Art by Jasu Hu
done it all in defined contribution—mutual fund management, big bank product
design, annuity overhauls, fiduciary legal eagle—what’s left? Retirement? Not
until the rest of America’s defined contribution (DC) participants are on
track. Elvin Turner, now president of Turner
Consulting, debates big ideas with CIO.
: There seems to be so much low-hanging fruit in the
DC system that just… keeps hanging there. Academics, plan sponsors, even
regulators support features like guaranteed lifetime income options for DC
retirees, but no one implements because of liability risk. Is the absence of a
first-mover advantage for sponsors killing innovation in defined contribution?
Turner: I was with you until your last statement: I do
think there is a first-mover advantage. Some bold companies are out there truly
innovating, but in general sponsors are looking over their shoulders for the
Department of Labor.
CIOs have to put
on their fiduciary hat. And they’ve done so. Broadly, this is a sophisticated
group. To put it in shorthand, they are not the ‘dumb’ money whose notions of
investing are totally disconnected from reality. Plan sponsors are constantly
probing providers’ motives and decisions to make sure any decision is a prudent
one for a fiduciary. And frankly, that’s why they’re the hardest folks to sell
to. “What is the third-order motive behind this product?” “Am I setting myself
up for a lawsuit in 2025?” That’s a totally different mindset than retail or
almost any other industry. And it makes CIOs tough to sell to. Rightly so.
You mentioned exceptions to this prevailing
conservatism. Who are they and what are they doing differently?
Turner: Some of the big
Silicon Valley tech companies would be in this category. These firms can be
very demanding and tough places to work apparently, but they think of the
entire lifestyle of their participants, not just a narrow sliver of their
benefits package. They are thinking beyond a 401(k) balance and savings rate:
they’re considering health care, work-from-home policies, parental leave.
Should you put employees on a bus to the gym after work? They can see things in
participants that employers focused just on retirement accounts cannot. These
employers are in the best position to connect that slippery term ‘retirement
outcomes’ to their employees’ lifestyles in retirement. The notion is simple:
Help employees retire and be able to afford the same house and the same
lifestyle as they had while in the workforce. If employers achieve that, their
employees will be happy.
: Not to be
crass, but why does it matter? Once an employee retires, does a company have
any (financial) reason to actually care if they’re happy?
Turner: Happy people don’t sue you. Happy people tell other people, who may become
your clients, customers, staff, shareholders. Think back to the holistic view
these bold companies take: Someone who’s going to be happy in retirement is
going to have been happy while they’re working for you.
influential employees don’t work on a Thursday and become retirees on Friday.
They become consultants for their employer—doing the same job, just 25 hours a
week. We’re increasingly entering that world where the old rules of thumb for a
career lifecycle are becoming obsolete, but we still design plans around them.
Think about mandatory retirement
ages, for example: Doesn’t that sound
crazy now? Imagine a Home Depot with a mandatory retirement age. They’d have to
fire half their clerks.