Viewpoint: How to Minimize the Risk of Retirement Plan Litigation

Many employers have paid millions to settle lawsuits brought to them based on their excessive fees in their retirement plans. It's the employer's responsibility to ensure that retirement plans are created for the most benefit for those who partake in it. Read this blog post to learn more.

What do Estee Lauder and Costco have in common? Both are defending themselves against lawsuits alleging mismanagement of 401(k) accounts, as retirement plan litigation under the Employee Retirement Income Security Act (ERISA) proliferates.

LinkedIn was added to the list in August, when a class-action lawsuit was filed alleging the firm mismanaged its 401(k) plan. And, on Sept. 18, a federal judge rejected a petition by AutoZone Inc. to dismiss allegations of ERISA violations filed by 401(k) plan participants.

In recent years, employers as different as Princeton University and WalMart have paid millions of dollars to settle lawsuits brought by employees alleging excessive fees in their retirement plans.

At the heart of many of these cases are allegations that employers' retirement plan oversight committees tolerated high fees and poor investment performance. Retirement plan committee members are fiduciaries who, under ERISA, are responsible for ensuring that the plan operates in the best interest of its participants.

Attracting Lawsuits

Companies settling ERISA lawsuits are typically accused of failing to pay adequate attention to the retirement plan, such as by failing to remove or replace poor or overly expensive investment choices and allowing vendors to charge above-market fees. The old adage that an ounce of prevention is worth a pound of cure is relevant here.

Law firms are combing through ERISA plan annual filings to identify worthwhile 401(k) targets, looking for expensive or poorly performing investments and high recordkeeping costs. ERISA complaints now include tables and charts comparing a targeted plan's investment performance and expenses with average or best-available practices, to persuade courts that a trial is in order.

Law firms comb through ERISA plan filings to identify worthwhile targets.

Adopting Best Practices

Plan sponsors can't completely eliminate the risk that they will be sued by current or former plan participants, but companies can minimize the risk by adopting best practices—such as those listed below—for making plan investment and management decisions.


The committee should include interested employees, including representatives of HR, finance, legal and rank-and-file employees. A well-functioning committee has a range of talents and perspectives to help it make effective decisions.

The committee should operate under a written charter, setting out the responsibilities of the committee and its procedural rules for appointing members, holding meetings, voting, and hiring advisors and experts as needed, for example. The charter need not be overly rigid or specific but should be drafted to reflect how the committee will operate.


ERISA is complicated, and committee decisions have direct impacts on employees' retirement income. Committee members must act solely in the interest of plan participants and make decisions as a "prudent expert." Ask vendors to have their top technical experts conduct training, and ensure that the training is tailored to plans of your size.


While having an investment policy statement (IPS) is not generally a requirement for 401(k) plans, it is an important document as it may help show that the committee acted prudently and in the plan's best interests in evaluating investments. The IPS should include specific language describing the process by which investments are selected, monitored and replaced when necessary.

It is not advisable to list the plan's current investments within the IPS, as this list may change over time and the IPS may not always be consistent with the website your participants visit to manage their accounts.


Sponsors of 401(k) plans have spent millions of dollars settling allegations that they had overly expensive funds, in many cases retail-share classes rather than institutionally priced investments.

The expense ratios that 401(k) plan participants incur for investing in mutual funds have declined substantially since 2000, reports the Investment Company Institute, a trade association for financial services firms. In 2000, 401(k) plan participants incurred an average expense ratio of 77 basis points (0.77 percent) for investing in equity mutual funds. By 2019, that figure had fallen to 39 basis points (0.39 percent), which is a 49 percent decline.

For plan sponsors of all sizes, it is imperative to document efforts to maintain the lowest possible investment expenses.


How do your plan's funds compare to similar offerings? There is no shortage of high-performing, low-expense funds to choose from in each investment category. While the retirement committee can't forecast future investment performance, it can determine prudent funds based on their track record.

If investment evaluation isn't your forte, get expert help from an investment adviser that accepts fiduciary responsibility for investment recommendations.


If the menu needs to be revamped, just do it. The small inconvenience of explaining to employees why changes are being made is better than responding to document requests arising from litigation for failing to let go of underperforming funds.


Many mutual funds share a small portion of their expense ratio fees with plan administrative firms, which may reduce the costs that plan sponsors pay administrative firms for services such as recordkeeping of participants' investments, providing statements and distributing literature. Fund share classes with no revenue-sharing, however, have lower expense ratios and slightly better investment performance.

If revenue-sharing is in place for any fund being offered through the plan, audit it periodically—at least annually—and ensure that it is reducing plan expenses that might otherwise be paid by participants.


All plans should grill their recordkeepers and other vendors on whether they charge the very lowest administrative fees available. When plan sponsors don't pay administrative fees themselves, a best practice is to charge participants a flat recordkeeping fee (perhaps subsidizing small balances) rather than using revenue-sharing funds to pay the recordkeeper a fee based on the percentage of assets in plan accounts.

If plan sponsors engage an investment adviser, it's also preferable to pay them a flat-dollar fee rather than a fee that fluctuates based on plan assets. Advisers should not be thinking about how recommended changes in a fund lineup will affect their pay.

In all circumstances, evaluating fees on a flat-dollar amount or dollars per participant will provide useful comparisons to fees based on a percentage of assets under management in the plan.


Recordkeepers and other vendors negotiate best when they perceive that they may lose you as a customer. As a fiduciary, you and your team need to play hardball at times. Don't worry about hurting the feelings of the vendor's personnel—you're the fiduciary with potential liability, they're not. Benchmark your administrative fees and consider issuing a request for proposal (RFP) for administrative services every few years.

Even though plans may not have changed much, vendors have, and they should be able to lower costs or provide additional services.


Maintaining good records is a must but understand that any and all plan-related documents can wind up in the hands of class-action attorneys. Meeting minutes and e-mails should be carefully written and demonstrate a prudent process, to avoid casting the plan or committee in a bad light.


Vendor contracts should be negotiated, not rubber-stamped. Keep track of promises made in RFP responses and finalist presentations. A vendor's oral promises should be documented within their service agreement. Insist on performance guarantees so your plan will be compensated for any service lapses.


Fiduciaries should not sign away their option to use federal courts to resolve conflicts with vendors. Plan sponsors can always choose to arbitrate a dispute, as vendors prefer this. Just don't sign any contracts agreeing to compulsory arbitration of any and all disputes.


Ensure that hackers don't steal your employees' account balances. Ask recordkeepers about their security practices, experiences in defeating hackers, and resources committed to maintaining strong cybersecurity.

Obtain a written commitment in the service agreement that the vendor will reimburse participants who followed account security guidelines and, through no fault of their own, had their accounts depleted.

Summing Up

There are several things a company can do to protect against 401(k) litigation. Have the retirement plan run by a committee of dedicated, knowledgeable employees. Hire independent expert advisers to help with investments, vendor oversight and training. Make sure that all fees are competitive, using benchmarking and RFPs as needed. Use an objective fund scoring methodology and replace underperforming investments. Document decisions and pay attention to process.

SOURCE: Scott, P. (22 September 2020) "Viewpoint: How to Minimize the Risk of Retirement Plan Litigation" (Web Blog Post). Retrieved from

Saver's Credit Can Spur Retirement Plan Contributions

Many employees are not aware of employer-sponsored retirement accounts, or individual retirement accounts (IRA), which could be costing those more money. Tax season is the best time for employers to educate their employees on how they can earn extra tax credits through their 401(k) plans. Read this blog post to learn more about how to educate employees on what retirement account opportunities that are available to them.

Many workers don't know that they're eligible for a tax credit by saving in an employer-sponsored retirement plan or individual retirement account (IRA)—and that could be costing them money. Tax time, however, is prime time for employers to inform eligible workers about the saver's credit.

The Retirement Savings Contributions Credit, or saver's credit, is available to low- and moderate-income workers who are putting money aside for retirement. But only 29 percent of workers with annual household income below $50,000 know about the saver's credit, according to the nonprofit Transamerica Center for Retirement Studies in Los Angeles, which surveyed nearly 6,000 employees last fall.

"Tax season is an ideal time to tell eligible workers how they can earn extra tax credits by saving through their employer's 401(k) or a similar retirement plan," said Catherine Collinson, president of the Transamerica Center. "The saver's credit might just be the motivator for those not yet saving for retirement to get started."

Scott Spann, a senior financial planner with Financial Finesse, a provider of workplace financial wellness programs in Charleston, S.C., said, "Saving for retirement is a challenge for many households in America. Special tax incentives help make the process of saving easier."

What Is the Saver's Credit?

Like other tax credits, the saver's credit can increase a taxpayer's refund or reduce the tax owed. Here's how it works:

The amount of the credit is a maximum of 50 percent of an employee's retirement plan contributions up to $2,000 (or $4,000 for married couples filing jointly), depending on the filer's adjusted gross income as reported on Form 1040. Consequently, the maximum saver's credit is $1,000 (or $2,000 for married couples filing jointly).

The saver's credit "is different than a tax deduction due to the fact that a tax credit is a dollar-for-dollar reduction of your gross tax liability, which is the total amount of taxes you're responsible for paying before any credits are applied," Spann explained.

The saver's credit also differs from the separate tax benefit of contributing pretax dollars to a qualified retirement plan, such as an employer-sponsored 401(k) or an IRA. "Many eligible retirement savers may be confusing these two incentives because the notion of a double tax benefit"—pretax contributions and an additional tax credit—"seems too good to be true," Collinson said.

Who Can Claim the Saver's Credit?

The credit is available to workers age 18 or older who have contributed to a company-sponsored retirement plan or an IRA in the past year and meet the income requirements shown in the table below. The filer cannot be a full-time student nor claimed as a dependent on another person's tax return.

Income Caps for Tax Years 2019 and 2020

For eligible workers, the amount of the available tax credit diminishes as adjusted gross income (AGI) rises. To help preserve the credit's value, income thresholds are adjusted annually to keep pace with inflation. Below are the AGI caps for tax year 2019 (for tax returns filed this year) and 2020 (for returns filed next year).

2019 Saver's Credit
Tax Credit Rate Single Filers and Married, Filing Separately* Married, Filing Jointly Heads of Household
50% of contribution AGI not more than - $19,250 AGI not more than $38,500 AGI not more than $28,875
20% of contribution AGI of $19,251 - $20,750 AGI of $38,501 - $41,500 AGI of $28,876 - $31,125
10% of contribution AGI of $20,751- $32,000 AGI of $41,501 - $64,000 AGI of $31,126 - $48,000
No credit AGI more than $32,000 AGI more than $64,000 AGI more than $48,000


2020 Saver's Credit
Tax Credit Rate Single Filers and Married, Filing Separately* Married, Filing Jointly Heads of Household
50% of contribution AGI not more than $19,500 AGI not more than $39,000 AGI not more than $29,250
20% of contribution AGI of $19,501 - $21,250 AGI of $39,001 - $42,500 AGI of $29,251 - $31,875
10% of contribution AGI of $21,251 - $32,500 AGI of $42,501 - $65,000 AGI of $31,876 - $48,750
No credit AGI more than $32,500 AGI more than $65,000 AGI more than $48,750

Deadlines for Retirement Contributions

"You must make eligible contributions to your employer-sponsored retirement plan or IRA for the tax year for which you are claiming the income tax credit," Spann said.

While 401(k) contributions for a tax year can be made only up to Dec. 31, those who are eligible but did not save last year can still make a tax year 2019 IRA contribution until April 15, 2020.

Filing for the Saver's Credit

Employers can advise eligible workers to take the following steps to claim the saver's credit, according to the Transamerica Center:

  • If using tax-preparation software, including those programs offered through the IRS Free File program, use Form 1040 or Form 1040NR for nonresident aliens. Answer questions about the saver's credit, which may be referred to as the Retirement Savings Contributions Credit or the Credit for Qualified Retirement Savings Contributions.
  • If preparing tax returns manually, complete Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your exact credit rate and amount. Then transfer the amount to the designated line on Form 1040 (Schedule 3) or Form 1040NR.
  • If using a professional tax preparer, ask about the saver's credit.

Financial planners advise having tax refunds directly deposited into an IRA to further boost your retirement savings.

The Transamerica Center has additional information, in English and Spanish, on its Saver's Credit webpage, along with a downloadable fact sheet.

IRS Free File Program Is Available

Another potentially overlooked opportunity for workers is the IRS Free File program, which offers federal income tax preparation software at no charge to tax filers with an AGI of $69,000 or less.

Free File opened on Jan. 10, 2020, for the preparation of 2019 tax returns. Eligible taxpayers can do their taxes now, and the Free File provider will submit the return once the IRS officially opens the tax filing season on Jan. 27.

For 2020, the Free File partners are: 1040Now, Inc., (English and Spanish),, Free tax, H&R Block, Intuit, On-Line Taxes, Inc., Tax ACT, TaxHawk, Inc. and TaxSlayer (English and Spanish).

Here's how Free File works:

  1. Taxpayers go to to see all Free File options.
  2. They browse each of the offers or use a "look up" tool to help find the right product. Each Free File partner sets its own eligibility standards generally based on income, age and state residency. But if the taxpayer's adjusted gross income was $69,000 or less, they will find at least one free product to use.
  3. They select a provider and follow the links to their web page to begin a tax return.
  4. They complete and e-File a tax return if they have all the income and deduction records they need. The fastest way to get a refund is by filing electronically and selecting direct deposit. For taxes owed, they can use direct pay or electronic options.

Many Free File online products also offer free state tax preparation, although some charge a state fee. Taxpayers should read each provider's information carefully.

"The IRS has worked to improve the program for this year, and we encourage taxpayers to visit, and consider using the Free File option to get a head start on tax season," said IRS Commissioner Chuck Rettig.

Nearly 57 million returns have been filed through the Free File program since it began in 2003, and 70 percent of U.S. taxpayers (about 100 million people) are eligible for Free File, according to the IRS.

SOURCE: Miller, S. (10 January 2020) "Saver's Credit Can Spur Retirement Plan Contributions" (Web Blog Post). Retrieved from

IRA spousal contributions can mitigate the high cost of women’s work breaks in retirement plans

According to a November 2018 study, women who took a year off from work in a 15-year period had 39 percent lower average annual earnings than women who worked continuously through that time. Read this blog post for more on how spousal contributions can mitigate the high cost of work breaks in retirement plans.

Women employees face special retirement savings challenges compared with their male counterparts. On average, they earn less and log fewer years of earned income compared to men. That’s because, in part, because women take multiple breaks from work, turn down work or decline promotions because of family care obligations.

The cost of a career break can be high. A November 2018 study by the Washington-based Institute for Women’s Policy Research found that women who took just one year off from work in a 15-year period had 39% lower average annual earnings than women who worked continuously through that time. The study also showed that the number of women taking at least one year off of work during a 15-year period was nearly twice the rate of men — 43% of women compared to 23% of men.

As a result, women are less likely to set aside money in a savings arrangement or to contribute to an employer-sponsored retirement plan.

Spousal advantage

Married women (and men) who take work breaks may stay on track with their retirement savings goals by making IRA (traditional or Roth) contributions based on their working spouse’s income — if they meet these requirements.

  • The couple must file a joint federal income tax return
  • The working spouse must have enough earned income to make any IRA contributions on behalf of the nonworking spouse, or, if both spouses are contributing, enough income to support both spouses’ contributions
  • Assuming enough earned income, each spouse can contribute up to $6,000 (plus $1,000 if turning age 50) for 2019. This limit applies to traditional and Roth IRA contributions combined
  • The spouse receiving a traditional IRA contribution must be under age 70 ½ for the entire year
  • To be eligible for Roth IRA contributions, the couple must also satisfy income requirements.

Roth IRA income restrictions

The amount that an individual is eligible to contribute to a Roth IRA depends on the amount of the couple’s modified adjusted gross income (MAGI). If the couple’s joint MAGI for a tax year is less than the IRS phase-out range, each spouse can make the maximum Roth IRA contribution allowed for that tax year (assuming enough MAGI to support both spouse’s contributions). If it’s above the phase-out range, neither spouse is eligible to contribute to a Roth IRA. Keep in mind that they could still contribute to a traditional IRA, if under age 70 ½. If the couple’s joint MAGI falls within the phase-out range, their maximum contribution amount is reduced. The MAGI phase-out range is subject to cost-of-living adjustments each year.

Traditional IRA income tax deductions

Note that separate MAGI phase-out ranges apply to traditional IRA contribution deductions — another way for non-working married individuals to potentially benefit when saving for retirement with an IRA. The ability to take a federal income tax deduction for a traditional IRA contribution — if eligible — appeals to many savers. But deduction eligibility depends on whether either spouse is an “active participant” in an employer-sponsored retirement plan. An active participant is generally making or receiving contributions to her retirement plan accounts for the applicable year. Because active participants have access to a workplace retirement plan, the IRS uses its MAGI to determine whether each spouse can take a full deduction, a partial deduction or no deduction at all.

No minimum required

Regardless of which IRA a couple chooses to, the main thing is to contribute — even if it’s a small amount. There is no minimum amount that must be contributed to either type of IRA. Couples can contribute whatever they’re comfortable with, up to the previously described limit. For those concerned about not having enough to set aside in an IRA during a career break, contributing even just $500 or $1,000 for the year will still make a difference.

It certainly beats not saving at all.

SOURCE: Van Zomeren, B. (9 December 2019) "IRA spousal contributions can mitigate the high cost of women’s work breaks in retirement plans" (Web Blog Post). Retrieved from

Is it time for a checkup for your client's 401(k) plan?

Originally posted September 19, 2014 by Keith R. McMurdy on

As we approach the end of the plan year for most plans, now is a good time for plan administrators and plan sponsors to give their 401(k) plans a quick once over to see if everything is properly in place. The IRS even provides a 401(k) plan checklist with some suggested corrective mechanisms that can be taken to bring plans into compliance.

A good starting place for a compliance tune up is to see if you can answer some basic questions about your plan:

  1.         Who are the trustees?
  2.         Who is the plan administrator?
  3.         Who are the outside service providers and how often are they contacted?
  4.         What are the plan’s eligibility rules and who is responsible for verifying them?
  5.         How are participants notified of eligibility?
  6.         How is plan documentation distributed?
  7.         Where are the plan records kept?
  8.         Who is responsible for preparing and filing the form 5500?

After you get past these, some basic questions about plan administration come into play:

  1.            Who keeps track of contributions and limits?
  2.            How does the plan define “compensation”?
  3.            What is the vesting schedule?
  4.            Are there required contributions from the employer?
  5.            Who is responsible for the discrimination testing?
  6.            Does the plan permit loans and how are they tracked?
  7.            Who is responsible for reporting to participants?
  8.            How are distributions made and who is the contact person?

The reason I bring this topic up is that I was recently working with a client who had one person who was solely responsible for benefit administration. Unfortunately that person passed away suddenly and no other person in the organization could answer any questions about the 401(k) plan. Although it seems like the above information is simple to collect, the company still spent hours and hours recreating the plan history because they neglected to keep a record of how the answers to these questions had changed over the years.

Think of your 401(k) plan as a well maintained car. It needs a check up on a regular basis to keep running smoothly. You have to keep records of what was done and you have to know where the important information is if you need it. Just like your car, you hope your 401(k) plan never breaks down. But in anticipation of a future problem, it is worthwhile to stop and make a record of the responsibility for plan administration and the current status of the plan. That way it will be easier to make repairs if they ever become needed.

5 tips to make retirement education meaningful

Originally posted on

Through the use of education and communication, employers and benefit advisers can have a huge impact on their employees’ retirement readiness. Making that education meaningful, however, is key to employee engagement and understanding. Here are five tips from Grinkmeyer Leonard Financial and investment advisers with Commonwealth Financial Network on how to make retirement education meaningful.

1. Paint a picture of their "future self"

Employees who can envision their future selves are more likely to understand their financial needs during retirement. The advisers with Commonwealth Financial Network suggest one strategy for embracing your future self is to have employees envision not only their financial retirement goals, but also lifestyle retirement goals. By forcing today’s self to recognize how he or she will look in the future, employees are more likely to save for that future, they say.

2. Help them plan for an achievable number

For too long the financial services industry has focused on the daunting pot of money people should accumulate in order to retire, the advisers say, adding that breaking the number down to monthly saving increments is less scary and seems more achievable to employees.

3. Account for health care

A 2013 study conducted by Fidelity's Benefits Consulting Group estimated that out-of-pocket health care costs for a 65-year-old couple with no employer-provided retiree health care will be $220,000, assuming a life expectancy of 17 years for the man and 20 years for the woman. As part of a comprehensive financial education plan, the Commonwealth Financial Network advisers say it is imperative that medical and insurance costs be incorporated into the retirement planning discussion.

4. Start 'em young

The power of compounding interest is evident in retirement plan balances, the advisers say, adding that evidence has shown the benefits of starting to save at a young age. Interest adds up over time, so even starting to save at 30 instead of 40 can save exponentially more money.

5. Keep the message relatable

Paramount to the success of any education strategy is using simple terms and relatable examples to illustrate potentially complex issues, the advisers say. For example, telling a group of participants that inflation will erode the buying power of their dollar over the entirety of their retirement may be lost in translation, they say. But telling that same group of participants that the $5 sandwich they enjoy today will cost $22.93 in 30 years will likely keep their eyes from glazing over.

Follow this Record Retention Checklist

Originally posted April 23, 2014 by Paula Aven Gladych on

Qualified retirement plans are required to report and disclose certain obligations as part of the Employee Retirement Income Security Act of 1974, but what isn’t well known is that ERISA also spells out how long a plan sponsor must retain plan documents and records that support those obligations, according to Kravitz.

Kravitz, which represents Kravitz, Inc. and Kravitz Investment Services, Inc., points out that all records that support the plan’s annual reporting and disclosure requirements should be retained. All plan-related materials and records must be kept for at least six years after the date of filing an ERISA-related return or report. Records should be preserved in a manner and format that permits ready retrieval, the company said.

It is the plan administrator’s responsibility to retain these records, even if they’ve contracted with an outside service provider to produce their Form 5500 filing, Kravitz said.

The Department of Labor also requires employers to retain records that show how much benefits have been accrued by each plan participant. Here’s it’s list:

1.     Plan documents: ERISA requires that plan administrators retain the original signed and dated plan document and all original signed and dated plan amendments; a copy of the plan’s most recent IRS approval letter; and copies of Form 5500. Plan documents should be retained until the plan is terminated, Kravitz said.

2.     Supporting documents: Reports that support the plan documents also should be kept, according to Kravitz, including financial reports, Trustees’ reports, journals, ledgers, certified audits, investment analyses, balance sheets, income and expense statements, corporate/partnership income-tax returns, documentation supporting the trust’s ownership of the plan’s assets, evidence of the plan’s fidelity bond, and copies of nondiscrimination and coverage test results.

3.     Census and other data: Payroll records that determine participant eligibility and contributions should be retained, according to Kravitz. Records that establish hours of service data also must be kept to demonstrate the determination of allocations and vesting.

4.     Communications: Employers should keep copies of all communications that are provided to participants and beneficiaries

5.     Participation forms and tax reporting: Companies need to keep documents that show they have followed plan documents with participant transactions, for plan audit purposes.

6.     Duration of storage: Records should be kept for at least six years after a government filing. Kravitz recommends that employers keep these records for the life of their retirement plan. The DOL does allow electronic copies of these documents as long as they meet certain specifications.


Target Date Fund Investors More Confident About Reaching Retirement Goals

Originally posted April 15, 2014 on

Individuals investing in a target date fund within their workplace defined contribution (DC) retirement plan feel more confident about investing and meeting their retirement goals than those that don't use target date funds, according to recently updated survey results from Voya Financial's Investment Management business.

The survey was conducted by ING U.S. Investment Management, which plans to rebrand as Voya Investment Management in May 2014. ING U.S. Investment Management is part of Voya Financial, Inc., which recently rebranded from ING U.S., Inc.

In the survey, "Participant Preferences in Target Date Funds: An Update," more than half (56%) of target date fund (TDF) investors felt confident they would meet their retirement goals. In comparison, just over four-in-ten (41%) of non-TDF investors felt confident about their retirement savings. Further reinforcing this confidence among TDF investors is the survey's finding that nearly two-thirds (64%) felt they could turn their plan savings into an income stream at retirement, compared with just 43% of non-TDF investors. These findings compare similarly to results of a similar study conducted in 2011.

Overall, more than two-thirds (68%) of plan participants using TDFs reported that the investments alleviated the stress of retirement planning, increased their confidence that they were making good investment decisions, and helped them feel more assured they could meet their retirement income goals.

Target Date Fund Investors Contribute More

The survey also found that TDF investors contribute more to their retirement plans. Forty-two percent of TDF investors contribute more than 11% of their income to their workplace plan. In comparison, just 23% of those who do not invest in TDFs were contributing more than 11% of their income.

"These findings about how target date funds are influencing plan participants' feelings and savings habits provide some powerful insights that both consultants and plan sponsors can act upon," said Bas NieuweWeme, managing director and head of institutional distribution. "Considering the significant increase in the equity markets in 2013, it is noteworthy that the confidence of those that don't invest in target date funds is no stronger than it was in 2011. On the contrary, those that invest in target date funds continue to be more confident than non-target date fund investors, or demonstrating greater levels of retirement readiness."

Plan Participants Seek Glide Paths Offering Protection and Diversification

In addition to higher confidence and savings levels among TDF investors, the survey found that the vast majority of both TDF investors and non-TDF investors have a strong preference for protection against loss in the years leading up to retirement (92%) and broad diversification among both investments (92%) and investment providers (85%).

"Participants clearly want their investment providers to exhibit great care in the all-important years leading up to retirement," said Paul Zemsky, chief investment officer of multi-asset strategies and solutions. "This knowledge can help consultants and plan sponsors factor in the investment preferences of their participants when customizing glide paths for their plan demographics. Our focus and objective as investment managers is to ensure we apply those risk-return preferences in a thoughtful and disciplined way."

In addition to the updated research on plan participants use of TDFs, ING U.S. Investment Management has published"Rethinking Glide Path Design - A Holistic Approach,"a detailed analysis of how to align investment portfolio risk with the retirement objectives of participants at every stage in the plan life cycle. Understanding participant demographics and knowing their preferences allows us to create custom glide paths which are designed specifically for individual plans.

"A glide path design needs to take into account the risks of the investment portfolio relative to the overall retirement goals of plan participants over the course of a full life cycle," says Frank Van Etten, deputy chief investment officer, multi-asset strategies and solutions. "This helps maximize the probability of successful retirement - namely, allowing participants to maintain their lifestyles in retirement while not outliving their assets. To accomplish this, the investment decision at every stage of the life cycle must incorporate a holistic perspective in which in-retirement objectives are driving the process."

Survey Methodology

ING U.S. Investment Management, in collaboration with the ING Retirement Research Institute, conducted an online survey of 1,017 employer-sponsored retirement plan participants between September 16, 2013 and September 20, 2013. At 90% confidence, the margin of error in the study was +/- 3.5%. Of the respondents, 500 invested in a TDF within their plan, while 517 did not. All respondents to the survey were currently contributing to an employer-sponsored defined contribution plan, were age 25 or older, and were the primary/joint financial decision maker for their account. The survey included plans of all employer sizes. The data was weighted by household income, age and gender, among other variables, to more closely represent the demographics of the general retirement plan population. To prevent bias, ING U.S. Investment Management was not identified as the sponsor of the research.

There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time, including the target date. The "target date" is the approximate date when you plan to start withdrawing your money. When your target date is reached, you may have more or less than the original amount invested. For each target date Portfolio, until the day prior to its Target Date, the Portfolio will seek to provide total returns consistent with an asset allocation targeted for an investor who is retiring in approximately each Portfolio's designation Target Year. Prior to choosing a Target Date Portfolio, investors are strongly encouraged to review and understand the Portfolio's objectives and its composition of stocks and bonds, and how the asset allocation will change over time as the target date nears. No two investors are alike and one should not assume that just because they intend to retire in the year corresponding to the Target Date that that specific Portfolio is appropriate and suitable to their risk tolerance. It is recommended that an investor consider carefully the possibility of capital loss in each of the target date Portfolios, the likelihood and magnitude of which will be dependent upon the Portfolio's asset allocation.

Stocks are more volatile than bonds, and portfolios with a higher concentration of stocks are more likely to experience greater fluctuations in value than portfolios with a higher concentration in bonds. Foreign stocks and small and mid-cap stocks may be more volatile than large-cap stocks. Investing in bonds also entails credit risk and interest rate risk. Generally, investors with longer timeframes can consider assuming more risk in their investment portfolio.





Financial fears have many workers planning to delay retirement

Originally posted by Melissa A. Winn on

Although U.S. workers on a whole are more satisfied with their current financial situation than in years past, most (58%) remain concerned about financial stability in retirement and say they plan to continue working until age 70 or later, a new Towers Watson survey shows.

With many workers expecting to fall short on their retirement savings, nearly four in 10 plan on working longer, an increase of 9% since 2009. A large majority of these employees expect to delay retirement by three or more years and 44% plan on a delay of five years or more, the Global Benefit Attitudes Survey finds.

In 2009, 31% of workers planned on retiring before 65, and 41% planned on retiring after 65. According to the 2013 survey, only 25% plan on retiring before 65 and half expect to retire after 65. One in three employees either does not expect to retire until after 70 or doesn’t plan to retire at all.

The nationwide survey of 5,070 full-time employees found that nearly half of respondents (46%) are satisfied with their current finances, a sharp increase from 26% in 2009. Still, nearly six in 10 remain worried about their financial future.

Employees’ confidence in their ability to retire has also climbed steadily since the financial crisis, with nearly a quarter (23%) very confident of their income sufficiency for the first 15 years of retirement. However, only 8% are very confident they’ll have adequate income 25 years into retirement.

“Employees might be on firmer financial footing now than they were five years ago, but many remain nervous about their finances and prospects for a secure retirement,” says Shane Bartling, senior consultant at Towers Watson. “This is especially true for older workers who are likely better positioned to assess their retirement income than workers overall. The financial crisis hit workers age 50 and above particularly hard, with the stock market fall creating a huge dent in their retirement savings and their confidence levels.”

The survey also finds that employees of all ages are especially worried about health care costs and public programs. Only two in five employees believe they can afford any medical expenses that arise in the next 12 months and more than half of all employees (53%) are concerned they will not be able to afford health care in retirement. Most employees (83%) also believe Social Security will be less valuable in the future and 88% have similar fears about Medicare.

More than half of employees (56%) say they are spending less and postponing big purchases as a way to pay down debt and start saving for retirement, the study says. Just over half (51%) of employees say they review their retirement plans frequently.

Saving for retirement is cited as the No. 1 financial priority for all employees age 40 and older, the study notes.

“Employers and employees are both facing increasing retirement pressures. Employers understand that they have a role to play in helping their workers plan and save for a secure retirement. Today’s employees are considerably more engaged, and are looking to their employers for more information about health care costs and the value of their retirement programs,” says Bartling. The increased use of tools, including mobile apps, also represents an opportunity “for employers to help their employees plan for a successful retirement.”


6 solutions to the retirement crisis

Originally posted by Paula Aven Gladych on

Chad Parks, president and CEO of The Online 401(k), wants to find a solution to the retirement crisis in America. He and some colleagues drove cross-country last year interviewing people from all walks of life about their retirement savings and their ability to retire. They put their findings into a film called, “The Looming Retirement Crisis in America.”

After doing his research, Parks believes there are six major obstacles to retirement in America, but the good news is that there are also solutions.

(By the way, if his solutions seem a bit obvious to you, it’s because you’re in the business and have been paying attention. And if that’s the case, Parks’ list could only help you make your case with prospects).


According to Parks, people need to save at work but to do that, they need an employer that offers a retirement plan. More than 40 million workers cannot save at work because they don’t have access to any sort of plan.

The solution? Mandated retirement savings plans, like auto IRAs, USA Retirement Accounts, 401(k)s and others.


Getting people to actually save money can be difficult. Some individuals won’t save for retirement even if they have access to a work-based plan.

The solution? Automatic enrollment. Features like this, added to an existing 401(k), have been shown to improve participation rates because the number of people who opt out of plans after being automatically enrolled is very small.

Saving enough

Many people don’t save enough for retirement and, even if they do save, they never increase the amount they save over their lifetime. A lot of workers save 3 percent their entire working lives, which isn’t enough to provide lifetime income in retirement.

The solution? Automatic escalation. Plans that offer this feature have had great success in building employee account balances. Every year, automatically, these plans increase employees’ deferrals into their retirement savings plan by at least 1 percent. The goal is to have everyone save between 10 and 15 percent of their pay in retirement savings over time.

Investing appropriately

Workers need to invest their money appropriately for their age, their ability to take on risk and with  current market conditions in mind, according to Parks.

The solution? Cost-effective professional advice. Studies have shown that workers who confer with a financial professional save and invest more appropriately for their own situation than those who don’t work with an advisor.


Accumulation of money is not the only goal, according to Parks. It also is important to adjust a person’s savings as their life changes.

The solution? Regular annual checkups. Plan participants should revisit their accounts at least once a year to make sure they are in the right investments and not taking on more risk than they can handle.

Retirement/decumulation/lifetime income

Many investors continue to invest in riskier options well into the years when they should be scaling back on the risk and preserving their savings. They also don’t know how to prudently “decumulate” their money and haven’t explored lifetime income options.

The solution? According to industry experts, many retirement plans don’t advise individuals to annuitize even if it would be in their best interest to do so. Instead, they handle longevity risk by setting a higher age for the end of the planning period. Seeking advice about annuitization can help individuals decide whether purchasing an annuity for guaranteed lifetime income is a good option for them.


Hottest Retirement Plan Improvement in 2013?


By Robert C. Lawton

Many employer plan sponsors are expressing a high level of interest in adding Roth 401(k) in-plan conversions as an option to their 401(k) plans in 2013. The recently passed Taxpayer Relief Act of 2012 made it possible for retirement plan participants to convert existing 401(k) plan balances to Roth 401(k) balances, whether or not the participant is distribution eligible.

The benefits? All contributions and earnings that have been in the plan five years after the Roth clock starts are distributable tax free (assuming they are distributed due to an eligible event).

The cost? It is necessary to pay taxes on any 401(k) balances converted into Roth 401(k) balances in the year of conversion.

The logic of executing a Roth 401(k) in-plan conversion lies in a belief that tax rates are low now and will be higher in the future. If a participant believes that is true, it may make sense to pay taxes now on retirement plan balances.

Younger individuals just starting their careers may find this option valuable. Imagine building a nest egg over a 40-year career and having your entire 401(k) account balance available tax-free at your retirement! This option may also appeal to higher balance, older individuals who may be involved in tax planning, or individuals who are looking for additional taxable income in a particular year (e.g.: due to the realization of a loss).

There appears to be no downside associated with adding this option to a 401(k) plan. It will not cost anything additional to administer each year and is a nice option to have available for employees to elect.

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