NASHVILLE, TN -
CUNA Mutual's Scott Knapp, vice president, employee benefit markets, and Sharon Severson, director, pension client services, offered their analysis on the Pension Protection Act's effect on credit unions and how credit unions can capitalize on the new law at CMG's Discovery Conference here.
Clearly, employees need help saving for retirement, Knapp said, noting that most have not accumulated anywhere near enough savings to support a comfortable retirement. Despite massive education efforts, too many employees are not participating in retirement savings plans, and those who are enrolled are not deferring enough income. The problem has been compounded by poor investment decisions and little faith that Social Security will be able to fill the income gap.
"This is a retirement savings crisis, and it's occurring at a time when aging baby boomers will soon be relying on whatever savings they've accumulated," Knapp said.
The PPA represents the most significant change in the way retirements plans are provided to employees since the adoption of Employment Retirement Income Security Act in 1974. The Act is enabling options, but it makes adopting a pension plan more complicated. Before PPA, sponsors wanting to provide their employees a retirement plan could follow a standard formula, because plan features were pretty standard, Knapp said.
"In the post-PPA environment, sponsors have to ask, 'Do we want to provide a retirement plan?' If our answer is yes, they then have to ask, 'What kind of plan do we want to provide? What are our goals? Will we provide care for our employees, or empower them to care for themselves?' A starting point for sponsors should be a deep self-analysis of what type of employer they are and want to be," Knapp said.
In detailing specific changes brought about by the PPA, Severson said employers now face more decisions.
"Sponsors can now automatically enroll employees into retirement savings plans, such as a 401(k), take money out of their paychecks and regularly increase their deferral percentages. Employers also choose the investments into which employee money will be directed. For employees, the old approach of 'opt in' can become 'opt out' with the new law's blessing," she said.
The law provides safe harbor protections for employers that use automatic features and provide investment advice to employees. "That's still a lot of responsibility. So having a strong fiduciary oversight process is now more important than ever," Severson said.
She offered the following recommendations:
* When developing a participant philosophy and strategy, adopt a Participant Policy Statement
* Identify participant-focused, outcome-based goals and evaluation metrics
* Match investments with your strategy.
* Estimate and budget for additional costs associated with automatic features.
* Understand the role of defined benefit plans in the PPA era, and make sure it is funded appropriately.
"Despite the added responsibilities, there's never been a better time to review your existing plan relative to opportunities offered by the new law," Knapp said.
