Exit Strategies

How companies can help retiring employees transition from savers to consumers.

“Although plan sponsors have no obligation to deliver a certain amount of retirement income to participants, if they help employees plan their retirement-income streams, they should be careful not to run afoul of fiduciary duties under ERISA,” says McDermott’s Joseph Adams. “No good deed goes unpunished. Once companies begin to offer things like target-age funds, annuities, and [predictive] tools, there is an element of risk.”

Consider the fiduciary obligation linked to offering an annuity. When an employee rolls over a 401(k) or cashes out, employers can rest easy from a fiduciary standpoint — they no longer must monitor the assets — whereas with the annuity, Adams says, they may need to continue to ensure the provider is delivering what it promised. “Similarly, if the plan sponsor decides to add a mutual fund with fixed payouts, companies will need to ensure that they comply with fiduciary duties of prudence in selecting the fund and monitor performance for as long as the fund is an investment choice.”

Adams suggests that companies wield the “disclaimer” word often. “You need to inform employees that the predictive modeling tools are simply that — predictive,” he says. Still, adds Glickstein, “there is plenty of room for employers to provide customized information and programs to help employees through this.”

Russ Banham is a contributing editor to CFO.

Smoothing the Transition

Products and Services for the Soon-To-Be Retiree

Life-cycle funds. These funds automatically reallocate as an employee ages. For someone in the last five years of employment, UBS Global Asset Management advocates a broadly diversified portfolio comprising both U.S. and non-U.S. equities; exposure to emerging markets (both debt and equity); real estate (including real estate investment trusts); high-yield bonds; and Treasury inflation-protected securities, with equities slightly outweighing bonds at 55/45 percent.

Retaining retirees’ 401(k)s. Employees can often opt to leave their 401(k) balance with the plan sponsor instead of rolling it over. The advantage is that the company has a fiduciary obligation to monitor the assets, and the employee has access to lower-cost funds.

Web-based tools. Companies and plan administrators have introduced a slew of tools to gauge retirement costs versus savings. At The Boeing Co., for example, one tool models the defined-contribution plan over time, based on different savings rates and investment strategies. Another models the participants’ pension and invested assets at different ages of retirement.

In-house advice. Some companies are offering specialized human-resources advice for employees nearing retirement. At Boeing, a retirement advocacy service in human resources walks employees through the retirement process. There is also a separate team of HR specialists who help employees understand different financial strategies for a secure retirement. — R.B.


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