New white paper examines best practices to drive improved retirement plan outcomes
NEW YORK, April 24, 2013 — TIAA-CREF, a leading financial services provider, today announced the coming availability of a new service, Plan Outcome Assessment, that will analyze defined-contribution retirement plans and create new metrics to help plan sponsors evaluate overall plan performance and measure and improve employee retirement readiness.
The company made the announcement at its annual client meeting, which brings together more than 300 plan sponsors, chief financial officers, chief human resources officers and other leaders from across the country.
TIAA-CREF also today released a white paper, “
Prepared for Life: Managing Your Plan to Drive Retirement Readiness
,” which highlights best practices for improving retirement plan effectiveness. The paper draws on the company’s in-depth research and years of experience helping clients build plans that lead to successful retirement outcomes.
The research, which informed the design of the new service, found that increasingly stringent fiduciary requirements are driving plan sponsors to seek more and more detail about overall plan performance, as well as the savings and investing behavior of individual employees.
“The fundamental question every retirement plan sponsor needs to ask is, ‘Are my employees on track to retire?’ This is impossible to know without the right data,” said Edward Moslander, senior managing director and head of institutional client services for TIAA-CREF. “Plan Outcome Assessment is designed to help plan sponsors measure whether plans are on track to accomplish their ultimate objective — to help employees save enough for their retirement.”
Plan Outcome Assessment Service
Plan Outcome Assessment will use a number of metrics and data sources such as plan assets, contribution rates, asset allocation, time horizon to retirement and other variables to provide plan sponsors with an aggregate figure showing how much replacement income the plan is on track to generate.
By measuring key plan metrics, the service helps plan sponsors and their advisors identify shortfalls in their plans and provide actionable data points that can increase plan performance and build better outcomes for employees.
For instance, Plan Outcome Assessment may calculate that, as a whole, a given retirement plan is on track to generate 75 percent of the average employee’s income in retirement. Using this figure, the plan sponsor can work with TIAA-CREF to update its plan design, find new ways to meaningfully engage employees or make other changes to increase the overall performance of the plan so it can meet or exceed plan goals. Plan Outcome Assessment also will generate reports on the readiness of individual employees if the plan sponsor chooses to provide employee salary information.
In generating its retirement readiness figures, Plan Outcome Assessment factors in projected Social Security payments and includes employee accounts outside of the client’s retirement plan if those accounts are managed by TIAA-CREF.
Retirement readiness figures will also be benchmarked against similar institutions of the same size and operating model so plan sponsors understand how their plan is performing in comparison to plans of their peers.
The white paper, based on research by the TIAA-CREF Institute and other independent sources, identified several additional retirement plan features that help drive overall retirement readiness.
Automatic plan enrollment works, but contribution rates need to be at least 4 percent and increase automatically. Many organizations auto-enroll employees at a default rate of 2 to 3 percent. Too many employees stay at that rate, which is far too low to provide enough for retirement.
Employer matches drive plan participation, but the algebra needs an update. Most employers match dollar-for-dollar to a certain rate, frequently in the range of 4 to 5 percent. Instead, employers should consider matching 50 cents on the dollar up to 8 or 10 percent. Employees view matches as “free money” and a match on a higher employee contribution percentage could encourage employees to raise their contribution rates accordingly without increasing the dollar amount of the employer’s matching contribution.
Annuitization options should be in all plans. Employees who save enough to generate at least 70 percent of pre-retirement income (including Social Security) have a good chance at a successful retirement. Yet research also has found that a retiree electing to take systematic withdrawals equal to the same income payments they would receive from an annuity has more than a 50 percent chance of running out of money in retirement. TIAA-CREF research suggests retirees should annuitize enough of their savings to generate approximately 20 to 30 percent of their overall income needs.
The optimal number of investment options is between 5 and 10. Having too many investment choices leads to lower plan participation, employee indecision and increased fiduciary and administrative responsibilities for plan sponsors.
Guidance is not enough. TIAA-CREF research found that individuals receiving actionable financial advice are five times more confident in their retirement prospects than the average American worker.
Employee experience is crucial to plan success. To optimize participation rates and plan success, it is critical to target employees with personalized, relevant communications and educational tools that are available in person, online and over the phone.
Limit or altogether eliminate retirement plan borrowing. Loans raise plan cost and detract from employee retirement readiness.
“As retirement confidence has fallen in recent years, retirement readiness has become top of mind for plan sponsors,” Moslander added. “We hope Plan Outcome Assessment and the research highlighted in the white paper will help plan sponsors create successful retirement outcomes for the employees they work so hard to serve.”
Plan Outcome Assessment will be offered to a limited number of TIAA-CREF customers in 2013, with full availability coming in 2014.
) is a national financial services organization with $520 billion in assets under management (as of 3.31.13
) and is the leading provider of retirement services in the academic, research, medical and cultural fields.
TIAA-CREF products may be subject to market and other risk factors. See the applicable product literature, or visit www.tiaa.org