for employer-provided retiree dental and vision benefits, as much as they would value a 50% subsidy on employer-provided retiree medical benefits.
Introduce leaving a legacy: Many respondents indicated they would trade off a fully employer-paid retiree medical benefit and an annual 1% cost-of-living retirement benefit increase in exchange for the ability to pass their full retirement benefit amount to a surviving spouse. A surprising finding of the study was the high value that respondents placed on leaving a legacy.
Evaluate policy options: In the US, legal requirements often drive employee benefit plan structures, defining what is permitted and what is mandatory. This study along with the accompanying tool can go a long way toward evaluating policy options, which is valuable both to policymakers and individuals deciding what plan attributes they prefer.
Conclusion
While the US retirement system serves many Americans well, it does leave others without benefits beyond Social Security; others end up with inadequate benefits. Employers competing for the employees they require would do well to review and redesign retirement programs that meet stakeholder needs. Additionally, policymakers need help evaluating potential innovations and new options for the retirement system.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.
