80 PLANSPONSOR.com May 2012

Getting OlderThe graying of the American work force

Americans are living longer. That has significant implica-tions for employees and plan sponsors. The U.S. Census Bureau estimates that by 2050, more than 600,000

Americans will be age 100 or older. That is up from approxi-mately 2,300 in 1950. According to a study by the Society of Actuaries, there is a 31% chance that, for a 65-year-old couple, at least one spouse will live past age 95. In other words, it would be reasonable for employees (and particularly married couples) who retire at age 65 to plan for at least 30 years of retirement living.

However, it may be unreasonable to retire at 65—at least for most employees—because it is very expensive to fund a 30-year prepaid retirement. It may be possible for natural-born savers, but for most people, the required savings rate would cut back significantly on their standard of living while they work. What does all this mean? I believe it means that 70 or 72 is the new 65.

If I am correct, that presents a number of issues for employers. For example, if an employer wants to encourage employees to retire early, which could now mean at 65 or 67, it may need to participate more actively in the retirement process. That includes, for instance, making larger 401(k) contributions; automatically enrolling and increasing deferral rates; providing retirement planning services to employees age 50 and older; and offering income projections and information about retirement needs to all employees. In other words, if an employer wants to promote retirement at or around age 65, it needs to accept more responsibility to ensure favorable retirement outcomes for its employees.

But what if an employer is comfortable with the idea of an aging work force? Even then, changes are needed. For one thing, employers may want to educate their employees about the inte-gration of the company’s health benefits with Medicare … which election should an employee make at age 65? Part A? Part B? Part D? Those are complex issues—and better decisions will be made if employers provide consulting and educational services.

What about Social Security retirement income? Should employees elect or defer? What educational assistance does the employer provide in making that decision? What about work-place training and education to keep up with the rapid pace of change? Regulations that govern our everyday activities are constantly changing. Technology seems to upgrade and evolve on an almost constant basis. There is always new equipment.

The educational needs of older workers may be different than of younger ones. Younger workers tend to use more technology in their personal lives and, therefore, may adapt more quickly to changing technology in the work place.

Even with deferred retirement dates, employees will need additional retirement information, such as how much income they will need in retirement. Furthermore, how much of the shortfall in that income will be offset by Social Security and other savings? How can a 401(k) account balance be used to

provide income for life? How do you make the income last for the remainder of a life-time, regardless of whether it is 20 years or 40 years? Should those retirement income products be offered in a 401(k) plan as the bene-fits are accumulated? Should they be offered at retirement? Or should they not be offered at all—leaving employees to

“purchase” their retirement income at retail, which is ordinarily much more expensive than insurance and investments that can be offered through a plan?

Unlike many of my columns, this one is about questions, rather than answers. However, these are important questions that employers should be thinking about and be working to answer. It is always good to know where we have been—but it is even more important to know where we are going.

Fred Reish is chair of the Financial Services ERISA practice

at the law firm of Drinker, Biddle & Reath. A nationally rec-

ognized expert in employee benefits law, he has written four

books and many articles about ERISA, IRS and DOL audits,

and pension plan disputes. Fred has been awarded the

Institutional Investor Lifetime Achievement Award and the

PLANSPONSOR Lifetime Achievement Award. He is one of

the 15 individuals named by PLANSPONSOR magazine as

“Legends of the Retirement Industry,” and also one of five indi-

viduals acknowledged as Retirement Plan Adviser Legends

by PLANADVISER magazine.

Just out of reish

i believe it means that 70 or 72 is the new 65.