As traditional pension plans are increasingly being replaced by defined contribution plans, retirement income plan providers will need to adjust their tactics in order to keep up with the ever-changing retirement landscape.

"The retirement world has changed, and most people don't realize they're responsible for their own retirement," said Dennis Ackley, president of Ackley Associates, an employee communication consulting firm in Lee's Summit, Mo.

In the last few decades, 401(k) and 403(b) retirement plans have gradually shifted from being a supplemental part of a company pension plan into being the main retirement plan for workers, Ackley said.

The two plans have grown more alike in recent years, but little attention has been paid to the tax-exempt sector's annuity-heavy 403(b) arena, which covers workers in health care, education and government.

New regulations, set to take effect next January, will encourage 403(b) plan providers to offer a wider selection of investment options, including equity and debt mutual funds, further increasing the similarity of 403(b)s to 401(k)s.

The new regulations will also require 403(b) plan providers to take on a greater fiduciary responsibility for their plans and will encourage them to consolidate the number of vendors they use.

Fidelity Investments recently conducted a study on the spending and saving habits of tax-exempt workers as part of the mutual fund giant's efforts to learn more about this group and expand its share of the 403(b) market.

While Fidelity is one of the top three overall mutual fund powerhouses and commands a significant share of the 401(k) market, it trails a far second behind 403(b) leader TIAA-CREF. But as the two plans become more similar and 403(b)s widen their longstanding focus on annuities, Fidelity and others could reap huge gains from consolidations.

"We see a great opportunity for growth within the 403(b) market," said John Begley, executive vice president of Fidelity Investments. "We are working with plan sponsors to explain the changes in regulations and encouraging them to rethink their investment lineups and the number of different vendors."

"This will be a big year for partnering with clients," he added.

Begley said he was encouraged by many of the results of the study and worried by others.

"One third of participants are saving more, showing that people have concerns about the future," Begley said, but "on the other hand, debt is hampering the ability of some to save as much as they'd like to for retirement."

Approximately 44% of respondents reported personal debt that exceeded $5,000, not including mortgages. The study separated respondents into groups of investors, savers and spenders.

"When we looked at the investor' profile, we saw less personal debt, better financial habits and greater activity in managing their workplace savings," Begley said. "It's critically important that every tax-exempt worker begins to behave more like an investor and take those first steps toward actively managing savings to help secure a financial future."

About 29% of workers said they increased their contribution levels in the past year, with the highest percentage among the investor group.

The Fidelity study concluded that too few workers in tax-exempt organizations are taking full advantage of their workplace savings plan resources, with 57% reporting that they had interacted with their defined contribution plan provider in the past year.

Nearly 50% reported having retiree health benefits, but almost 75% said they were concerned that their health benefits would be reduced or discontinued in the future.

About 43% of workers said they planned to work longer and retire later in order to compensate for a lack of savings, but 41% admitted they had not given the issue adequate thought.

"Given the shift in retiree benefits and the rising costs of health care, employees can't afford to delay taking action to plan, save and invest for their financial future," Begley said. "Working in retirement should be a decision based on choice rather than necessity."

But finding a way to motivate workers to take an interest in saving for their retirement is not as easy as it would seem. The subject has continued to challenge and frustrate plan providers, and efforts to educate the unmotivated are not working, Ackley said.

"It's still not part of our culture to think about retirement as something we have to buy," Ackley said. "People act as if the retirement fairy will come along and sprinkle retirement dust on them when they turn 60."

Workers in their 20s and 30s can benefit from these plans if they get started early, but that's often the hardest time to find extra cash to save, he said. When a 55-year-old comes in to see a financial advisor with no savings, there's little that can be done.

"You can't save enough money in the last few years of work to last through a potentially 30-year retirement," Ackley said.

So far, the industry's answer to this savings gap has be to automate everything. From auto-enrollment in plans, automatic contribution increases and auto-rollovers, the industry has been searching for ways to provide employees with a foundation of savings.

Often the default option is a minimal, very conservative plan, but employees can make changes or opt-out of the plan at any time. The prevailing argument is that these defaults may not be much, but at least it's something.

If employees can't be motivated to take an interest in their plan, the responsibility for picking a good default plan could return to the plan providers, and providers will turn to the retirement investment companies with the best products.

(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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