A Push for Retirement e-Communication
Industry groups are urging DOL to end paper disclosure requirement
By Brian M. Kalish
Source: eba.benefitnews.com
As new retirement fee disclosures go into effect this summer, a coalition of 15 retirement industry groups are urging the Department of Labor to allow broader use of electronic communication for retirement plan participant disclosures, which are now mailed in paper form to plan participants.
"It's just the way technology is going, you've got people of all ages using the Internet," says Brian Tate, VP, banking and securities at the Financial Services Roundtable, one of the agencies pushing for the changes. "We think it's just an effective way for our members to reach out with their customers."
The drive for e-disclosure
Disclosures are there to help plan participants properly plan for their retirement, but "paper is counter-productive to that," says Anne Kim, managing director for policy and strategy at the Progressive Policy Institute, a Washington-based progressive think tank. "Paper is static, it's outdated. If the government's goal is to really help people take charge of retirement, they are going in the wrong direction."
Judy Miller, director of retirement policy at ASPPA - another group advocating for the changes - says there are many reasons why this idea is so valuable, including that it is just easier to read information online and there are many more presentation tools that allow for simplification of sometimes complex information.
"There is an awful lot of paper going out already that is just getting trashed and it's a waste," she says. "There will be even more with the new disclosure rules kicking in, and depending on the nature of the investment, [people] will be getting, in some cases, a box of paper. And we don't think they will be reading it. We think it will be better if they were encouraged to go online where it's easier to drill down and get something out of it."
But, Miller stresses that the industry groups are not saying eliminate paper if a plan participant wants it, rather make it opt-in for paper, rather than opt-out. From a policy standpoint, using defaults such as automatic enrollment and default investments encourages good behavior, Miller says, with people getting more information out of information delivered electronically.
E-communication further allows access "anywhere, anytime, with the device of the user's choosing, and with a better filing system than paper notices," writes Ohio State University Law Professor Peter Swire, in a white paper, "Delivered ERISA Disclosure for Defined Contribution Plans."
That flexibility is important, Swire says, as with paper being stored in one place, "the lack of geographic flexibility can be an obstacle to examining documents and making investment decisions."
There is an additional cost savings involved, Swire says. While the preparation time to meet legal requirements would be the same, there is near zero marginal cost to send a few or a few million disclosures.
Will it happen?
The 15 trade associations pushing for the changes sent a letter to DOL at the end of March asking for the policy change, but have yet to receive an official response. "I think that the Department is aware of our concerns, but if you take a step back, you see more and more people, regardless of age, using the Internet and technology to communicate in a way that we couldn't think about five years ago," the Roundtable's Tate says.
Miller adds that while ASPPA is hoping that DOL will act, "we are, frankly, also talking with people on [Capitol] Hill. Because if DOL doesn't act, we are hoping Congress will give them a nudge."
It's inevitable, Kim says, that at some point DOL will change, but "it's a pity in the meantime that people are losing opportunities to take a more active role in managing their savings and getting access to the information they need while DOL sits on their hands.
"There's been enough interest on" moving to e-communication in government, such as IRS e-filing and paying parking tickets online. "The fact that DOL is behind will become so much more obvious," she says.
Tate says that in the end is it about the consumers as "we want to get the information to them as quick as possible. ... We do know they are working in a fast-paced environment ... let's try to make [this] as easy as we can."
Meanwhile, the DOL says in an e-mailed statement to EBA that it has "received a variety of letters on this issue in recent months and ... continue[s] to consider the issues raised in this letter and others that expressed differing perspectives and concerns. EBSA has not yet completed its broader evaluation of the current regulatory standards for the electronic distribution of disclosures required by ERISA, including the potential impacts on the rights and interests of plan participants and beneficiaries."
DOL says in the statement that in the interim, "the Department's current regulation and other guidance on electronic disclosures to participants and beneficiaries are available to plan administrators."
The letter to Phyllis C. Borzi, assistant secretary for the Employee Benefits Security Administration, is signed by 15 trade groups and Miller says that number is very helpful. "I think it's helpful for regulatory agencies when [they] don't have all of us coming in separately," she says. "When we can resolve our positions instead of ... telling them different stories."
Working after age 62?
BY RICH WHITE
May 3, 2012
Source: Benefitspro.com
Social Security retirement benefits may begin at age 62 (at the earliest) and some pre-retirees believe they will face a dilemma over whether to keep working or start their benefits at 62. If your clients are concerned over this choice, tell them to relax.
Any benefits Social Security withholds (because of work income) from ages 62 through 66 will be credited back at the full retirement age of 66. The “earnings limit” for 2011, for people age 62-65, is $14,160. For every dollar earned through work above this limit, Social Security withholds 50 cents. This continues until Jan. 1 of the year in which reach full retirement age (currently 66) is attained, when the limit increases to $37,680 and withholding reduces to 33.3 cents per dollar over the limit. After the 66th birthday, there is no earnings limit.
Most people who think they will earn over the limit should simply delay the start of benefits until their 66th birthdays. In addition to permanently increasing monthly benefits (compared to starting at 62), this also preserves the ability to earn Delayed Retirement Credits for deferring the start date past the 66th birthday.
How do you size a 401(k)?
BY DAN COLE
April 30, 2012
Source: Benefitspro.com
In 2010 there were 362,757 401(k) plans with more than zero dollars in reported assets. All told, they added up to around $2.8 trillion.
But how do you slice up that market? And which end do you try to eat?
There are the outliers. More than 7,000 401(k)s held more than $30 million in assets. On the opposite end of the scale, the same number held less than $15,000. I don’t care how many participants you have, $15,000 is not a good amount to have saved for retirement.
But more likely you’re right in the middle: $698,971 is the median (i.e. 50th percentile) 401(k) asset value, with more than 132,000 plans falling within one standard deviation (ooh – statistics!).
It’s a good bet that you’re not farming plans at all ranges of the curve. As in all things, there are fewer of the best than there are of the rest: that’s what makes them the best.
There are only 719 “mega” 401(k)s: those with more than $500 million in assets. However, that handful accounts for more than half of every single dollar invested by a 401(k). Plans with under $1 million in assets account for 60 percent of all 401(k)s, but only 3 percent of the assets.
Micro, small, mid, large, mega… Sure you’re more likely to snag a minnow, but your family will eat better if you manage to take down a megashark.
Employers still not successfully communicating pensions auto-enrollment
By David Woods
Most employers (70%) are aware of pension reform changes but 68% of employees have little or no knowledge of automatic enrolment yet, according to a report from Aviva.
The survey found 43% of employees without a pension said they would remain in a scheme once they were automatically enrolled - but opt outs could be significant.
The challenge of getting Britain's workers saving for their retirement is highlighted in Aviva's first Working Lives Report, which reveals the daily struggle faced by employers and employees as they seek to balance business priorities against personal financial needs.
Surveying UK private sector employees and employers about their attitudes to saving in the workplace, the Working Lives research shows businesses, Government and the pensions industry across Britain have significant work to do in encouraging employees to start putting some of their hard-earned cash aside for their retirement.
Opt out rates from automatic enrolment are also potentially significant, with employers thinking that the typical percentage of employees opting out will be 33%, and a similar number (37%) of employees saying they may choose to leave. But 43% of employees currently without a pension said they would remain within the scheme once enrolled, and of those 8% said they would contribute more. Those that were undecided amounted to 21%.
Employees are most concerned (53%) about how their pay compares to the cost of living, while employers worry most about keeping up with the competition (58%). More than half (56%) of employees agree pensions are the best way to save for retirement but 55% of employees without one say they simply don't have the cash.
UK private sector employers (96%) surveyed said their employees were absolutely critical to the success of the business. And overall, UK employees seemed to be generally happy in their work - with 27% saying they really enjoy their work and 45% saying they quite enjoy their work.
But for both employers and employees - the issue of money is absolutely central to their workplace relationship. Over a third (39%) of employers said they were looking for ways to motivate their workers without 'unduly increasing remuneration' and 46% said they designed their pay and benefits packages carefully to control costs.
While employers recognized the contribution made by employees, their most immediate business concern was a commercial one - how to keep ahead of the competition (58%). However, the highest percentage of employees (53%) said that ensuring their pay kept up with the cost of living was their key workplace concern.
While pensions top the list (56%) as the best way people like to save for retirement, those actually saving into a workplace pension in the private sector right now remains relatively low at 35%. At the same time, the number of employees who say their employer offers a workplace pension (54%) is on the brink of radical change with the start of automatic enrolment.
Of those employees who are offered a workplace pension but neither they nor their employer contribute 55% say they don't have the spare cash to contribute to a pension, 28% say they need to repay debts and 20% say they need to pay for immediate family costs.
Broader workplace benefits are increasingly coming to the fore as employees seek help in bridging the cost of living gap. The top five benefits valued by employees (and which they are offered) are: annual bonus (36%), pension (16%), health insurance (15%), life insurance (14%), and non-financial benefits (14%), such as discounts on products, subsidized gym membership and crèche facilities.
Aviva's managing director of corporate benefits Graham Boffey said: "Aviva is a long-standing advocate of automatic enrolment, but we recognize that Britain's employers are facing the significant challenge of transforming the way they provide pensions and workplace benefits at a time of continuing economic uncertainty.
"When the first companies start to automatically enroll their employees in October this year, we can't expect an immediate step-change in how people save for their retirement - employers and the industry will need to make a long-term commitment to ensuring it's a success.
"Companies are increasingly going to need to find relevant and compelling ways to talk to their employees about their savings and benefits options. And as more people start to use the workplace for managing their money, practical planning tools and clear guidance will be essential.
"While the time, resources and commitment being called for from employers over the next few years should not be under-estimated, there are clear benefits for those who really understand what savings and benefits their employees value, and importantly, how best to discuss them in the workplace.
"Employers willing to put in the time and effort will find themselves in a win-win situation. Broader workplace savings and benefits are a cost-effective way of boosting employees' total packages beyond basic pay, and we know employees want additional and more relevant benefits that help them make the most of their money.
"While Working Lives shows some areas for concern, there are equally positive signs that employers and employees are willing to embrace this period of workplace change and in doing so they will help to re-invigorate Britain's savings culture."
Too cash strapped for longevity, many consumers also lack life insurance
By Chris McMahon
As Americans are living longer they are concerned that they are not financially prepared to live into their 70s, 80s and 90s.
With age comes wisdom supposedly, but even as more Americans are living longer they are not financially prepared for their retirement years and also lack life insurance. According to the Centers for Disease Control, the average American’s life expectancy has increased to 75.7 years for men and 80.6 years for women. Of those age 65 and coupled, there is a better-than-even chance one partner will live to age 94, and one-of-10 couples will have a partner that lives to 100 or more.
Unfortunately, a new study finds that while Americans are living longer, almost half are concerned that they are not financially prepared to live into their 70s, 80s and 90s.
Can’t afford to live…
The “Longevity & Preparedness Study,” conducted by Northwestern Mutual, asked people how financially prepared they feel to live to age 75, 85 and 95 and revealed that only slightly more than half (56%) feel financially prepared to live to the age of 75. Fewer than half (46%) feel financially prepared to live to age 85; and only about one-third (36%) feel prepared to live to age 95.
“These findings underscore that there is room to further educate clients—not only with respect to increasing longevity, but also more broadly about the value of long-term planning,” said Greg Oberland, Northwestern Mutual EVP. “So we, as an industry, must emphasize that the plan is as important as the goals. And that plan is like a roadmap that helps clients stay on course.”
According to the research:
• Women on average live five years longer than men and feel less financially prepared to live longer lives.
• Men regardless of age are significantly more likely than women to feel financially prepared to live to age 75 (65% vs. 48%), 85 (55% vs. 37%), and 95 (43% vs. 30%).
• Younger Americans (25-59) feel less prepared than older Americans (60+) to live to 75 (47% vs. 79%), 85 (37% vs. 66%), and 95 (29% vs. 52%)
“No matter what age you’ll live to, it’s important to protect the dollars you’ll eventually depend on to provide an income in your retirement years,” Oberland said.
Can’t afford to die…
The findings of the “The Insurance Barometer Study,” an annual study conducted by the Life and Health Insurance Foundation for Education and the Life Insurance and Market Research Association to better understand the public's opinions, attitudes and behaviors regarding life and health insurance are separate but consistent with the “Longevity & Preparedness Study.”
The study found that almost one-third of respondents believe they need more life insurance; that number includes 20% of current policyholders and about half with no coverage.
The two excuses most cited for not purchasing adequate amounts of life insurance are that it is too expensive (83%), and that they have other financial priorities (85%).
Respondents were asked to estimate the annual costs of a 20-year level-term life policy for a 30-year-old and wildly over shot, guessing the cost at $400. Younger adults, those most likely to qualify for preferred pricing, overestimated the actual cost of $150 by a factor of seven.
“Our research has suggested for years that consumers believed they couldn’t afford life insurance, yet they had no idea how much it actually cost,” said Robert Kerzner, president and CEO of LIMRA, LOMA and LL Global. “This is the first study that clearly quantifies the wide gap in consumers’ understanding on the affordability of life insurance.”
The cost of basic term-life insurance has fallen by about 50% over the past 10 years, offers Marvin Feldman, CLU, ChFC, RFC, president and CEO of the LIFE Foundation.
“We know these misconceptions are hindering people from taking steps to get the coverage they need. In essence, life insurance is falling down the priority list,” Feldman said.
According to the study, many are more concerned with paying their mortgage or rent (31%), or losing money on investments (26 %) than with buying life insurance. Interestingly, saving for retirement continued to be the top financial concern (50%).
As the U.S. economy recovers, insurers have an opportunity to help consumers rethink their investment and retirement strategies to ensure they have enough money set aside to maintain the life they’re accustom to and to fund new plans, Feldman observes.
“We want companies and producers to better understand the consumer attitudes and perceptions that are contributing to the gap in coverage that exists today so that they can better respond and help us educate the public about the importance of financial protection and taking personal financial responsibility,” Feldman said.
Technology can play an important role in those educational efforts by creating direct access to quality information and pricing.
“We need to engage younger generations —who live online—more creatively, using the platforms and technology they use in their day-to-day lives, to convey this information so that they know that they can afford the life insurance their family needs,” Kerzner said. "While we have seen some insurers begin to advertise the price of their products in their marketing materials, and others place quoting tools more prominently on their websites to better educate consumers, all insurers should take a look at how they can make it easier for consumers to access this vital information and better understand the real cost of life insurance."
Chris McMahon is the senior editor at Insurance Networking News, a SourceMedia publication.