Retirement becoming a whole new game

American workers, employers and the government are going to have to get used to a new definition of retirement and retirement plans, experts say.

Employees in the not-so-distant future will need to work longer and require easy, flexible, automated approaches to savings.

But the topic of working longer is "like the weather," said Joshua Gotbaum, guest scholar, economic studies, at the Brookings Institution. "Everyone talks about it, but few do anything about it, and even fewer prepare for it."

Mr. Gotbaum spoke during one of several discussions on creating retirement models that will meet the challenges of longevity and ensure stability and intergenerational fairness.

In another panel, Catherine Collinson, executive director, Aegon Center for Longevity and Retirement and president of Transamerica Institute, cited research showing that nearly one-third of workers globally say they want a flexible transition to retirement, but only about 25% of employers now have phased retirement programs.

Panelists in both sessions said there is a need for a mindset change about attitudes toward retirement and work.

The idea of working longer is a major challenge for employers, educational institutions and government, Mr. Gotbaum said, and he made suggestions to meet that challenge.

First: Change the retirement age. Mr. Gotbaum acknowledged the idea is "incredibly politically controversial" and that it is difficult to change people's expectations of what the norm is for retirement. Second: Change employment policies so people can work longer with their current employers, even if not in their current position. Employers should be open to a negotiated, phased retirement, he urged.

David C. John, senior strategic policy adviser, AARP Public Policy Institute, said that with people living longer and the promised payout of a defined benefit plan no longer a widespread benefit, what's left "is saving."

That is simpler said than done, because while some countries such as Australia and the U.K. have "solved part of the problem; no one has solved it all," he said.

Mr. John said two things are necessary to boost savings: a workplace opportunity to save and auto enrollment.

But auto enrollment won't be enough. "You have to have a seamless transition" for the assets when people change jobs, he said, so they don't lose or spend their savings, and there needs to be a mechanism to create a retirement income stream.

Mr. John and Mr. Gotbaum both said employers need to open their payrolls and retirement plans to part-time and contingent workers. The industry needs to develop a plan that travels with workers as they change jobs or have multiple jobs so they can contribute to just one plan, Mr. John said.

Mr. Gotbaum proposed requiring employers to transfer – at no fee – retirement accounts of new employees. Those sentiments were echoed by Ms. Collinson, who said a recent Aegon survey recommended employers offer a workplace savings plan and extend it to part-time workers; provide employee education and opportunities to save; adopt auto features in their retirement plans; foster an age-friendly environment; and consider phased retirement programs.

But while many in the workforce now say they plan on working longer, Neil Lloyd, partner and head of U.S. DC and financial wellness research at Mercer Investment Consulting, asked: "Do employers want older workers?"

Ms. Collinson added: "Workers already are thinking about delaying retirement, but the big question is, 'Will there be opportunities for them?'"

And the question remains whether all workers, particularly blue-collar workers, will be able to work longer, Mr. Lloyd said.

Whatever happens, the days of people having one employer during their work life will be a rarity. And that makes the situation more complex, several panelists said.

Mr. Lloyd suggested expanding the ability to save and revamping pension models by detaching health and income protection from individual employers.

Plans need to be more flexible, he said. If a worker has, say, 20 jobs over his or her lifetime, they won't want to manage that many accounts. There has to be some way to consolidate them, he said.

From the plan sponsor side, Scott Evans, chief investment officer and deputy comptroller of the $170.6 billion New York City Retirement Systems, said it is "getting less and less appealing to be a sponsor; it's gotten expensive to be a sponsor."

Mark J. Fuller, president and CEO of the Ontario Pension Board, Toronto, described a "trifecta of headwinds" challenging the pension management industry today: lower returns; the continued rising cost of benefits; and significant upward pressure on operating costs.

Among public plans, the first instinct is to say "we can do more … take on more risk to earn more return," said Mr. Evans, who was on the same panel as Messrs. Gotbaum and John.

The second option is to get the sponsor to contribute more by reducing the discount rate or change the actuarial assumptions.

A third option is to get the participant to contribute more, but Mr. Evans cautioned, "when you start changing the (benefit) promise, you get into trouble."

When none of the above achieves the desired outcome, Mr. Evans said, the fourth option for plan sponsors is "to punt": Freeze the plan, or start a hybrid. But that leaves the beneficiary who lacks expertise and purchasing power — poorly positioned for retirement, and creates "an unambiguously inferior" outcome, Mr. Evans said.

The problems of savings and flexibility combined with increased longevity are “begging to be solved,” Ms. Collinson said.

Mr. Lloyd said addressing these issues is “complicated; it's confusing; it's hard.”

Mr. John exhorted the audience to act, saying: “We need to do something other than sit and listen to each other. We need to do something.”

In an industry focused on statistics,“we lose sight … (that) we are dealing with the futures of real human beings,” he said. “We have the ability within this room" to move forward to a solution.”