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For credit union executives and directors, the list of priorities for a credit union’s defined contribution retirement plan probably goes something like this:
- Provide a competitive program that helps you attract and retain quality employees.
- Control the plan’s expenses.
- Meet the fiduciary duties to monitor the program’s investment performance and ensure the plan is legally compliant.
All of these are important. But one key element is too often missing from the priorities for a retirement plan—following through to see that the program is actually preparing employees to replace their paychecks by the time they retire.
If your retirement plan isn’t accomplishing this goal—or if you don’t know whether it is—it’s time to rethink how you measure the program’s success.
Four Serious Downsides for Credit Unions
A natural concern about an ineffective retirement plan is that individual employees and their families will suffer financial hardship in retirement. But credit unions must consider other potentially serious negative consequences, such as:
1. Career Log Jam
You’ve got talented middle managers ready to move up. They’ve paid their dues. They get results. But senior managers of retirement age aren’t retiring. According to a 2013 survey by the Associated Press-NORC Center for Public Affairs Research, 47 percent of working Americans 50 and older now plan to retire at a later age than they expected when they were 40. The top reason they gave for the change is simple—they need the money.
It’s not that you want experienced senior managers to leave—you just don’t want them to stay only because they’re not prepared financially. And the longer they stay, the more young talent you’ll lose.
2. Higher Expenses
Delayed retirements also increase expenses for salaries and health care. Again, this isn’t a matter of pushing out older employees. Your goal is to help them end their careers on their own terms, rather than staying longer than they’d planned.
3. Financially Stressed Employees
An April 2014 Gallup Poll confirms what we in financial services already know: Americans’ greatest financial worry is not having enough money in retirement. The poll ranked concern about eight financial hardships, such as inability to pay for medical costs, monthly bills, college expenses, etc.
Fifty-nine percent of all those surveyed said they were “very worried” or “moderately worried” about not having enough money for retirement. This result increased to 70 percent for respondents 30 to 49 years old, and 68 percent for ages 50 to 64.
Stress can reduce productivity, impair service to members, and increase healthcare costs.
4. Damaged Community Reputation
Think of employees who have worked for you for decades and can’t retire with a decent income from your retirement plan. What do they say to their families, friends and others about their experience? Word of mouth is a crucial channel for credit unions to recruit employees and members.
Track Retirement Plan Success—Beyond Participation
Participation percentage is useful for tracking a retirement plan’s success, but it doesn’t tell the important part of the story.
Pay attention to the level of employee contributions. For most employees, contributing 3 percent or 5 percent isn’t going to cut it. If you currently match dollar-for-dollar up to a certain percentage, consider matching 50 cents on the dollar and double the percentage—you’ll increase contributions without increasing your expense.
Monitor how many employees are taking 401(k) loans. You may need to work with your plan provider to educate employees about the consequences of these loans.
The most important retirement plan metric may be the percentage of employees who’ve set reasonable retirement savings goals AND are contributing enough to meet those goals. Be sure they have the tools and education to set adequate goals, and to see clearly each month whether their account is on track.
Rob Peters is the retirement solutions senior marketing strategist for CUES Supplier member and strategic partner CUNA Mutual Group, Madison, Wis. Reach him at Rob.Peters@cunamutual.com.
CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Life, accident, health and annuity insurance products are issued by CMFG Life Insurance Company. Property and casualty insurance products are issued by CUMIS insurance Society, Inc., Each insurer is solely responsible for the financial obligations under the policies and contracts it issues.
Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 866.512.6109. Non-deposit investment and insurance products are not federally insured, involve investment risk, may lose value, and are not obligations of or guaranteed by the financial institution.
401K-1050276.1-1014-1116 © CUNA Mutual Group 2014, All Rights Reserved.
