When I went down to the Florida HR Conference which was awesome – I got into a great conversation with Phillip Senderowitz about what we (HR) were looking at for the future of retirement, 401K’s, and candidly, why the strategic future of the US may be impacted by this retirement issue. It was such a great conversation, as he is a true credentialed thought leader here – I thought you would appreciate his words!
1. Phillip, first of all, tell us a bit about yourself
I’ve been in the investment industry for over 20 years, primarily focused in the retirement plan space. I have a Chartered Financial Analyst (CFA) designation an am also a Certified Financial Planner (CFP). I cover the southeastern region as a Senior Plan Consultant for 401(k) Advisors, operating out of Orlando, where I live with my wife and two sons.
2. Out of all the careers – how did you end up in HR and as a Plan Advisor?
I have always had an interest in investing, and after starting my career at Charles Schwab, I wanted to be more involved in the actual decision making. After earning the CFA designation, I discovered I enjoyed working with institutions more than individuals. Working with in the retirement plan industry allows me to apply the investment skills I learned, while at the same time impacting individuals retirements through macro decisions made at the plan level.
3. What is the elevator speech on your company and their services?
401(k) Advisors is one of the few leading, independent firms whose 40+ member team is 100 percent devoted to high-caliber retirement plan consulting. Attributes of our brand are craftsmanslike knowledge, operational efficiency and advanced technology―delivered in a rigorous process and wrapped in a genuine focus on client service.
Our reputation for results is built on successful execution and service to hundreds of mid to large-scale plan sponsors in the private, public and nonprofit sectors. Founded in 2000, we currently advise to billions of dollars in retirement assets for hundreds of plan sponsors nationwide.
You are working in a truly tough industry helping people try to retire and heavily regulated – so I have some specific questions:
4. What advice would you give a company that wants provide a “good” plan for their employees?
I would advise companies to make it easy for their employees to save in the plan. Inertia is a powerful force, and companies should use it to benefit employees rather than allowing it to work against them. Numerous studies show that participants know they should save for retirement, and that they fully intend to do so, once they get around to it. If we can flip the script so that employees have to actively choose not to save for retirement, most will avoid the decision–meaning that money will flow into their retirement savings.
The advances made in behavioral finance have allowed us to better understand participant behavior make it easier for companies that want to deliver a “good” plan to actually achieve this goal. Using automatic features such as automatic enrollment and automatic escalation of contributions are the best tools to accomplish the task.
5. As an employee, what mistakes or things do you see employees not doing to maximize their plans?
There are several common mistakes that employees make with respect to saving for retirement.
The first major mistake is waiting to start saving. As Albert Einstein said, “Compounding interest is the eighth wonder of the world.” Too many employees don’t take full advantage of it.
The second mistake employees make is not taking full advantage of the company match. The company match is free money provided by the employer, yet many employees choose not to take it.
The third mistake employees make is limiting their contributions to maximizing the company match. One has nothing to do with the other. Employees should use one of the many calculators available (often on their own 401(k) website) to figure out how much they should be saving, and make a plan to get to that level, either immediately or through gradual increases. Assuming that the level that maximizes the company match will be sufficient to provide a comfortable retirement is simplistic and often wrong.
6. For the cynical CFO, why should a company invest in good plans or matching funds, when “plans are nothing but a benefit to attract and retain employees”
By taking the longer-term view, savvy CFO’s will realize that dedicating money towards helping employees achieve a successful retirement can actually save the company money. If employees don’t have enough money to retire, they will often stay on the payroll longer–at a time when their benefit costs are highest. The health insurance and workman’s compensation costs of a 60 year old employee are vastly higher than that of younger employees. Salary costs are usually higher as well.
7. Since you are one of the Top Plan Advisors in the country – what does your crystal ball say financial benefits plans (pensions, 401K, etc.) will look like in ten years?
We believe the trend toward automating plan features (automatic enrollment, automatic escalation, defaulting participants into asset allocation portfolios) will continue. The more courageous plan sponsors will be more aggressive in their use–starting participants at a 6% deferral rate rather than 3%, increasing deferrals 2% annually rather than 1%, and allowing the increases to continue to 10-12% rather than stopping at 6%.
We also believe unique plan designs will be used more often, allowing employers to better reward the longer term employees. Perhaps a second match based on employee tenure, where a 10 year employee would receive more than a 5 year employee.
On the investment side, we believe that the use of “house-brand” target date funds will decline in favor of funds utilizing best-in-class managers alongside some indexes, or even custom model portfolios created from a plan’s existing lineup, tailored more closely to a specific participants needs.
8. Lastly, what type of customer would benefit most from your expertise?
Employers that are interested in delivering a high quality retirement plan capable of enabling their employees to achieve a comfortable retirement would benefit most from our expertise. Employers that have retirement plans just to be able to say they offer it as a benefit, would likely not appreciate the value of our services.
Having said that, we believe that the responsibility for saving for retirement falls on the employee as well. Employees must understand that they will have to contribute to their retirement savings in a meaningful manner. Relying on their employer to do all the work is not reasonable either.