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17 Feb. 2015 | Comments (0)

As the Boomers are aging, there is growing concern about how secure Americans will be in retirement. There is also increasing evidence that many people are not well prepared for making all of the decisions that confront them on the road to retirement. As employers are increasingly focusing on financial wellness, more of them are considering providing advice and support for decision making as part of their benefit packages. 

A new Society of Actuaries’ study, Models of Financial Advice for Retirement Plans: Considerations for Plan Sponsors, released in December 2014, provides an overview of the issues plan sponsors should consider as they decide whether or not to provide employees with advice and other decision-making support, and as they decide what route to follow. 

Rationale for the Study: The Society of Actuaries’ Committee on Post-Retirement Needs and Risks (SOAPRNR) has studied a variety of issues related to improving retirement outcomes considering the post-retirement period.  The SOAPRNR concluded that offering advice to employees and retirees is increasingly important.  Today, employees must make the decisions, but there is a great deal of evidence showing gaps in knowledge and also failure to move ahead when people have the knowledge.  The SOAPRNR also concluded that the employer can play an important role to play in educating employees, helping them understand options and in supporting their decision-making.

This study will help plan sponsors as they focus on key issues related to decision support and advice. Some of the things that are covered include:

Decision support can come in the form of generalized education, tailored education and projections for individual employees, responses to questions from employees including offering alternatives, and personal advice. Under some approaches, guidance is offered including information on specific decisions and the alternatives, but without a specific, personalized recommendation. In other situations, a third-party advisory firm makes a recommendation. 

The marketplace is growing more diverse and there are a wide variety of services to choose from.  Plan administrators offer some services. Firms may offer single or multiple types of services.  The service offerings are structured differently and include investment management, managed accounts plus advice services, products and some guidance or advice, fully or mostly automated services, primarily education, and only advice. The scope of the advice depends on the firm’s offering, what the employer contracts for, and what the employee chooses to use.  The cost of the decision support may be packaged with some other service or product sale, or it may be separately identified. Depending on the business model of the advice source, the firm giving the advice may have an economic interest in the advice.  For example, a money manager paid a percentage of assets has an interest in having more assets under management.

Different models for financial advisors:  Some advice is provided through computer models with “standard results” for the same situation, whereas other advice is provided by individual advisors using their judgment. In the latter case, results may vary depending on the advisor. Some advice approaches are limited to investment advice only, whereas others cover a broad range of retirement topics and decisions. Some combine computer models with added judgment. Where computer models are used, one needs to be careful how input is provided to the computer and how assumptions are set. The quality control over the systems may vary greatly.

Different compensation and regulatory models for advisors and firms offering advice:  Some firms are paid for services provided, using flat fees or per employee fees, some are paid a percentage of assets under management, and some are paid commissions on transactions. Some advisors combine payment models, for instance by charging fees for certain services and commissions for others.

In addition, a combination of these various models might be used. Firms are registered and regulated under different regulatory structures, involving both Federal and state regulation. Some are subject to “fiduciary” standards of care, whereas others are subject to a “suitability” standard. Employers are subject to fiduciary standards with regard to benefit plans, and there are big legal considerations in deciding whether to offer advice and what to offer. Conflicts of interest are also a concern. Good legal advice is essential.

Investment vs. retirement advice: There is a big difference between investment advice and more generalized retirement advice. More generalized retirement advice covers issues like when can I afford to retire, Social Security claiming options, what plan options should I use, and more. What is offered will vary by advisor.  Also, many Americans have retirement issues that are more important to them than investment management. Default investment options in plans help with investment decisions but not the other issues.  (Guidance from the Department of Labor offers safe harbors for employer sponsored plan investment advice, but not for more generalized retirement advice.)

Employers will have very different views of what they want to do. Some employers offer decision support, but only at defined times, such as during buyout offers or when employees are reaching retirement age. This is a very important topic, however, because without help throughout employment, many employees may not use benefit plan funds well, and may not have a successful retirement. In addition, employees who reach retirement age without adequate funds may be reluctant to retire and may be dissatisfied.

The Society of Actuaries’ study explores the context, legal background, and types of options, and provides information on things to consider in implementing a program. It is unique in that it is focused on advice and decision support sponsored and supported by employers. Most literature on advice does not focus on advice provided through the employer. A second blog post will follow with questions to ask as support programs are being evaluated. The Society of Actuaries will also be releasing a concise guide for employers later this year.


In my next blog, I will discuss the critical issues to consider when setting strategy and choosing service providers for decision support and advice.

Authors of the research:  The research was conducted by Michael S. Finke, Texas Tech University and Benjamin F. Cummings, Saint Joseph’s University.


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  • About the Author: Anna M. Rappaport

    Anna M. Rappaport

    Anna Rappaport is an internationally recognized expert on the impact of change on retirement systems and workforce issues. Following a 28-year career with Mercer Human Resource Consulting, Rappaport h…

    Full Bio | More from Anna M. Rappaport


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