How millennials are redefining retirement
Great article from Employee Benefits Advisor about millennials effect on their future retirement by Paula Aven Gladych
Millennials are redefining what retirement will look like when it is their time to join the ranks.
According to a study by Bank of America Merrill Edge, 83% of millennials plan to work into retirement, which is the exact opposite of current retirees, the majority of whom say they aren’t working in retirement or have never worked during their retirement.
“That’s a fundamental shift. They may never see the end to their working days if they don’t make some changes,” says Joe Santos, regional sales executive with Merrill Edge in Los Angeles. “We have seen over the past few years consistent insecurity and uncertainty around retirement planning. With millennials and Gen X, the struggle is competing with life priorities.”
Seventy-nine percent of Gen Xers and 64% of baby boomers also expect to work in retirement.
Half of millennials ages 18 to 24 believe they will need to take on a second job to be able to save for retirement, compared to 25% for all respondents, according to the Merrill Edge Report for fall 2016.
Despite the fact that millennials are not very optimistic about their ability to save for retirement, 70% of millennial respondents and 72% of Gen Xers described their investment approach as hands on, compared to 60% of all respondents. Millennials use online and mobile apps and express interest in saving for retirement, Santos says.
Nearly one-third of millennials say they are do-it-yourselfers when it comes to making investments, compared to 19% of all respondents.
“This growing sense of self-reliance among millennials, however, seems to be increasing the desire for further financial guidance and validation from professionals,” the report found, with 31% of millennials saying they are interested in seeking to hire a financial adviser within the next five years. Forty-two percent of them said they were most open to receiving online financial advice.
Talking about finances is still taboo, the report indicates. Only 54% of survey respondents said they would feel comfortable discussing their personal finances with their spouse or partner; 39% said they would feel comfortable discussing their finances with a financial professional.
“That uncertainty causes them to underestimate what is needed for retirement. If you think of student loans for millennials, they are struggling with student loan debt. It makes retirement seem so far out there,” Santos says.
The majority of those surveyed felt they needed less than $1 million in savings to achieve a comfortable retirement, but 19% of respondents didn’t know how much they needed to save for retirement.
“And even with these estimates, two in five (40%) of today’s non-retirees say reaching their magic number by retirement will either be ‘difficult’ or ‘virtually unattainable,’” the report found. Seventeen percent of respondents said they are relying on luck to get them by.
Because millennials are so young, they have an opportunity to do all the right things so that they can have a secure retirement, Santos says. “I love seeing that they have the interest to learn about retirement by taking a step-by-step approach.”
He added that the last thing people want to do is start saving too late.
“It is a challenge when you think about so many folks straddled with debt, especially student loan debt, and growing longevity. The sandwich generation makes these milestones seem unattainable, but with some proper planning, we can get there,” he says.
The survey of 1,045 mass affluent respondents throughout the United States was conducted by Braun Research from Sept. 24 to Oct. 5, 2016. Mass affluent individuals are those with investable assets between $50,000 and $250,000 or those ages 18 to 34 who have investable assets between $20,000 and $50,000 with an annual income of at least $50,000.
See the original article Here.
Source:
Gladych P.(2016 December 30). How millennials are redefining retirement[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/how-millennials-are-redefining-retirement?utm_campaign=eba_retirement_final-dec%2030%202016&utm_medium=email&utm_source=newsletter&eid=909e5836add2a914a8604144bea27b68
Top 7 401(k) questions employees may have
Interesting article from BenefitsPro about some of the questions your employees will ask about 401(k)s by Marlene Y. Satter
At the start of a new year, lots of folks are thinking about resolutions.
And, if they’re also thinking about saving for retirement, they may have realized they don’t know all that they should about their retirement plan—or they may simply have decided that they need to know more.
If that’s the case, they’ll have questions about their 401(k) plans.
And regardless of what kind of 401(k) education you or your plan provider may furnish, you’ll likely be hit with inquiries about various aspects of the company plan.
Here are the top 7 questions you may get from workers this year.
7. How do I manage my investments?
Employees will want to know whether there are online tools to track investments, access statements and change their portfolio holdings.
They’ll also want to know about educational resources, whether online or in group or individual sessions, so that they can do the best they can. If you don’t already offer access to a financial advisor to help them better understand what they need to do, this could be a potential plan upgrade—particularly since many people prefer interacting with a human being to relying on online tools, especially for educational purposes.
6. What kind of investments are available?
Particularly if they’re trying to educate themselves better on how to make their 401(k) investments perform at peak efficiency, employees will want to know what they’re putting their money into.
Which mutual funds does the plan use? What other options are available? Are there alternative investments in the plan? Managed accounts? Bonds? Individual stocks? Money market funds? Are there plenty of options available, so that the portfolio is sufficiently diversified?
And if they don’t like the sound of the 401(k)’s options, they might ask you about providing a Roth 401(k) instead.
5. How high are the fees—and can they be lowered?
Savvy employees will be concerned about the fees involved in the various investments in the plan. Even more savvy ones might push you to consider lower-fee investments, such as Class R6 shares rather than Class A and target-date funds, which have preset portfolios and should be cheaper.
They’ll probably also ask about the presence or absence of index funds, and question whether the plan provider engages in revenue sharing or provides institutional pricing on all funds.
4. When and how can I withdraw money from the plan?
In case of emergency—a death in the family, a serious illness or perhaps a less depressing need, such as a home purchase or the kids’ college education—employees might need to get their hands on some of their 401(k) funds. Does your plan allow that?
And if so, how? Is it a difficult process? Are only hardship loans allowed? How long does it take to get the money? Can employees continue to contribute to the plan after they take a withdrawal?
3. What’s the employer matching contribution?
Employees will want to know, if they don’t already, how much you’re going to kick in in matching funds when they start contributing to the plan.
Do you match 50 cents, for instance, per dollar up to a certain percentage of the employee’s salary? Say, 3 percent or 6 percent? Or do you do a dollar-for-dollar match up to whatever your limit is? Or perhaps you have a dollar limit rather than a percentage.
2. When am I vested?
Employees—particularly millennials, who tend to move from job to job with increasing frequency—will probably want to know how quickly they’ll be able to keep any employer contributions.
They probably already know that whatever they themselves contribute to a plan is theirs to take whenever they leave for a new job, but since vesting rules can vary widely from company to company, they’ll want to know whether employer contributions vest at 5, 10, 25 or 50 percent per year, or at 100 percent after a certain number of years.
1. What are the eligibility requirements?
New employees in particular will want to find out about this, but existing employees who perhaps hadn’t signed up in the past may also be checking on whether they work enough hours per week (for part-timers) or have been with the company long enough to start contributing.
Make sure that employees know what’s required for them to be able to participate—and if you don’t already have it, you might want to consider adding auto enrollment as a feature next time you modify the plan.
See the original article Here.
Source:
Satter M. (2017 January 03). Top 7 401(k) questions employees may have [Web blog post]. Retrieved from address https://www.benefitspro.com/2017/01/03/top-7-401k-questions-employees-may-have?ref=hp-news&page_all=1
What’s employers’ No. 1 concern in 2017?
Does the new year have you worried? Check out this great article from Employee Benefits Advisor about employers concerns in 2017 by Phil Albinus
In the aftermath of President-elect Donald Trump’s surprise victory last month, the top employee benefit concern among employers remains their role on the Affordable Care Act. According to a survey of 800 employers conducted by brokerage solution provider Aon, nearly half — 48% — responded that the employer mandate is their biggest concern for the new administration.
According to J.D. Piro, head of the Aon’s law group, the concern stems from whether or not Trump will repeal and replace Obamacare and what plans the 115th Congress has for Medicare.
“It’s all of those [issues] and the employer mandate which has the reporting obligations, the disclosure obligations, 1094 and 1095 forms and the service tracking ... all of that goes into the ACA. The concern is, is it going to be dropped, expanded or modified in some way?” Piro tells EBN.
“Employers have all sorts of questions about that,” he adds.
The employer mandate was by far the top employer concern, according to the Aon survey, which was administered after the election. “Prescription drug costs” received 17% of responses and the “excise tax” received 15% of respondents’ attention. “Tax exclusion limitations on employer-sponsored healthcare” garnered 10% of votes while “paid leave laws” and “employee wellness programs” trailed at 8% and 2%, respectively.
The results didn’t surprise Piro. The employer mandate “is something employers had to get up to speed on and learn how to administer in a very short period of time. It was so complex that it was delayed for a year. It’s not yet part of the framework, and people are still addressing how to comply with it,” he says.
Looking ahead
While Piro declined to make any predictions about what the new administration will accomplish in terms of healthcare, he does think Congress will act quickly, if at least symbolically.
“I think something will happen in 2017. The most likely scenario is Republicans will pass some sort of repeal bill in the first 100 days of the new administration, but they will put off the effective date of the repeal until 2018 or 2019,” he says. “It will be somewhere down the road so they can decide when and what the replacement is going to be.”
The sheer complexity of ACA and Medicare will not make its repeal an easy matter for either the new Trump administration or Congress.
“This is an interconnected web of laws and rulings and the ACA affects every sector of healthcare. It’s thousands of pages of regulations,” Piro says. “Repealing it is not as easy as turning off a light switch or unplugging a computer and plugging it back in again.”
“A lot of people are affected by ACA and you have to consider what the impact is going to be.”
See the original article Here.
Source:
Albinus P. (2017 January 04). What's employers' no. 1 concern in 2017 [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/whats-employers-no-1-concern-in-2017?utm_campaign=eba%20daily-jan%204%202017&utm_medium=email&utm_source=newsletter&eid=909e5836add2a914a8604144bea27b68
10 ways to promote the value of a private exchange
Great article from Employee Benefits Advisor about 10 different ways to promote private exchanges by Sima Reid
Our world has changed so much and quickly — take the evolution of cell phones in the last decade, for example — but how we approach offering employee benefits is moving at a snail’s pace in comparison. To stay current and modern, employee benefits must evolve.
Many employers see the value in structuring their employee benefit programs to meet the needs of their multi-generational employee population. A private exchange brings all the elements together, creating value for the employer and the employee.
Offering a private exchange to employees is not just about moving to a defined contribution model or promising a silver bullet to reduce benefit costs. A private exchange should bring value to the employer and their employees independent of the products or pricing of those products.
The value proposition of a private exchange:
1) Paternalism. For employers who understand the value of giving up some of the benefit decisions to their employees, a private exchange provides a way to give employees more options — using tools that help them make good decisions based on their wants and needs.
2) Meaningful choice. More choice is good, too much choice is not better. It is important to include options that make sense for each particular workforce, including traditional medical, dental, vision, etc. as well as voluntary benefits. A meaningful line up of benefit options will help employees fill gaps they may have in the areas such as legal services, ID theft, chiropractic care, additional life insurance or disability, and so on.
3) Proper plan election. When employees are allowed to select plans that make sense for them from a benefit/cost perspective, many employers see a right-sizing of their benefit program. This provides them with savings. If an employer only offers one health plan that has low out of pocket, they are over paying for many employees. If an employee would rather pay less per paycheck but more when they have services, choice allows them to do so. This brings value to the employee and the employer.
4) Self-insured and fully insured plans. Being self-insured does not mean eliminating employee choice. For many employers, self-insured plans make more sense than a fully insured plan. A private exchange should be able to accommodate either financing mechanism.
5) Streamlined benefits education and administration. A private exchange is not just a benefits administration system. Private exchange technology provides critical education and tools available to employees for all the plans and programs offered. Gone are the days of trying to include all the information in an employee enrollment communication that the employees likely won’t read. The process for HR is streamlined through the private exchange using a modern, inviting and attractive online platform.
6) 24/7 access. How companies engage and retain employees has changed. The need exists for a year-round platform focused on life’s experiences and challenges. Tools to help employees work on wellness, whether it is health or financial, will provide value to the employee. Messaging employees during the year encourages them to go to the private exchange outside of open enrollment.
7) Decision support. While decision support helps personalize employee decisions, it is important for a private exchange to help people not just pick which medical or dental plan they’d like, but also voluntary benefits offered. If you ask most people how much life insurance they should have, not many can tell you. A tool that helps someone calculate, based on their circumstances, how much life insurance they may need so they can decide if they want to buy additional life insurance above what the company provides can be valuable to many employees.
8) Comparison shopping. How many consumer purchases today have us searching online for information telling us the best products at the best cost? More and more employees find value in this same approach for their benefits. Private exchanges providing employees with side by side comparisons in summary and in detail along with costs can bring value to the employee.
9) Employee experience. Many employers value a positive, friendly platform for the delivery of their employee benefit program. A private exchange brings modern technology to education and enrollment of benefits. How many employees within a company do you think watch YouTube? Whether we think this is an acceptable method of communication or not, it is a powerful, current method of communication. Using videos and other educational tools on the private exchange adds value for many employees.
10) The shopping experience. Allowing employees to shop for their benefits takes the insurance enrollment process to a very different level. It bridges the often disjointed, confusing process of benefit enrollment with our normal daily activities of how we approach buying goods and services. A private exchange allows employees to walk down the aisle of a virtual store of benefits.
A private exchange makes life easier for the employer and their employees by using technology, a modern approach, enhanced educational tools and resources to focus on the employee experience. Private exchanges are the present and the future of employee benefits.
See the original article Here.
Source:
Reid S. (2017 January 3). 10 ways to promote the value of private exchange [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/10-ways-to-promote-the-value-of-a-private-exchange
How financial wellness efforts can boost retirement readiness
Great article from our partner, United Benefit Advisors (UBA) by Joe DeSilva
The economy appears to be strengthening, yet American workers are increasingly worried about retirement. On the face of it, this seems counterintuitive.
But consider this: Unemployment hovers around 5%, the lowest it’s been since 2008, and wages have grown consistently since 2014. Yet, research by Brightwork Partners shows that over the past 12 months, 38% of workers have considered delaying retirement beyond the original age they intended. And 52% of respondents say they will delay retirement because they “need to save more.”
There are a few forces influencing this trend. One reason is simple demographics. People are living longer and, therefore, working longer. The average life expectancy currently is 78.8 years according to the CDC. The percentage of workers age 55 years and older is expected to be 24.8% in 2024, up from 11.3% in 1994, per the Bureau of Labor Statistics. And, according to Gallup, the average age at which U.S. workers predict they will retire is 66, up from 60 in 1995.
In addition, residual lessons from the recession are changing the state of retirement. Even if the United States is nearing full employment and wages are rising, post-recession lessons are having an effect on the way Americans are thinking about retirement, especially millennials. The Brightwork Partners study revealed that the number of employees between 18 and 34 who are considering delaying retirement has increased 15% from 2010. Employees between the ages of 35 and 49 concerned about their retirement increased 7%. Interestingly, this trend is spread across income levels as well. Forty percent of respondents earning $50,000 to $100,000 expect to delay retirement, while 37% earning less than $50,000 expect to delay, and 37% of those earning more than $100,000 expect to do so.
Even though financial worries are a main reason to push back retirement, according to the study, certain age groups have different specific financial concerns. Those under 50 say current financial obligations have them most concerned, while those over 50 are most concerned with retirement. The recession seems to have had an effect on each group, placing an undue burden on financial milestones they face in their respective life stages.
According to AICPA, 50% of U.S. adults say they delayed contributions to retirement accounts due to the burden of student loans, a 22% jump from 2013. Many younger workers were burdened with loans during the recovery and many others came to terms with reduced retirement savings. Those concerns will likely influence how people consider their savings moving forward.
So if employees are pushing off retirement, what effect does this have on benefits administrators and HR departments?
The current trends show an increased concern over financial preparedness, both for short- and long-term objectives. Employer-sponsored benefits, like 401(k) plans and financial wellness programs, can help ease financial stress for those preparing for their retirement years. Financial wellness programs that teach about budgeting, debt management and financial goal-setting are a good complement to 401(k) plans. These programs can show how saving for retirement can be possible even with other financial obligations taking priority. Employers also can use the current shift to re-assess which retirement savings plans make the most sense for their employees and their business. Whether the classic 401(k), Profit Sharing plan or SIMPLE IRA, there are different options that employers can utilize.
It’s a new age for benefits providers. Employees are increasingly concerned about retirement and they want to be proactive in saving for their futures. A recent ADP white paper notes that when employers put in place financial wellness programs, 73% of employers see increased retirement readiness. There’s an opportunity here to not only help employees save more for retirement, but to boost financial wellness and increase overall financial literacy. That win-win scenario certainly seems worth considering.
See the original article Here.
Source:
DeSilva J.(2016 December 1). How financial wellness efforts can boost retirement readiness[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/how-financial-wellness-efforts-can-boost-retirement-readiness?tag=00000151-16d0-def7-a1db-97f03c840000
4 Things Your Company Should Consider as New Overtime Rules are Put on Hold
Great article from SHRM by Sushma Tripathi
The U.S. Department of Labor (DOL) is fighting a court ruling that put new FLSA (Fair Labor Standards Act) overtime regulations on hold. Last month, a district court in Texas issued a nationwide preliminary injunction blocking the DOL’s final rule that sought to raise the required salary level to qualify for white collar exemptions.
Although the DOL now seeks to lift the injunction, the overtime changes that were scheduled to take effect December 1 remain on hold for the time being.
Several possibilities exist as to what will happen next. The DOL could file a motion to stay, or suspend, the injunction during the appeals process. If the court were to grant such a motion, this would cause the rule to take effect. If no motion to stay is filed, or if such a motion is denied, the injunction will stand during the appeals process.
To add a further layer of complication, the DOL filed a motion for an expedited appeal on December 2, which motion was granted on December 8, and the DOL’s opening brief will be due on December 16, 2016. Further, the states’ brief in support of the district court’s injunction will be due on January 17, 2017 and the DOL’s reply brief will be due on January 31, 2017. We will not have a decision on the expedited appeal until sometime in February 2017. While all this plays out, it’s natural to ask: What should businesses be doing?
Here a few things to consider:
- Rapidly assess what actions to take and what actions are possible. Many employers spent months preparing for the FLSA changes, identifying workers affected by the final regulations, and determining whether to increase their salaries to comply or reclassify them as non-exempt employees, and communicating those changes to their employees. If an employer already notified an employee of a salary increase effective December 1 or already made the change, it may be too difficult to reverse that change and communicate that the change won’t occur. You should confer with your counsel and consider whether it’s better to go ahead with your initial plans and stay the course, especially if your payroll team already processed the change.
- Start tracking time now. The court may side with the DOL and the proposed regulations could be reinstated retroactively to the original December 1 effective date. For that reason, employers that decide not to take action to comply with the new regulations while the litigation and appeal are pending should consider directing reclassified employees to track time. This will ensure that, in the event the final rule is later upheld and overtime becomes due retroactively, employers will have an accurate record of hours worked.
- Continue to evaluate the FLSA status of employees. While the rule is delayed, employers should continue to evaluate the FLSA status of their employees by reviewing job duties and descriptions to ensure that employees are properly classified. Whether or not the rule is upheld, employers remain subject to FLSA requirements that dictate proper job classification and payment methods. Take this opportunity to make sure employees’ duties match their job descriptions. Following the recession in 2008, in many workplaces, tasks were redistributed after layoffs and many employees took on additional duties that were never added to into their job descriptions. These employees may need to be reclassified under existing FLSA regulations.
- Be transparent in communicating changes. In deciding how to proceed, employers are strongly advised to consult with internal or external legal counsel and other experts to discuss options available before making and communicating decisions related to this latest development. Employee relations and financial implications should be considered. Employers should also keep in mind that applicable state laws may require advance notice of any changes in pay. State laws may also govern the overtime exempt status of employees. Remember to convey to employees that it’s the law that’s causing potential changes and not your company. Otherwise, morale can be impacted if employees feel they are being demoted by being reclassified.
While we have no crystal ball and cannot predict what a Trump administration will do, one can guess that it might direct the DOL to abandon the appeal, because President-elect Trump previously stated that he thought that small businesses should be exempt from the proposed increases in minimum salary for the white-collar exemptions. The Trump administration might prefer to take a more gradual approach to raising the minimum salary levels, instead of the almost 100 percent increase contemplated by the DOL’s rule, or may prefer no increase at all. So, our advice to employers is to take this time to make sure you’re in compliance with existing wage and hour laws and ensure you have employees classified properly. There’s no time like the present.
See the original article Here.
Source:
Tripathi S. (2016 December 14). 4 things your company should consider as new overtime rules are put on hold[Web blog post]. Retrieved from address https://blog.shrm.org/blog/4-things-your-company-should-consider-as-new-overtime-rules-are-put-on-hold
5 employee benefits trends for 2017
Interesting article about emerging trends in employee benefits for 2017 by Marlene Satter
As the old year ticks down toward a new year filled with a drastic change in Washington that will no doubt have plenty of ripple effects throughout the country, the employee benefits sector will also be in for plenty of changes.
Based on its 14th Annual U.S. Employee Benefit Trends Study and other industry indicators, MetLife has prognosticated five trends it believes will be key in 2017.
Employers might be surprised by some, and are probably already wrestling with others—but here’s what to watch for in the year to come.
5. Customization.
If there’s one thing that’s clear in benefits, it’s that everybody is not happy with the same cookie-cutter benefit package.
And as the job market improves and employers have to work harder to attract and retain top talent, one way to do that is to provide benefits that satisfy needs that might be a little out of the ordinary. Employers that can satisfy their employees’ diverse needs, the study found, “will emerge clear winners in the talent war.”
What’s more, employees are becoming more focused on specific benefits.
The study revealed that 28 percent of all generations agree that critical illness insurance is a must-have, but it doesn’t stop there—different generations want different things. For instance, about 14 percent of millennial employees consider pet insurance a must-have benefit.
And don’t forget about benefits communications. No rubber-stamp information wanted here—employees want communications about their benefits customized to them.
4. Enrollment.
Here’s an area where employees are not happy—so change will have to come if the situation is to improve.
The study found that only about a third of employees say that their company’s benefit communications are easy to understand—and that leads many to assume they don’t need many of the benefits they’re offered. That’s definitely not a good situation.
The good news: 71 percent of employers say that by working with an enrollment firm they were able to improve communication, including explaining and clarifying nonmedical benefits.
For employers to stay ahead of the curve, they’ll have to join the movement to better educate their employees on enrollment.
3. Financial stress.
The biggest single source of stress for employees is financial stress, which weighs not only on employees but on employers’ bottom lines as well. And that situation screams to be addressed.
While financial wellness programs help employees to better manage their personal finance situations, cutting stress as a result, employers so far haven’t jumped on the bandwagon.
In fact, some of the few who offered them have quit doing so, with just 31 percent of employers having provided financial wellness programs this year. That’s down from 39 percent last year, according to the study.
If employers wise up and provide help with financial wellness, employees will sleep better at night and work better during the day. And so will their employers.
2. Data security.
Whether it’s hackers or phishers, more threats to data security arise every day—not just for consumers but for companies and their employees.
Losses from hacked, hijacked or ransomed data can drive a company out of business, but employers also have to be as protective of their employees’ data as they are of their customers’.
One way to do that, the study pointed out, is to shore up the digital support chain by moving to a single benefits carrier; that can help to limit the exposure of employee data.
With the average cost of a large-scale data breach sitting at approximately $4 million, according to a study conducted by the Ponemon Institute, it’s a smart investment.
1. Legal services.
If you’re looking for a new lure to attract top talent, this could be your ticket. MetLife has characterized legal services as the “best-kept secret of benefits.” SHRM adds that it has doubled in popularity over the past 10 years.
At some point, the study pointed out, just about everyone is going to have to deal with a legal issue. Major life events, such as buying a home, getting married, having a baby or caring for an aging parent, all have important legal implications.
According to MetLife insights, “For about $20 a month, a legal plan can help,” adding that the benefit is of particular importance to millennials. Of adults that are offered a legal plan through work, a Harris poll found that nearly 70 percent of those aged 21–34 are enrolled.
See the original article Here.
Source:
Satter M. (2016 December 7). 5 employee benefits trends for 2017[Web blog post]. Retrieved from address https://www.benefitspro.com/2016/12/07/5-employee-benefits-trends-for-2017?page_all=1
SHRM Study: Health Care Remains Key Benefit for All Employee Groups
Check out this interesting article from Workforce about the most recent SHRM benefits study by Andie Burjek
See the original article Here.
Source:
Burjek A. (2016 December 1). SHRM study: health care remains key benefit for all employee groups[Web blog post]. Retrieved from address https://www.workforce.com/2016/12/01/shrm-study-health-care-remains-key-benefit-employee-groups/
The big trends that will reshape retirement in 2017
Great article from Employee Benefits Advisor, by Bruce Shutan
Seven isn’t just a lucky number for rolling the dice in Vegas; it’s also a solid measure of key trends in retirement planning to watch in the coming year. Here’s what a handful of industry observers believe should be on the proverbial radar for HR and benefit professionals.
Between compliance with fee-disclosure requirements and a growing number of class-action lawsuits on 401(k) plan fees, many plan sponsors have sought more fiduciary partners to help them implement defined contribution plans. The observation comes from Josh Cohen, managing director, defined contribution at Russell Investments. In light of this litigation, he warns that choosing the lowest possible price may not necessarily be the best value or choice for helping improve retirement readiness.
Trisha Brambley, CEO of Retirement Playbook, says it’s critical to vet the team of prospective advisers and the intellectual capital they offer. Her firm offers employers a trademarked service that’s akin to a request for information that simplifies and speeds the competitive bidding process.
While the incoming Trump administration could delay, materially modify or altogether repeal the Department of Labor’s final fiduciary rule, it cannot reverse a “new awareness around the harm that’s created by conflicted advisers and brokers,” cautions David Ramirez, a co-founder of ForUsAll who heads the startup’s investment management. He expects plan sponsors who are managing at least $2 million in their 401(k) to continue asking sophisticated questions about the fiduciary roles his firm and other service providers assume and how they’re compensated. Ramirez points to a marketplace that’s demanding greater transparency, accountability and alignment of goals and incentives irrespective of what the DOL may require.
One way to improve the nation’s retirement readiness is by “fixing all of the broken 401(k) plans with between $2 million and $20 million in assets” that are paying too much in fees, doing too much administrative work or taking on too much liability, according to Ramirez. “In 2014, nearly three out of four companies failed their 401(k) audit and faced fines,” he notes, adding that last year the DOL flagged about four of 10 audits for having material deficiencies with the number being as high as two-thirds in some segments.
While litigation over high fees and the DOL’s fiduciary rule may not have a significant impact on small and mid-market plans, they’re spotlighting the need to make more careful decisions that are in the best interest of plan participants. That’s the sense of Fred Barstein, founder and executive director of the Retirement Adviser University, which is offered in collaboration with the UCLA Anderson School of Management Executive Education. He predicts there will be less revenue sharing in the institutional funds arena and better vetting of recordkeepers, money managers and plan advisers in terms of their fees and level of experience.
Default-driven plan design
Noting that it’s been 10 years since passage of the Pension Protection Act, Cohen says default-driven plan design continues to have a major impact on retirement planning. The trend is fueled by qualified default investment alternative options that encourage appropriate investment of employee assets in vehicles that will maximize long-term savings. He predicts “further customization” of off-the-shelf target date funds at the individual level based on each participant’s own unique situation and experiences. Moreover, he sees more use of a robo-adviser type framework built around managed accounts, while participants with a complex financial picture will seek a more tailored solution that fits their needs.
Financial wellness
Financial wellness cuts across virtually any demographic, Cohen notes. The point is to help balance household budgets with retirement-saving goals, “whether it involves millennials dealing with student debt or middle-aged parents dealing with college tuition, a mortgage or credit card debt,” he explains. He sees the use of more creative ideas, tools and support, such as encouraging young employees to pay off student loans by making a matching contribution to their 401(k).
For employers, a key to reaching millennials on financial wellness is through text messages over all other means of communication, suggests Ramirez, whose firm is able to get 18- to 24-year-olds saving 6.7% on average and 25 to 29-year-olds 7.3%. As part of that strategy, he says it’s important to set realistic goals, such as new entrants into the workforce deferring 6% of their salary before increasing that amount with rising earnings. The idea is to establish a culture that turns millennials into super savers.
“We’re seeing employers help their employees with just setting a basic budget,” says Rob Austin, director of retirement research for Aon Hewitt. “It can also move into things like saving for other life stages.”
Aon Hewitt recently released a report on financial wellness showing that 28% of all workers have student loans. While researchers noted that roughly half of millennials were saddled with this debt, the margin was cut in half for Gen Xers (about 25%) workers and halved again for baby boomers (about 12.5%). The employer response has been somewhat tepid, according to Austin. For example, just 3% of companies help employees pay for student loans, about 5% help consolidate those loans and 15% offer a 529 plan.
Financial wellness is being expanded and embedded into retirement programs to serve a growing need for more holistic information, observes Brambley. “A lot of people don’t even know how to manage a credit card, let alone figure out how to scrape up a few extra bucks to put in their 401(k) plan,” she says.
401(k) plan fees
Ted Benna, a thought leader in the retirement planning community commonly referred to as the “father of 401(k),” found earlier in the year “a very high level of indifference” among plan sponsors about the prices they pay for recordkeeping, investment management services and related costs. He says this was the case even at companies with “pretty outrageously high fees,” which proved to be a big shock for him.
The discovery coincided with the start of his latest advisory venture, which was designed to help shepherd sponsors through the 401(k) fee minefield with objective information to determine that the fees they were paying were reasonable and, thus, in the best interest of participants. But Benna didn’t see much demand for the service he envisioned, so he’s now in the throes of writing his fifth book, whose working title is “Escaping the Coming Retirement Crisis Revisited.”
Litigation over high fees has at least raised awareness among plan sponsors about the need for reasonable prices, along with sound investment offerings, as regulators step up their scrutiny of fiduciary duties, Austin says. While not necessarily related, he has noticed that nearly as many employers are now charging their administrative fees as a flat dollar amount vs. those that historically charge a percentage of one’s account balance. “If you have a $100,000 balance, and I have a $1,000 balance, you and I have access to the same tools and same funds,” he reasons. “So why would you pay 100 times what I’m paying just because your balance is higher?”
Greater automation
With increasing automation on the horizon, Ramirez notes that 401(k) plans are moving into cloud-based technology that will streamline core business processes and avoid careless errors.
For instance, that means no longer having to manually sync the 401(k) with payroll when employees change their deferral rate or download the payroll report to a 401(k) plan recordkeeper. “That’s 1990s technology,” he quips. “Signing up for the 401(k) can be as easy as posting a picture on Instagram or sending a tweet.”
Apart from vastly reducing the administrative burden, he says it also allows makes it easier for plan participants to enroll, increase deferrals, receive better advice based on algorithmic formulas and improve communications. The upshot is that when all these pieces of the puzzle are in place, ForUsAll has found that participants in the plans it manages save on average 8% of their pay across all industries and demographics.
Barstein believes there’s still going to be a lot of movement toward auto-enrollment and escalation, as well as the use of professionally managed investments like target-date funds, which he predicts will become more customized. “We’re starting to see where participants in one plan can choose a conservative, aggressive, or moderate version of a target date,” he says of efforts to improve an employee’s financial wellness.
Streamlined investments
Brambley sees a movement toward investment menu consolidation. She remembers how it was customary for employers to offer three to four distinctively different investment funds in the early years of 401(k) plans, which later gave way to about 20 such offerings on average. The push is now to weed out any duplication of so-called graveyard funds because she says “there’s some fiduciary risk to continue to offer them when they no longer meet the criteria on their investment policy statement.”
Cohen agrees that plan sponsors continue to see the benefit of streamlining the menu of options for a more manageable load. As part of that movement, he sees the adoption of “white labeling” of investment options that replaces opaque, retail-branded fund names with accurate generic descriptions. For example, they would reflect asset classes (i.e., the Bond Fund or the Stock Fund). The thinking is that this approach will generate more meaningful or practical value for participants whose knowledge of basic financial principles is limited.
Confining the selection of investments to a handful of funds in distinctly different asset classes will invariably make the process much easier for participants, Brambley suggests. This enables plan sponsors to wield “more negotiating power” on pricing because they have funds collecting under various asset-class headings, she explains.
Recordkeeper consolidation
Recordkeeper consolidation is going to continue, according to Barstein, who sees organizations that lack technology, scale and the support of their parent company will not survive marketplace change.
The most noteworthy activity will involve big-name mergers as opposed to scores of recordkeepers leaving or merging, he believes.
“If I was a plan sponsor, I’d be concerned because nobody really wants to go through a conversion,” Barstein says. “I’m sure JP Morgan forced a lot of their clients to either consider changing when they went through the acquisition by Empower.”
See the original article Here.
Source:
Shutan B.(2016 December 7). The big trends that will reshape retirement in 2017[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/the-big-trends-that-will-reshape-retirement-in-2017
9 reasons why retirement may go extinct
Worried about your future retirement? Check out this great read by Marlene Satter
Retirement as we know it may be set to disappear, as younger people look for ways to finance surviving into old age.
But extinction? Surely not.
However, according to the Merrill Edge Report 2016, that might just be in the offing, as workers change how they plan and save for retirement and how they intend to pay for it.
Millennials in particular represent a shift in attitude that includes very unretirement-like plans, although GenXers too are struggling with ways to pay their way through their golden years.
That’s tough, considering that most Americans neither know nor correctly estimate how much money they might need to keep the wolf from the door during retirement—or even to retire at all.
Here’s a look at 9 reasons why retirement as we know it today might be a terminal case—unless things change drastically, and soon.
9. Ignorance.
Most Americans have no idea how much they might need to retire, which leaves them behind the eight ball when trying to figure out when or whether they can afford to do so.
Of course, it’s hardly surprising, considering how many are members of the “sandwich generation,” who find themselves caring for elderly parents while at the same time raising kids, or even trying to put those kids through college.
With soaring medical costs on one end and soaring student debt on the other, not to mention parents supporting adult children who have come home to roost, it’s hard to figure out how much they’ll need to meet all their obligations, much less try to save some of an already-stretched income to cover retirement savings as well.
8. Poor calculations.
We already know most workers don’t know how much they’ll need in retirement—but it’s not just a matter of ignorance. They don’t know how to figure it out, either.
More than half—56 percent—figure they’ll be able to get by during retirement on a million dollars or less, while 9 percent overall think up to $100,000 will see them through.
And 19 percent just flat-out say they don’t know how much they’ll need.
Considering that health care costs alone can cost them a quarter of a mil during retirement, the optimists who think they can get by on $100,000 or less and even those who figure $100,000–$500,000 will do the job are way too optimistic—particularly since saving for medical costs isn’t one of their top priorities.
7. Despair.
It’s pretty hard to get motivated about something if you think it’s not achievable—and that discourages a lot of people from saving for retirement.
Those who have a “magic number” that they think will see them through retirement aren’t all that optimistic about being able to achieve that level of savings, with 40 percent of nonretired workers saying that reaching their magic number by retirement will either be “difficult” or “virtually unattainable.”
6. Luck.
When you don’t believe you can do it on your own, what else is left? Sheer dumb luck, to quote Professor Minerva McGonagall at Hogwarts after Harry and Ron defeated the troll.
Only instead of magic wands, 17 percent of would-be retirees are sadly (and amazingly) counting on winning the lottery to get them to their goal.
5. The gig economy.
Retirement? What retirement? Millennials in particular think they’ll need side jobs in the gig economy to keep them from the cat food brigade.
In addition, exactly half of younger millennials aged 18–24 believe they need to take on a side job to reach their retirement goals, compared with only 25 percent of all respondents. They don’t believe that just one job will cut it any more.
4. Attitude adjustment.
While 83 percent of current retirees are not currently working or never have during their golden years, the majority (83 percent) of millennials plan to work in retirement—whether for income, to keep busy or to pursue a passion.
The rise of the “gig economy" has created an environment where temporary positions and short-term projects are more prevalent and employee benefits such as retirement plans are less certain. This may be why more millennials (15 percent) are likely to rank an employer’s retirement plan as the most important factor when taking a new job compared with GenXers (5 percent) and baby boomers (5 percent).
Older generations had unions to negotiate benefits for them. Millennials might realize they have to do it all themselves, but they aren’t negotiating for salaries high enough to allow them to save.
And union benefits or not, 64 percent of boomers, 79 percent of Gen Xers and even 17 percent of currently retired workers plan to work in retirement.
3. A failure to communicate.
Lack of communications is probably not surprising, since most people won’t talk about savings anyway.
Fifty-four percent of respondents say that the only person they feel comfortable discussing their current retirement savings with is their spouse or partner. Only 36 percent would discuss the subject with family, and only 22 percent would talk with friends about it.
And as for coworkers? Just 6 percent would talk about retirement savings with colleagues—although more communication on the topic no doubt could provide quite an education on both sides of the discussion.
2. Misplaced confidence.
They won’t talk about it, but they think they do better than others at saving for retirement. How might that be, when they don’t know what others are doing about retirement?
Forty-three percent of workers say they are better at saving than their friends, while 28 percent believe they’re doing better at it than coworkers; 27 percent think they’re doing better than their spouse or partner, 27 percent say they’re doing better than their parents and 24 percent say they’re beating out their siblings.
All without talking about it.
1. DIY.
They’re struggling to figure out how much they need, many won’t talk about retirement savings even with those closest to them and they’re anticipating working into retirement—but millennials in particular are taking a more hands-on approach to their investments.
Doing it oneself could actually be a good thing, since it could mean the 70 percent of millennials, 72 percent of GenXers and 57 percent of boomers who are taking the reins into their own hands better understand what they’re investing in and how they need to structure their portfolios.
However, doing it oneself without sufficient understanding—and millennials in particular are also most likely to describe their investment personality as “DIY,” with 32 percent making their own rules when it comes to investments, compared to 19 percent of all respondents—can be a problem.
After all, as the saying goes, “A little knowledge is a dangerous thing.”
See the original article Here.
Source:
Satter M. (2016 December 7). 9 reasons why retirement may go extinct[Web blog post]. Retrieved from address https://www.benefitspro.com/2016/12/07/9-reasons-why-retirement-may-go-extinct?ref=mostpopular&page_all=1