Whether earlier or later, the timing changes workers’ retirement plans may have one simple takeaway: the changes that are happening to individuals’ plans are widespread. And changes in plans mean increased workloads for those administering the plans. The best preparation for these changes may be to ensure that the staff who handles the plan details, from administration, to education, to planning, feels ready.
Recessions, and the threat of them, do odd things to retirement trends. Individuals may decide to push their planned retirement dates out if they sense that their retirement investments may need more time to grow. Companies may opt to offer early retirement plans to employees to avoid making layoffs as the risk of limited investment funds increase. Adding to the uncertainty, couples tend to retire at or near the same time. Many people may be wondering what the current economic conditions will do to retirement trends. But for plan sponsors, who need to allocate budgets and recruit staff, that question is more than theoretical. Here are our takeaways and suggestions that may help plan sponsors be prepared for the change in retirement trends, whatever it might be, caused by the slowing growth and increased inflation in 2022.
The Past is Prologue. It’s more than a slogan engraved into the National Archives building in Washington, D.C.: the concept that “the past is prologue” may help plan sponsors understand how to prepare. The recession that started in 2008, also called the Great Recession, had major impacts on retirement trends. In a 2013 paper, the Center for Retirement Research noted that the Great Recession accelerated the trend of delaying retirement. Conventional wisdom may have pointed to increased early retirement for workers: the economics of the time, a decrease in demand for both goods and labor made finding new jobs difficult, leading workers to enter retirement earlier. But instead, “drop in household wealth after 2007, caused by declines in asset prices and prolonged spells of joblessness, may have induced some older workers to postpone retirement and encouraged others to return to the labor force.”[1]
Plan sponsors may want to dig into analysis of the demographics of the drop in employment by older workers during the Great Recession for key trends. The Center for Retirement Research’s findings about decreased labor force participation by workers in their early 60s being due to inability to secure employment, rather than a choice of retirement could be especially insightful. The takeaway from these studies may be that employees may have a heightened interest and awareness of their benefits. Those heightened needs may result in increased interactionswith those that administer plans, whether that is a TPA or benefits staff in the HR office. Increasing staff, even if that means hiring temporary assistance by way of administrative staff, interns, or part-time workers, may help ensure that the plans meet participants’ needs.
“When you know better, you do better.” Also adding to that trend of increased interactions, plan sponsors may find that plan participants have an increased need for education around their benefits. Participants may need to learn about options to optimize their retirement investments, especially if their spouse or significant other is unexpectedly terminated from their position. As the Social Security Office of Retirement and Disability Policy has said “Near-retirees would seem to be highly vulnerable to an unexpected downturn, as they have very few effective options for adjusting their behavior in the short term. They can postpone retirement and save at a higher rate, but postponing retirement is of little help to those who have lost their jobs.”[2] Plan participants may be able to weather those storms better with knowledge before the storm, like a hurricane warning. By knowing more, they can make better choices, or as Maya Angelou said, “when you know better, you do better.” The takeaway from this information may be that employees may want more information targeted by age demographic. Sponsors may need to lighten the load of specific information requests from HR staff by strategic support options. That may be in the form of education sessions organized by age demographic. Some plan sponsors may find that their employee assistance programs may need to add retirement planning and advice options.
The recession may also be accelerating retirement trends generated by the COVID-19 pandemic. “According to a Northwestern Mutual 2021 Planning and Progress Study, more than one-third (35%) of Americans say they have changed the age when they plan to retire due to the pandemic. Twenty-four percent now plan to retire later and 11% plan to retire earlier.”[3] Whether earlier or later, the timing changes workers’ retirement plans may have one simple takeaway: the changes that are happening to individuals’ plans are widespread. And changes in plans mean increased workloads for those administering the plans. The best preparation for these changes may be to ensure that the staff who handles the plan details, from administration, to education, to planning, feels ready.
[1] https://crr.bc.edu/wp-content/uploads/2013/12/wp_2013-23.pdf
[2] https://www.ssa.gov/policy/docs/ssb/v72n4/v72n4p47.html
[3] https://www.wealthmanagement.com/retirement-planning/how-pandemic-affected-retirement
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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