401(k) plan participants saving more, taking out less
Original post by Paula Aven Gladych, ebn.benefitnews.com
The educational efforts of plan sponsors appear to be paying off. Participation rates in workplace retirement plans have stayed fairly constant since 2008 “due to concerted education efforts of plan sponsors and providers that set up to educate investors to stay the course through the market fluctuations,” says Hattie Greenan, director of research and communication for the Plan Sponsor Council of America.
In its 58th Annual Survey of Profit Sharing and 401(k) Plans, PSCA found that plan sponsor efforts in this arena really did keep people saving in their retirement plans.
“They may have decreased their savings rate due to economic conditions but we have seen a rebound to higher levels as people understand how plans work and realize they need to save more in their plans if they can,” she says.
In 2015, lower-paid plan participants contributed an average of 5.8 percent of their salary into their 401(k) plan, while higher-paid participants contributed an average of 6.9 percent of their salary to their workplace retirement plan.
Plan sponsors are also re-examining their 401(k) plan deferral rates. Three percent has been the standard deferral rate for years but many companies are now choosing a higher deferral percentage, in the range of 5 percent to 6 percent.
Many companies are actually pushing 10 percent to 15 percent, Greenan says. “We are shifting higher, which is good news. We may see it hit 6 percent or higher in the next couple of years.”
The survey also found that there has been a decreased usage of plan loans over the past year. A very low percentage, 0.7 percent of all assets, has been withdrawn from workplace plans and the bulk of those loans are being repaid, Greenan says.
“We’ve always been a proponent of plan loans as an incentive to participate in the plan. They know the money is available to them if they need it. It is their money and there in an emergency situation if they need it,” she says.
And while plan participants did take loans from their retirement plans during the downturn, that rate is going back down.
“The loans are functioning as intended: a safety net in emergency situations, and they are repaying those loans. They are not taking money out and abusing the system,” she says.
Another highlight of the survey was the increase in use by plan sponsors of mobile technology to communicate with a younger demographic of employees. Twenty-one percent of all plans and one-third of plans with more than 5,000 participants are using mobile technology to do everything from handle enrollments to making investment changes.
“I think it took a while for the industry to figure out how best to use the technology everyone is using,” says Greenan. “Now there are platforms for doing so, so we will see a pretty steep uptake in technology to reach plan participants in the next couple of years.”
As far as 401(k) plan design goes, more companies are offering Roth options and automatic features, such as auto enrollment and auto escalation. The increase in 2015 wasn’t quite as dramatic as in previous years, but those numbers are still increasing.
Paula Aven Gladych is a freelance writer based in Denver.
10 best states for employer-provided retirement plan participation
Original post benefitspro.com
Where you live makes a big difference when you’re trying to save for retirement. It’s not just a matter of a state’s cost of living, or taxation on retirees, or even how well or poorly educated its citizens are financially.
Instead, according to analysis from the Pew Charitable Trusts, it’s access to, and participation in, a retirement plan—which varies greatly depending on locale.
In its report “Who’s In, Who’s Out: A Look at Access to Employer-Based Retirement Plans and Participation in the States,” Pew found that both access and participation are highest in the Midwest, New England, and parts of the Pacific Northwest, but lower in the South and West.
In addition, Hispanic workers are at a disadvantage compared with white non-Hispanics, with just access to a plan for the former running 25 percentage points behind the latter.
Black and Asian workers also have less access to a plan than non-Hispanic whites.
For a look at the 10 best states for participation in an employer-provided retirement plan, read on.
1. Minnesota
With a 69 percent rate of access to employer-provided plans, Minnesota has a 61 percent participation rate.
Nationally, the access rate is just 58 percent, which means Minnesota stands out nearly at the top with the second-highest rate in the country.
And Minnesotans take good advantage of it—they’re tied for the highest participation rate nationally.
2. Wisconsin
Wisconsin’s rate of access is even higher than Minnesota’s, at 70 percent, but its residents participate at the same 61 percent rate.
Sadly, although that rate of access is high, it means that more than 400,000 workers did not have access to a plan.
And another tidbit in the good-news-is-still-bad-news category: the report also said, “the estimate of the number of workers without access to a workplace retirement plan is conservative, because the analysis focuses only on full-time workers employed throughout the year. About 18 percent of those who are employed work part time; retirement plan access and participation are substantially lower among part-time and seasonal workers.”
3. Iowa
With a 68 percent rate of access and a 59 percent participation rate, Iowans are still fortunate to be in the top 10.
It’s also the state with the smallest percentage of workers employed in the leisure and hospitality industry, which doesn’t have a terrific track record of providing retirement benefits for its workers.
In fact, out of nine employment sectors ranked last July, it was at the bottom—with just 23.3 percent of the sector’s firms providing access to a retirement plan.
And only 34.5 percent of the sector’s employees with access actually manage to take advantage of it.
4. North Dakota
Sixty-eight percent of North Dakota firms provide a retirement plan for their employees, and 59 percent of the state’s employees avail themselves of the opportunity.
The good news here is that North Dakota has the fifth largest worker population under the age of 30—and a high participation rate in this state implies that young workers are actually managing to save something for their retirement.
That’s not something millennials are generally known to do.
The report said, “The gap between access and participation proved largest among the youngest workers, many of whom face savings challenges even when they have access to retirement plans.”
5. Connecticut
Considering that almost half of Connecticut’s workers are between the ages of 45–64, it’s a good thing that the state has 66 percent of employers providing access to a plan, and 58 percent of employees participating.
The Northeast in general has a higher concentration of older workers.
Connecticut is also fortunate in that it’s among the 10 states with the lowest number of workers with limited education—just a high school diploma or less.
The less educated a worker is, the more likely he is not to have access to an employer-sponsored retirement plan—and participation follows the same pattern.
6. New Hampshire
With 66 percent of New Hampshire’s employers providing a retirement plan, and 58 percent of employees participating—the same levels in each as in Connecticut—the state also stands out for having the second-lowest number of jobs in the leisure and hospitality industry, known for its poor numbers in providing access to retirement plans.
It also has the lowest percentage of workers (12 percent) who make less than $25,000 annually in wage and salary income.
That’s fortunate for workers, since only about 32 percent of those in that income bracket even have access to a plan and only 20 percent of those with access say they participate.
7. Indiana
Indiana distinguishes itself with the highest “take-up” rate in the country: the percentage of workers who reported having access to a workplace retirement plan and were participating in that plan.
Overall, 63 percent of the state’s employers provide access to a plan, and 57 percent of the state’s workers participate in one—but, among the population with access to a plan (as opposed to all workers within the state), 90 percent of those in Indiana participate.
But, the study cautions, that doesn’t necessarily mean that they’re saving for retirement.
Pew pointed out that “many Americans use retirement plan savings for purposes other than retirement” and “[m]any people withdraw savings before retirement to meet large expenses, such as buying or repairing a house, consolidating bills, or paying educational and medical costs.”
8. Delaware
Delaware, with 63 percent of its employers offering a plan and 56 percent of its workers participating in one, has more than the median percentage of workers with a high school diploma or less.
There are fewer than the median percentage of workers with wage and salary incomes of $25,000 or less in Delaware, which undoubtedly helps its participation rate.
Its workers also tend to be older; it has fewer than the median percentage of workers under age 30.
9. Kansas
Kansas has the third highest percentage of workers under age 30—more than a quarter of its workforce.
Yet it still has a high participation rate of 56 percent, and 66 percent of its employers provide access to a plan.
10. Maine
Sixty-seven percent of Maine’s employers provide access to a retirement plan for their workers, and 56 percent of Maine workers participate in a plan.
The state also is one of the Northeast states with a high concentration of workers aged 45–64. Fewer than 5 percent of its workers are Hispanic.
Why planning for retirement matters
Planning for retirement is a bit of a numbers game. It's not just about deciding when you plan to retire, but also estimating how many years you plan to live in retirement. You also have to figure in the cost of healthcare during retirement which could include long-term care.
According to numbers from the National Retirement Planning Coalition, there's been a significant increase in the life of a 65-year-old over the past generation.
In 1980, the average life expectancy for a 65-year-old man was 79.1 years and for a female it was 83.3 years. In 2010, that number increased by over 3 years.
While 3 years may seem small, it can have a financial impact on those living in retirement.
An example from the from the National Retirement Planning Coalition shows a 21 percent increase.
$50,000 of annual expenses in retirement
- 14 years in retirement = $700,000
- 17 years in retirement = $850,000
The example above does not include the cost of healthcare in retirement which can drive up the cost. The Insured Retirement Institute (IRI) and Health View Services estimate the cumulative health care expenses for a 65-year-old man in 201 was $370,000 and for a woman $417,000. That does not include the cost of long-term care.
The majority of workers today depend on individual account plans, defined contribution plans and individual retirement accounts to save for retirement.
Aging workforce means rethinking benefit strategies
More gray hair in the workforce is becoming the norm as more workers are putting off retirement.
The Center for Retirement Research at Boston College found workers are delaying retirement because of a lack of traditional defined benefit pension benefits, a later Social Security retirement age for full benefits and the declining number of employer-provided retiree health benefit programs. However, there are some that keep working for financial reasons or because it keeps them busy and sharp.
The Boston College researchers expect the average retirement age to increase by a full year from the current age of 61.8 to 62.8 over the next three decades.
Joanne Sammer, a New Jersey-based business and financial writer, shared with shrm.org how the older worker can affect your company's benefit plans.
Workplace Implications
An older workforce has significant implications for employers and the organizational culture. There are plenty of positive aspects of having more older workers in an organization. For one thing, many older workers are talented, well-trained, and have deep life and workplace experience that can be invaluable to any organization. But the value that comes from having older workers does not necessarily accrue automatically. Companies can cultivate this value by:
• Fostering generational ties. “Employers should develop strategies for capitalizing on the positive opportunities that multigenerational workforces can create, such as mentoring, knowledge transfer, diversity of perspectives, and cross-training on technology and other skills,” said Debra Friedman, member of law firm Cozen O’Connor in Philadelphia.
At the same time, employers will need to manage some of the challenges associated with older workers. “When employees stay in the organization longer, the balance of generations and the gaps between them become greater,” said Chris Cordery, senior vice president of sales at RealMatch, a recruitment technology firm in New York
Cordery suggested that employers pay close attention to how various generations interact and work together. Designing events and activities that allow employees from multiple generations to get to know each other and socialize a bit can also help prevent or ease any tensions in the workplace, he said.
• Offering accommodations. There are legal issues to consider as well. For example, “employers may experience a higher volume of Family and Medical Leave Act leave requests from its aging workforce, as older employees may have more serious health conditions and/or need to care for aging parents and spouses,” said Friedman.
Older workers may also require more accommodations in their work environment. In these cases, employers need to be vigilant in making sure the organization and individual managers and supervisors are well-versed on various legal requirements for making such accommodations, including the federal Americans with Disabilities Act and relevant state and local laws.
“Employers also should be proactive in training their workforces to prevent age bias in recruiting, hiring, performance management, retention and workforce reorganizations,” said Friedman.
• Phasing retirement. Just because employees are staying in the workforce longer does not mean that they want to keep working forever. Employers can offer flexible work arrangements, such as flexible hours and scheduling, and telecommuting opportunities. These efforts can include a formal phased retirement program that allows employees to keep working while reducing their hours, and potentially their responsibilities, over time.
“An employee who is aging may still want to play a vital role in the organization, but may not be able to contribute in the same way and at the same speed,” said Beth Zoller, legal editor for XpertHR USA, a provider of HR information resources. “If a worker is no longer able to perform a specific job, the employer should evaluate whether an employee’s skills and talents may be used elsewhere in the company.”
The Benefits Question
Benefits and compensation can also reveal the differences between older and younger workers. “Employees later in their careers may be more motivated by a 401(k) match, while employees earlier in their careers may be more excited about educational reimbursement,” said Jackie Breslin, director of human capital services at HR services provider TriNet in San Leandro, Calif.
Because older individuals tend to have higher health care expenses, employers with a large number of older workers could see higher health benefit costs. Friedman urged employers to implement wellness programs that can help the entire workforce to identify and manage any chronic health conditions.
Zoller suggested employers increase their workplace safety efforts to help older workers. For example, employers could install guardrails, better lighting and other improvements to help ease the strain on older workers.
Growing Awareness
Employers are recognizing the trend toward longer work lives and the implications for the workplace. A 2014 survey of nearly 2,000 HR professionals by the Society for Human Resource Management found that 36 percent were aware of the aging workforce trend and were examining their internal policies and management practices to address the change, while 20 percent had already done so and determined no changes were necessary. Another 19 percent were just becoming aware of these issues.
This awareness is critical. The changes and accommodations necessary for older workers are not extensive. They simply require employers to have open eyes, ears and minds in order to see potential challenges and pressure points for older workers and take steps to alleviate them.
Joanne Sammer is a New Jersey-based business and financial writer.
How Retirement Advisers Can Engage Millennials
Originally posted by Mike Nesper on June 16, 2015 on ebn.benefitnews.com.
Workforce demographics are changing as more millennials are entering and the baby boomers are retiring. That path to retirement is also changing — defined benefit plans are a solution of the past, leaving defined contribution plans as the major retirement vehicle.
The problem is millennials aren’t contributing enough to their 401(k) plans. “There is a crisis,” Tim Slavin, senior vice president of defined contribution at Broadridge, said recently between sessions at the SPARK Institute’s national conference in Washington, D.C. “Millennials better hurry up and get in a 401(k).”
So what’s the best way to make that happen?
Make it convenient. “We live in the concierge society,” said Debbie Brown, vice president of marketing at Broadridge.
A good way to disseminate retirement information to millennials is via electronic tools like Dropbox, Slavin said. This way, employees can view statements on their time. Sending alerts in emails doesn’t work well, he said, because if not opened immediately, most people forget about them. “It’s not come to us, but we’re gonna go to you,” he said.
Ensuring tools and communication are easy to understand is key, Brown said. “Keep it simple. Make it work everywhere,” she said.
Millennials want information upfront before having a face-to-face conversation about retirement, Slavin said. “They want to get engaged,” he said, and once they are, millennials commit.
Automatic enrollment is a good tool to increase participation among younger workers, Slavin said. “There’s significant traction there,” he said. “The biggest issue is apathy.” That’s why auto enrollment should be paired with auto escalation, Slavin said.
For millennials, saving for retirement can be difficult — DB plans are no longer supplementing DC plans, wage growth is stagnant and many have student loan debt. Still, achieving retirement goals can be accomplished, Slavin said, but employees need to start contributing to their plan as soon as they enter the workforce.
While younger workers might take some time to realize what’s needed to retire, Slavin is confident they’ll come around. “Millennials are smart,” he said. “They’ll catch on.”
Don't Eat the Marshmallow
Originally posted by Troy Hammond on April 14, 2015 on www.linkedin.com.
Having more self-control than a preschooler can lead to more rewards.
Fifty years ago, psychologists at Stanford University conducted an experiment on preschoolers. During this test, researchers placed youngsters in individual rooms and asked each child to sit down in front of a tray containing one marshmallow. The child was given a choice: He or she could eat this marshmallow immediately or wait a little while for the researchers to place a second marshmallow on the tray—an opportunity to enjoy two treats instead of just one.
What did the kids do, what would you do, and what does the ability to delay gratification mean for future retirement success?
While encouraging kids to eat more candy wasn’t the goal of this multi-year study, it eventually led to a powerful conclusion: Children who “passed” the marshmallow test had greater competence and success later on as adults.1 Kids who successfully waited for the second marshmallow showed self-restraint and understood that not all needs require immediate gratification. This example is directly applicable to behavioral finance: Controlling spending now may lead to significant benefits in the future.
Patience is not just a virtue—it may create its own success
There are a few steps you can take today that potentially could lead to greater retirement success tomorrow. They include:
- Enrolling in your 401(k). By setting aside money from each paycheck before you ever see it, you avoid unnecessary spending.
- Making a habit of saving and increasing your plan contributions. Some experts say you should save 15% of your pretax income each year for your retirement, including your 401(k) and IRA. If your plan offers any employer matching contributions, take advantage of these as well.
- Knowing when you may need professional advice. Those who lack confidence in their ability to manage their investments may be more prone to “cash out” at the worst time—at market lows—and wreck their retirement plan. Unless you are comfortable making your own investment decisions and making changes to your account as your retirement date nears, consider tapping professional advice that may be available to you within your employer’s retirement plan.
Self-control in retirement planning is key: By avoiding impulse spending and investing consistently over time to pursue rewards, you may move that much closer to securing your financial future.
1 Walter Mischel, The Marshmallow Test: Mastering Self-Control (New York: Little, Brown & Co., 2014).
Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Do You Know The Way To HSA?
Originally posted by Patty Kujawa on January 28, 2015 on www.workforce.com.
With the rapid growth in high-deductible health plans, health savings accounts provide an option to pay medical bills and save for the future.
Corey Barnett is an avid saver, but doesn't like the idea of stashing his retirement reserves in one place.
That's why when he left his steady job to create a digital marketing company in February 2014, the 25-year-old rolled his 401(k) into an individual retirement account and specifically looked for a high-deductible health plan so he could continue using his health savings account as a way to pay for current medical bills as well as save and invest money for retiree health costs.
Barnett likes the HSA because he finds it tax-savvy and flexible; money goes in, grows and goes out tax-free for medical bills: He can use the money today if he gets sick or he can save it for tomorrow's retiree health bills.
Read full article here.
Top five 401(k) plan trends for 2015
Source: EBA Benefit News
Benefit advisers and their employer clients hoping to help employees achieve retirement readiness should be paying attention to these top 401(k) plan trends for 2015, according to Robert Lawton of Lawton Retirement Plan Consultants.
Stretch that employer match
A virtually no-cost way for employers to incent participants to contribute more is to stretch their matching contribution formulas, says Lawton. For years 50% of the first 6% was the most common matching formula. Leading edge employers have stretched their matching contributions to 25% of the first 12%, for example.
Expect this trend to continue as employers look for low cost ways to improve their 401(k) plans, Lawton says, adding that all that is required to make this change is a plan amendment and communication materials.
Re-enroll everyone every year
Plans that use auto enrollment, auto escalation and annual re-enrollment into target date funds have plan participation rates in the 90% range, says Lawton, adding that not only does automation work, but annual re-enrollments into target date funds works too. Participants can opt out of a re-enrollment, but Lawton says the vast majority do not. Just as auto enrollment has become commonplace in large plans, Lawton says to expect annual re-enrollment to become the norm in the next few years.
Use outcome based, online employee education
With every plan participant having unique retirement goals, employee education has become more personalized, says Lawton. It’s a trend he says will continue and also expects to see personalized education migrate to predominately online venues. When participants can view 5 to 7 minute learning videos online at their homes with their spouses, outcomes improve, he says. Most employers embrace this type of learning since participants are not pulled away from their jobs and employee education costs are less.
Add Roth 401(k) features
Since it is now possible to convert pre-tax 401(k) accounts into Roth 401(k) after-tax accounts, expect many more employers to offer Roth 401(k) contribution ability and an in-plan conversion feature, says Lawton. The cost of this change is a plan amendment and communication materials, he adds.
Employees paying more fees
A surprising 58% of plan sponsors pass on the record-keeping costs of their 401(k) plans to participants, according to a 2014 Towers Watson survey. Only 23% of surveyed employers pay the entire record-keeping cost. As employer cost pressures continue, Lawton says, expect more employers to pass on all plan related costs to participants.
Obama to push retirement reforms
Originally posted January 20, 2015 by Allen Greenberg on Benefits Pro.
President Obama planned to announce several initiatives at his State of the Union on Tuesday night that, according to the White House, will give 30 million more workers a way to save for retirement through their employers.
The president’s proposals would be funded by closing retirement tax loopholes for the wealthy.
“Americans face a daunting array of choices when it comes to retirement savings. While some workers are automatically enrolled in a retirement savings plan by their employer (with an option to opt out), others have to open an account, manage contributions, and research and select investments on their own,” the administration said in a fact sheet released in advance of the president’s speech.
“Meanwhile, tax loopholes have allowed some high-income Americans to accumulate tens of millions of dollars in tax-preferred accounts that were intended to help workers save for a secure retirement, not to provide tax shelters for the wealthiest few.”
Under Obama’s proposals:
- Every employer with more than 10 employees that does not offer a retirement plan would be required to automatically enroll their workers in an IRA. Auto-IRAs would let workers opt out of saving, if they choose.
- Any employer with 100 or fewer employees who offers an auto-IRA would get a $3,000 tax credit. The president also will propose to triple the existing “start-up” credit, so small employers who newly offer a retirement plan would receive a $4,500 tax credit to help them offset administrative expenses. Small employers who already offer a plan and add auto-enrollment would get an additional $1,500 tax credit.
- Access to retirement plans would be extended to part-time workers. This would happen by requiring employers who offer plans to permit employees who have worked for them for at least 500 hours per year for three years or more to make voluntary contributions to the plan. Employers now are allowed to exclude employees who work less than 1,000 hours per year.
- Contributions to tax-preferred retirement plans and IRAs would be capped once balances are about $3.4 million, enough to provide an annual income of $210,000 in retirement.
Along those lines, the Investment Co. Institute on Tuesday released a survey that found a strong majority of households — including those with and those without retirement plan accounts — disagree with proposals to remove or reduce tax incentives for retirement saving in defined contribution accounts.
The American Benefits Council said the president’s proposal send a mixed message.
“Retirement savings policy need not be a ‘zero sum game.’ Restricting savings for some workers does not help others achieve retirement security,” said ABC President Jim Klein.
The ABC, echoing the concerns of others in the retirement industry, takes issue with Obama's proposed contribution cap, saying that once interest rates rise, it would impact far more than the handful of high-income Americans with outsized IRA account balances. The cap, according to the White House, would provide an annual income of $210,000 in retirement.
“Portraying the president’s proposal as limiting retirement plan balances to ‘about $3.4 million’ is very misleading," Klein said. "In fact, the proposal limits annual benefits that can be paid at age 62. In today’s extremely low interest rate environment, that equates to about $3.4 million. But given historical interest rates the government uses for pension calculations, the allowable account balance for a 35-year-old worker would be about $300,000.”
That said, the ABC commended Obama for trying to find ways to make it easier for smaller employers to expand access to retirement plans.
Part-time employment adds leg to traditional retirement stool
Source: Employee Benefit News
You have probably have heard about the three-legged stool approach to retirement planning. Historically, financial planners have advised that retirees could expect to derive their retirement income from three sources: Social Security, corporate retirement plans and personal savings.
It was generally understood that each source of funds was responsible for providing one-third of the total living expenses required in retirement. Over the years the three-legged stool approach has been modified for a number of reasons:
- The disappearance of defined benefit pension plans (only 18% of workers currently have access to such a plan);
- An increase in the age required to collect a full Social Security benefit;
- The soaring costs of health care; and
- The expectation that many pre-retirees may not reduce their standard of living when they retire. In other words, many workers are expecting 100% income replacement in retirement.
In order to meet the 100% income replacement requirement, experts estimate that 25% of retiree living expenses will need to come from corporate retirement plans, 25% from Social Security and 50% from personal savings. However, it is becoming evident that most baby boomers have not saved, and will not save, nearly enough to fund the retirement they expect. As a result, it may become necessary to add a fourth leg to the stool: part-time employment in retirement. This new approach assumes that income will flow in 25% increments from each source.
Surprisingly, nearly 75% of pre-retirees over the age of 50 in a recent study say they have a desire to work while retired. This is probably a good thing, since most will have to. Lack of corporate retiree health care, lifestyle expectations and a much lower savings rate than required will force most baby boomers to continue working.