PLANADVISER - November/December 2017 - 55

delay in the average retirement age would cost the firm
between $2 million and $3 million. A two-year delay would
average an additional 2.2% in work force costs, and a threeyear
delay, 3%. In addition, health care costs for a 65-yearold
are twice those for a worker between the ages of 45 and
54, Prudential says.
Arguments Against a Laissez-Faire Approach
According to Ready, some plan sponsors embrace their
ethical obligation to offer a retirement plan, but they hesitate
to be " paternalistic " and implement hard-line automatic
features. It may be impossible to convince the most
libertarian-minded sponsors to take a lead role in directing
their employees' retirement saving, Ready concedes, but
most who drag their feet on aggressive plan design do so
based on more direct concerns.
Among those, for instance, is the worry that autoenrolled
employees could subsequently lose compensation
in a market correction. While the Department of Labor (DOL)
has a safe harbor already in place to protect plan sponsors
from legal liability in this exact situation, some plan sponsors
are hypersensitive to the prospect of any portion of
employees' salaries-or their own benefits spend-evaporating
in the markets when those employees had made no
direct decision to invest in the first place.
But this is the wrong way to look at the issue, Ready
argues. He points to data taken from the 2017 Wells Fargo
Retirement Survey, which describes a theoretical example of
a plan participant who had been auto-enrolled into a targetdate
fund (TDF) and had built up a respectable balance of
$50,000 prior to the market crash of 2008 through 2009.
" If we look at this participant, we see that he may, in fact,
have lost money for the first year or two after the market
crash, but since that time he has benefited from one of the
longest and most stable bull markets in American history, "
Ready observes. " If we make some very reasonable assumptions
about deferral rates for this individual, say 7.5% of
salary deferred per year going into [his] retirement account,
the ending balance today would be north of $180,000. "
Ready says the conclusions that can be derived from these
figures should reassure plan sponsors concerned about autoenrolled
participants suffering periods of loss in their retirement
accounts. For those with any significant time left before
retirement-and for older folks with a long-term retirement
ahead of them, equally as well-it is simply better to be
invested than to stay on the sidelines out of fear of loss.
" Even if you've been through the downturn of 2008
through '09, so long as you were willing to stay the course
and did not abandon your plan at the midpoint, you still have
really benefited quite strongly from being invested over the
last decade, " Ready says. " Plan sponsors and participants
should constantly be reminded of the long-term nature of
retirement investing and that staying the course and maintaining
discipline will almost certainly lead to positive
planadviser.com november-december 2017 | 55
http://www.planadviser.com
PLANADVISER - November/December 2017

Table of Contents for the Digital Edition of PLANADVISER - November/December 2017
