Not your grandpa’s retirement: How the end-of-work landscape has changed

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For many employees, the pandemic dealt an economic blow to retirement plans, forcing them to work longer than expected or even borrow money from their 401(k)s.

Thirty-three percent of employees withdrew or borrowed from their 401(k) or IRA in 2020, according to a poll conducted by Kiplinger and wealth management firm Personal Capital. About 47% of employees who took a retirement loan say they ended up taking more than they needed, according to research from Voya Financial, and 59% of those who took a loan say they wish they had consulted with a financial professional before doing so.

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Employers are taking the initiative to prevent employees from making choices they may later regret, with resources and robust benefits that help tackle their financial challenges today, so they can prepare for a sound future. Now, government leaders want to help employers achieve this goal through new legislation like the RISE Act, which was introduced as a way to expand the SECURE Act 2.0’s retirement protections.

“The general idea is to improve access to retirement solutions,” says Catherine Reilly, director of U.S. retirement solutions at Smart, a U.K.-based retirement technology provider. “Part of it is trying to make it easier for employers to offer plans, and to offer the kind of product that legislators would like them to be offering.”

Reilly recently connected with Employee Benefit News to discuss the RISE Act and how the meaning of retirement continues to change.

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How has the way employees retire evolved over the years?
One thing that we see is more people coming into retirement without defined benefit plans, so they are more dependent on their defined contribution plan than before. Basically that means that Social Security — for most people — will be the only source of guaranteed income that they have in retirement.

When you ask people about their plans for retirement, an increasing number of people expect to be working part time in retirement. It’s no longer the idea of getting to age 65 and then sailing off into the sunset on a cruise. It’s more like a retirement transition period, where there might be maybe five or even 10 years where they’re working part time and gradually downshifting.

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What actionable steps can employers take to better secure their employees’ retirement? 
Number one is offering a good retirement plan with a good employer contribution and automatically enrolling people into that plan. Forward thinking employers would do well to think about this demographic shift and how people are likely to ease gradually into retirement. They have to think about this in their workforce planning, by making sure their retirement plan structure is aligned to allow people to transition out of the workforce gradually.

Recently, legislators have placed a lot of emphasis on retirement income. And there has also been a general trend to wanting to make it easier for people to stay in the employer plan, even after they’ve retired. So employers should also be thinking about making those plans flexible enough to support people who might want to use the plan in different ways as their life situation evolves.

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The RISE Act is one such back-up plan for future retirees — how can this be an additional safety net for employees preparing for retirement? 
The RISE Act is part of the Secure Act 2.0 initiative. The first version of the Secure Act was passed at the end of 2019, and it established pooled employer plans, which came into force at the beginning of this year. It also offered plan sponsors more safe harbors for annuity selection. The RISE Act is building on the Secure 2.0 plan, and it’s adding in some particular features like making part-time workers eligible to participate in a plan after two-years rather than three-years. It also offers even more protections by including this in ERISA.