By Alan Gross
Peter Drucker wrote, “Efficiency is doing things well. Effectiveness is doing the right things.”
For many years our industry has focused enormous energy on improving efficiency. It’s understandable as efficiency speaks to faster processes, better accuracy, greater availability, and importantly, lower fees. I don’t think anyone would argue these are important, if not essential, improvements to make throughout the system. After all, the industry has faced enduring criticism over fees that have diminished net returns and that have precluded too many companies and people from participating at all.
An effective plan must help people understand the financial goal they need to reach—and—help them make choices to get there.
Greater efficiency drives costs down and opens the door to new market opportunities, but, if we succeed in the future, it will be because it was the enabler of effectiveness. So, what defines an “effective” plan? If you take the macro view of the economy and the overall wellbeing of millions of workers, an effective retirement plan (and an effective private sector system) is one that delivers on the promise of helping people save enough to live a comfortable retirement someday. It’s not enough to make plans inexpensive or easy to start or lighter to manage. It’s not enough to offer websites and smartphone apps that provide quick access to information. An effective plan must help people understand the financial goal they need to reach—and—help them make choices to get there.
Efficient plans that fail to create goal-based pathways will continue to fall short as have countless plans over the years. Sure, participants will accumulate money for retirement, but too many will do so without knowing if they are saving enough. And we know that the likelihood of them reaching their financial destination without this knowledge is small. An effective plan considers each individual’s retirement savings, spousal savings, income, outside assets, expected social security, age and longevity, and other factors that together calculate a financial funding goal. It may never be possible to help everyone get over the finish line, but we definitely have the means to try. And it’s our shared mission to do so. Peter Drucker was right.