Getting Workers on Track to Invest Early and Often

A Pepco lineman at work. With more than 2,000 Washington area employees, Pepco holds nighttime workshops with Vanguard at locations close to workers' homes to encourage workers and heir spouses to attend. (By James M. Thresher -- The Washington Post)
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Bursic says Cornell also has separate seminars for salaried and hourly employees so their distinct needs can more appropriately be addressed, a tactic that Credico of Watson Wyatt supports. She says education campaigns should be customized based on demographics and issues.

"Targeted campaigns tend to work really well," Credico said, adding that companies should look at their participation rates and say "let's go after this group and figure out why they're not saving."

Once workers have built their 401(k) balances, how should they manage spending during retirement? Iwry and some of his colleagues recently proposed annuities on a trial basis, arguing that automation might be part of the answer.

Aiming to marry the stability of a pension with workers' growing balances in 401(k)-type plans, these scholars are encouraging plan sponsors to test offering automatic income products that retirees could opt out of after two years. While private annuities make up less than 2 percent of retiree income, the proposal argues that an increased sales volume would make such products a better value and help people better manage their retirement funds.

The recent market turmoil might encourage more people to consider the value of predictable, regular income for life, Iwry says. But he notes that questions remain as to whether such an idea can be built in a practical way and whether plan sponsors will offer such a product.

And some people with traditional pensions are realizing they should have saved more to supplement those defined-benefit plans. John Palguta, who spent more than 30 years in federal human resources management and now works for the Partnership for Public Service, says that while it may be easier for government workers to plan for retirement because they have more of a financial base to start from, government workers can tend to have "a little more relaxed attitude" about putting money into their 401(k)-type savings plan than private-sector workers without defined-benefit plans.

Palguta added: "I talked to someone recently who's approaching 55 and I asked about money in the 401(k), and he said, '$5,000 -- that's it. I kind of realized that my retirement plan is that I work until I die.' "