GRAPEVINE, Texas (4/14/10)--The economic meltdown has prompted credit union plan sponsors to rethink how retirement plans are offered to their employees, attendees of the Texas Credit Union League Annual Meeting were told Friday. The financial crisis has prompted many credit union plan sponsors to move from processed-based to outcome-based retirement planning, saidScott Knapp, director of investment strategy for CUNA Mutual Group. "In a process-based scenario, plan sponsors exclusively focus on seeking high investment returns and low fees. Both are important, but they are not ends to themselves," Knapp said. "The economic crisis exposed the limits of this process-based orientation. As many as 60% of plan participants ages 56 to 65 had most of their retirement-plan assets in stocks. They got crushed, and many have been forced to postpone their retirements. Something has to change if the 401(k) plan is to continue to be the nation's primary retirement savings vehicle," he added. Knapp said many sponsors are finding an outcome-based strategy a better option for helping their employees achieve retirement security. "Outcome-based plans make it easy for participants to save enough for retirement and avoid the huge investment mistakes that often occur under a process-based scenario. Investments offered in an outcome-based plan are often not the best performing, but they support better decision making among participants. Ultimately, they can end up more financially secure during retirement." In outcome-based planning, Knapp said, achieving retirement security is contingent on an employer offering a quality plan, the employee’s decision to save--and save enough--and the employee’s decision to invest properly. It’s important for the employer to address the employee’s decision to save in order for any plan to be successful, Knapp said. “First, credit unions need to show strong support for 401(k) plans and create a ‘culture of saving.’ Enrollment in those plans must be made simple, whether face to face or online, and auto enrollment should be considered.” And it’s especially important for the employer to adopt and support Target-Date Funds, Knapp said. “Target-Date Funds take the guesswork out of investing for your employees. Essentially, all the employees need to know is when they’ll retire. If they know that, the Target-Date plan works to achieve success based on that timeframe." Why is such a framework important for credit union employees? Knapp cited alarming statistics about workers’ lack of confidence in attaining a financially secure future. According to 2008 data from Employee Benefit Research Institute:
* Only 13% of workers feel very confident they will have enough money for retirement--a 50% decline from 2007; * More than 28% of workers say they have adjusted their retirement age; * Only 44% of workers have calculated retirement savings needs; * And 22% of current retirees feel confident about their retirement security.
CUNA Mutual manages 4,000 credit union retirement plans representing $6 billion in assets under administration. Knapp said the company has embraced outcome-based retirement planning for 15 years. “There’s a heightened sense of urgency for sponsors to demonstrate vigilance in helping their employees increase their chances of reaching retirement security.”