For directors, the list of strategic priorities for your credit union’s retirement plan probably goes something like this:
Each is important. But often, the board’s priorities for a retirement plan omit one key element: Assessing regularly how well your program is preparing employees to replace their paychecks by their projected retirement dates.
Your natural concern about an ineffective retirement plan is that individual employees and their families will suffer financial hardship.
But you must also consider potentially serious negative consequences for your credit union, such as these four plan pitfalls:
1. Career logjam. Talented middle managers are ready to move up. They’ve paid their dues. But senior managers of retirement age aren’t retiring. This is a growing trend.
In fact, 47% of working Americans age 50 and older now plan to retire at a later age than they expected when they were age 40, according to a 2013 survey by the Associated Press-NORC Center for Public Affairs Research. The top reason for the change: They need the money.
It’s a delicate balance. You don’t want experienced senior managers to leave, but you definitely don’t want them to stay only because they’re not prepared financially. And the longer they stay, the more young talent you’ll lose.
2. Higher operating expenses. Delayed retirements also increase expenses for salaries and health care. Your goal is to help employees transition their careers on their own terms, and provide education and tools to help them set realistic goals.
3. Financially stressed employees. An April 2014 Gallup Poll confirms what financial services providers already know: Americans’ greatest financial worry is whether they’ll have enough money in retirement.
The poll measured concern about eight financial hardships, such as inability to pay for medical costs, monthly bills, college expenses, etc.
Fifty-nine percent of survey respondents said they were “very worried” or “moderately worried” about not having enough money for retirement. This figure increased to 70% for respondents 30- to 49-years old, and 68% for respondents ages 50 to 64.
Stress can reduce productivity, impair service to members, and increase healthcare costs.
4. Your reputation as an employer. Think of employees who have worked for you for decades and can’t retire with a decent income from your retirement plan. What do they say to their families, friends, and others about their experience? Word-of-mouth is a crucial channel for credit unions to recruit employees and members.
What to track
Participation percentage is useful for tracking a retirement plan’s success, but it only tells part of the story. Consider how well you take these actions:
• Pay attention to employee contribution levels. For most employees, contributing 3% or 5% of their wages isn’t going to cut it. If you currently match dollar-for-dollar up to a certain percentage, consider matching 50 cents on the dollar and double the ceiling—you’ll increase contributions without increasing your expense.
• Monitor how many employees take 401(k) loans. You might need to work with your plan provider to educate employees about the consequences of these loans.
The most important retirement plan metric might be the percentage of employees who’ve set reasonable retirement savings goals and contribute enough to meet those goals.
Your plan and its advisers must be ready to provide the tools and education so employees can set adequate goals—and can see clearly each month whether their account is on track.