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Why the Industry Cares More About Plan Outcomes Than Plan Sponsors Do

The retirement industry has held out plan outcomes as the holy grail of the DC market. It has been said that whoever can improve outcomes, whether advisor, record keeper or money manager, and has the data to back it up, will win the “game” and have an advantage over competitors. But hold on — first we need to answer the question of whether outcomes are really important to plan sponsors.

Though HR professionals do care about employees and their retirement outcomes, they have to convince the CFO and COO/risk manager that improving outcomes will not result in higher costs, head count or liability. And even if there are no additional risks or costs, advisors still have to show the CFO why their company’s DC plan is important to its health and bottom line. Plan Outcomes’ Hugh O’Toole, formerly head of distribution at MassMutual Retirement, puts it succinctly: “If we have not convinced CFOs of the importance of their DC plan, how can we expect them to not just put more effort into it but to pay extra for more valuable services?”

In other words, if I’m trying to sell a BMW to someone who just wants a basic car to get to and from work, what chance do I have compared to the local Kia dealer?

If people don’t have enough to retire at 65 (or whatever the optimal retirement age is these days), they will continue to work — costing the company upwards of $10,000 per year, not to mention other soft costs. For example, health care and disability costs are more expensive for older workers, who make more money than an average 35-year-old and take more PTO. Facing less opportunity for advancement, discouraged younger workers are more likely to leave. And on the plus side, workers who feel good about their finances are likely to be more productive and spend less time dealing with personal finances on company time.

But CFOs need hard data (which is coming) that show the true costs associated with older workers who are not ready to retire, as well as the benefits of upgraded DC plans to improve outcomes. Retirement success will be a great discussion with the HR manager. But that discussion will have a limited impact until we first show how the “ideal” plan does not increase cost or liability, and then how it can save the company money and make it more viable when employees do retire “on time.”