Two-thirds of Americans aren’t putting money in their 401(k)
Did you know only about a third of Americans are putting money away into their retirement accounts? Check out this interesting article from Employee Benefits Advisors about some of the statics of Americans 401(k) savings by Ben Steverman.
(Bloomberg) – Americans aren’t saving enough for retirement.
True, this has been a refrain for longer than many can remember. But now some disturbing numbers show exactly how bad it’s gotten. Two-thirds of all Americans don’t contribute anything to a 401(k) or other retirement account available through their employer.
Millions aren’t saving on the job because they either don’t have access to a workplace retirement plan or they do but aren’t putting money in it. Many just can’t spare the cash, but a new analysis shows there are other reasons, too.
Until now, the exact size of the problem has been unclear. Surveys can be unreliable: Small businesses are difficult to assess, and many workers just don’t know what plan options they have, especially if employers aren’t making much effort to sign them up. Information on a 401(k) may be part of a stack of paper handed out on their first day, that they don’t read or understand, and ultimately set aside and never think about again.
Now, U.S. Census Bureau researchers have come up with estimates that rely on tax data, which should be more reliable than surveys. Their conclusion: Only about a third of workers are saving in a 401(k) or similar tax-deferred retirement plan. Also, the gap is far wider than expected between the number of employers offering retirement plans, and the number of workers saving in them.
Only 14% of employers offer plans
Census researchers Michael Gideon and Joshua Mitchell analyzed W-2 tax records from 2012 to identify 6.2 million unique employers and 155 million individual workers, who held 219 million distinct jobs. This data produced estimates starkly different from previous surveys.
For example, previous estimates suggested more than 40% of private-sector employers sponsored a retirement plan. Tax records uncovered a much bigger pool of small businesses, showing that, overall, just 14% of all employers offer a 401(k) or other defined contribution plan to their workers.
Bigger companies are the likeliest to offer 401(k) plans, and since they employ more people than small firms, skew the overall number of U.S. workers who have the option. Gideon and Mitchell estimate 79% of Americans work at places that sponsor a 401(k)-style plan. The good news is that’s more than 20 points higher than previous estimates. The bad news is that just 41% of workers at those employers are making contributions to such a plan—more than 20 points lower than previous estimates.
The combined result of those two numbers is that just 32% of American workers are saving anything in a workplace retirement account. Four out of five workers are employed by companies that offer a 401(k) or similar plan, but most workers aren’t using them—either because they’re not eligible or because they aren’t signing up.
Lawmakers have proposed a variety of ways to get more people to save. Several states are experimenting with strategies to get every worker signed up for a retirement account. But they face serious pushback from the Republican-controlled Congress and the financial industry.
The demise of the pension
Census researchers are still studying the tax data, cross-referencing it with other databases to get a fuller picture of how Americans are saving. For example, researchers are using retirement plan filing documents to get a better sense of how many workers are still covered by traditional pensions, also known as defined benefit plans. According to a Pew Charitable Trusts analysis of survey data released Feb. 15, only 10% of workers over age 22 have a traditional pension. Just 6% of millennials have a pension while 13% of baby boomers do.
Not surprisingly, the Census data suggest well-paid workers find it easier to save than the lowest-paid. But income isn’t the only factor. Eligibility is also a major issue for part-time workers and people who change jobs frequently. Companies often require employees to work for a certain amount of time before they can sign up for a 401(k), and employers aren’t required to allow part-time workers into a plan until they’ve worked 1,000 hours during the previous year.
Another problem made clear by the new report is that many workers simply don’t know their company 401(k) exists. Workers also might never get around to filling out the paperwork, or could be intimidated and confused by the need to make investment decisions. Companies can help solve all those problem by automatically signing up eligible workers, and requiring them to opt out if they don’t want to participate. Doing so has been proven to boost enrollment, but momentum has now stalled for automatic 401(k) features.
House moves to block auto-enrollment
California, Oregon, Illinois, Maryland, and Connecticut have started programs designed to encourage workers to save. Employers in those states would be required to either offer a retirement plan, or automatically enroll their workers in a state-sponsored individual retirement account. The states had the blessing of the Obama administration, which issued rules allowing states and even large cities to create portable retirement accounts if they want.
On Feb. 15, however, the U.S. House of Representatives voted to rescind those rules. Echoing the arguments of the financial industry, Republicans argued state auto-enrollment plans constitute unfair competition to the financial industry. If the Republican-controlled U.S. Senate and President Donald Trump also sign off, any state and city auto-IRA plans would be placed in jeopardy.
Whatever the outcome, any effort to get workers to save for retirement faces a daunting challenge: Can Americans spare the money? Student debt and auto loans are at record levels, according to Federal Reserve data released Feb. 16, and overall consumer debt is rising at the fastest pace in three years.
Retirement is an important goal, but many Americans seem to have more pressing financial concerns.
See the original article Here.
Source:
Steverman B. (2017 February 21). Two-thirds of americans aren't putting money in their 401(k) [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/two-thirds-of-americans-arent-putting-money-in-their-401-k?feed=00000152-1377-d1cc-a5fa-7fff0c920000
How to encourage increased investment in financial well-being
Disappointed that your employees are not putting enough into your company's financial programs. Take a look at this article from Employee Benefits News for some helpful tips to help improve your employees' spending on financial well-being by Cort Olsen,
As few as 15% of employers say they are satisfied with their workers’ current savings rate in programs such as 401k(s), according to a new report from Aon Hewitt. In response, employers are increasingly focused on increasing savings rates and looking to expand financial well-being programs.
More workplace wellness programs are including a financial component, in which employers aim to help employees with financial issues from budgeting to paying down debt to saving for retirement.
Aon Hewitt surveyed more than 250 U.S. employers representing nearly 9 million workers to determine their priorities and likely changes when it comes to retirement benefits. According to the report, employers plan to emphasize retirement readiness, focusing on financial well-being and refining automation as they aim to raise 401(k) savings rates for 2017.
Emphasizing retirement readiness
Nearly all employers, 90%, are concerned with their employees’ level of understanding about how much they need to save to achieve an adequate retirement savings. Those employers who said they were not satisfied with investment levels in past years, 87%, say they plan to take action this year to help workers reach their retirement goals.
“Employers are making retirement readiness one of the important parts of their financial wellbeing strategy by offering tools and modelers to help workers understand, realistically, how much they’re likely to need in order to retire,” says Rob Austin, director of retirement research at Aon Hewitt. “Some of these tools take it a step further and provide education on what specific actions workers can take to help close the savings gap and can help workers understand that even small changes, such as increasing 401(k) contributions by just two percentage points, can impact their long-term savings outlook.”
Focusing on financial well-being
While financial wellness has been a growing trend among employers recently, 60% of employers say its importance has increased over the past two years. This year, 92% of employers are likely to focus on the financial well-being of workers in a way that extends beyond retirement such as help with managing student loan debt, day-to-day budgeting and even physical and emotional wellbeing.
Currently, 58% of employers have a tool available that covers at least one aspect of financial wellness, but by the end of 2017, that percentage is expected to reach 84%, according to the Aon Hewitt report.
“Financial wellbeing programs have moved from being something that few leading-edge companies were offering to a more mainstream strategy,” Austin says. “Employers realize that offering programs that address the overall wellbeing of their workers can solve for myriad challenges that impact people’s work lives and productivity, including their physical and emotional health, financial stressors and long-term retirement savings.”
The lessons learned from automatic enrollment are being utilized to increase savings rates. In a separate Aon Hewitt report, more than half of all employees under plans with automatic enrollment default had at or above the company match threshold. Employers are also adding contribution escalation features and enrolling workers who may not have been previously enrolled in the 401(k) plan.
“Employers realize that automatic 401(k) features can be very effective when it comes to increasing participation in the plan,” Austin says. “Now they are taking an automation 2.0 approach to make it easier for workers to save more and invest better.”
See the original article Here.
Source:
Olsen C. (2017 February 06). How to encourage increased investment in financial well-being [Web blog post]. Retrieved from address https://www.benefitnews.com/news/how-to-encourage-increased-investment-in-financial-well-being?brief=00000152-14a7-d1cc-a5fa-7cffccf000
Target employee financial needs by finding the right technology
Are you looking for new ways to help improve your employees' financial needs? Take a look at this interesting article from Employee Benefits Advisors about how the use of technology can improve your employees' financial needs by Mark Singer
We have seen how a large percentage of the American workforce has an inadequate degree of financial literacy, and how the lack of basic financial knowledge causes personal problems and workplace stress. We have also seen the importance of financial education and how raising employee literacy directly benefits the bottom lines of companies.
The financial health of employees can vary greatly between companies, as can employee numbers. Work schedules and available facilities are other issues of variance. There is also the interest factor to address. Employees must find programs interesting and beneficial, or they will not attend or glean maximum results. Financial wellness programs that may be beneficial and successful for one company may be burdensome and unsuccessful for another. To meet pressing personal financial problems effectively, cutting-edge technologies need to be applied that both address immediate employee issues and limit company expense.
There are numerous new technologies that can be utilized in a mix-and-match fashion that successfully target employee financial needs. This age of the World Wide Web brings a host of financial education tools directly to the audience. Informational videos, virtual learning programs, webinars, training portals and other virtual solutions are easily accessible over the Internet and most are quite user-friendly. This mode of education is significant. For example, 84% of respondents to a survey conducted by Hewlett-Packard and the National Association for Community College Entrepreneurship said that e-tools were valuable. The study went on to show that modalities containing some degree of online training were preferred by 56% of respondents.
Gaming and data
One form of online educational technology that is gaining momentum as well as results is known as game-based learning. This method of learning is particularly popular with the millennial generation that has grown up with an ever-increasing variety of online gaming. In 2008, roughly 170 million Americans engaged in video and computer games that compel players to acquire skills necessary to achieve specific tasks. It has been found that well-designed learning programs that utilize a gaming sequence improve target learning goals. Such games teach basic financial lessons in a fun and innovative way that requires sharpened financial skills to progress through the programs.
Technological tools not only benefit those that are utilizing them directly, but they also assist the entire community through the collection of key data. Many of the mentioned tools embed surveys within programs or collect other data such as age, income and location, which can be used to create even better educational materials or better target groups in need of specialized services.
Employers need to realize that they benefit when they utilize these new technologies in their financial wellness programs, since these tools assist workers in taking control of their financial lives. Thereby reducing their stress levels, which in turn leads to happier and more productive employees. Sometimes it is best to meet the employees where they are, with tools that are easy and fun to use.
See the original article Here.
Source:
Singer M. (2017 February 02). Target employee financial needs by finding the right technology [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/target-employee-financial-needs-by-finding-the-right-technology
Only 1 in 3 employees actually understands how their 401(k) works
Do all of your employees understand how their 401(k) works? If not check out this article from HR Morning on the statistics of about 1 in 3 employees that do not understand their 401 (k) by Jared Bilski,
When it comes to common financial vehicles like 401(k) plans, term life insurance, Roth IRAs and 529 college savings plans, most workers could use some education on the finer points.
In fact, according to a recent study by The Guardian Life Insurance Company of American, one-third or less of employees said they had a solid understanding of the most common financial products.
Problem areas
Here is the specific breakdown from the Guardian Life study on the percentage of worker that said they have a solid understanding of various financial products:
- 401(k)s and other workplace retirement plans (just 32% of workers said they had a solid understanding)
- IRAs apart from Roth IRAs (27%)
- Individual stocks and bonds (26%)
- Mutual funds (25%)
- Pensions (25%)
- Roth IRAs (24%)
- Term life insurance (23%)
- Separately managed accounts (23%)
- Disability insurance (23%)
- 529 college savings plans (23%)
- Whole life insurance (22%)
- Business insurance, such as key person insurance or buy/sell agreements (20%)
- Annuities (19%)
- Universal life insurance (19%), and
- Variable universal life insurance (18%).
Education vs. no education
One of the best ways to help workers garner a better understanding of their finances — and the financial products available to them — is through one-on-one education.
Consider this example:
The Principal Group compared the saving habits and financial acumen of workers who attended a one-on-one session the organization offered one year to those who didn’t.
What it found: Contribution rates for those who attended the session were 9% higher than those who didn’t. Also, 19% of the workers who received education opted to automatically bump up their retirement plan increases with pay increases, compared to just 2% of other employees.
Also, 92% of the employees who were enrolled in Principal’s education program agreed to take a number of positive financial steps, and 80% of those workers followed through on those steps.
See the original article Here.
Source:
Bilski J. (2017 January 27). Only 1 in 3 employees actually understands how their 401(k) works [Web blog post]. Retrieved from address https://www.hrmorning.com/only-1-in-3-employees-actually-understands-how-their-401k-works/
3 Financial Risks That Retirees Underestimate
Are you worried about the risks associated with retirement? If so check out this article from Kiplinger about some of the risks associated with retirement that retirees underestimate by Christopher Scalese
When you think of risk in retirement, what comes to mind? For many, the various risks associated with the stock market may be the first. From asset allocation risk (avoiding keeping all of your eggs in one basket) to sequence-of-return risk (the risk of taking out income when the market is down), these factors become increasingly important once your paychecks stop and you begin drawing from your investments for retirement income.
However, these are only the tip of the iceberg when it comes to key risks that should be considered for retirement planning in today's economy. Here are three areas I commonly see retirees and pre-retirees forgetting to consider:
1. Portfolio Failure Risk
How long can you live off of income from your investments? Is it likely that your investments can provide an income stream you won't outlive? There are many theories, such as the ever-popular 4% rule, which suggests that, if you maintain a portfolio consisting of 60% bonds and 40% equities, you can take 4% of your total portfolio each year. However, studies in recent years have shown this method to have about a 50% failure rate based on today's low-interest rates and market volatility.
Another withdrawal method is guessing how long you'll live and dividing your savings by 20 to 30 years—but what happens if you live 31 years?
If you do not have a written income plan for how to strategically withdraw from your accounts over the duration of your retirement, this may be a significant risk to consider.
2. Unexpected Financial Responsibility Risk
Life is full of surprises, and retirement is no different. Today's retirees are known as the "sandwich generation" with financial pressures coming from all sides—often having to provide for grown children and aging parents at the same time.
Additionally, there are difficult but significant financial planning considerations for the future loss of a spouse. You can expect to lose a Social Security payment and potentially see changes to a pension. Simultaneously, tax brackets will shrink when going from married to single, taking a larger piece of your already-reduced income.
Having a proactive, flexible financial strategy can be essential in helping you adapt to your many changing needs throughout the course of your retirement.
3. Health Care Risk
Beyond the considerations for inflation on daily purchasing power in retirement, rising costs of health care, particularly as Americans continue living longer, require explicit planning to avoid a physically disabling event from becoming a financial concern. From Medigap options to long-term care and hybrid insurance policies, considering insurance coverage for perhaps one of the most significant expenses in retirement may be a pivotal point in your retirement planning.
While these obstacles may seem daunting, identifying and understanding the concerns unique to your retirement goals should be the first step to help overcome them.
See the original article Here.
Source:
Scalese C. (2017 January). 3 financial risks that retirees underestimate [Web blog post]. Retrieved from address https://www.kiplinger.com/article/retirement/T037-C032-S014-3-financial-risks-that-retirees-underestimate.html
Corporate pension plan funding levels flatline in 2016
Great article from Employee Benefits Advisor about Corporate pension plan funding by Phil Albinus
The stock market may have soared after the news that Donald Trump won the White House and plans to cut taxes and regulations, but the pension funded status of the nation’s largest corporate plan sponsors remains stuck at 80%. This figure is roughly unchanged for 2014 and 2015 when the status rates were 81%, according to a recent analysis conducted by Willis Towers Watson.
In an analysis of 410 Fortune 1000 companies that sponsor U.S. defined benefit pension plans, Willis Towers Watson found that the pension deficit is projected to have increased $17 billion to $325 billion at the end of 2016, compared to a $308 billion deficit at the end of 2015.
“On the face of it, [the 2016 figures of 80%] looks pretty boring. For the last three years the funding levels were measured around 80% and it doesn’t look that interesting,” says Alan Glickstein, senior retirement consultant for WTW. “But one thing to note is that 80% is not 100%. To be that stagnant and that far away from 100% is not a good thing.”
In fact, 2016’s tentative figures, which have yet to be finalized, could have been worse.
According to Glickstein, the 2016 figure hides “some pretty dramatic movements” that occurred during the unpredictable election year. “Prior to the election and due to the significant changes to equities and other asset values after the election, this number would have been more like 75%” if Trump had not won, he says.
“That is the interesting story because we haven’t been as low as 75% really ever in the last 20 years,” Glickstein says.
Fortune 1000 companies contributed $35 billion to their pension plans in 2016, according to the WTW research. This was an increase compared to the $31 billion employers contributed to their plans in 2015 but still beneath the contribution levels from previous years. “Employer contributions have been declining steadily for the last several years partly due to legislated funding relief,” according to Willis Towers Watson.
Despite these dips, total pension obligations increased from $1.61 trillion to $1.64 trillion.
Why are U.S. companies slow to fund their own pension plans, especially when in 2006 and 2007 the self-funded levels were 99% and 106% respectively?
“In prior years, plan sponsors put lots of extra contributions into the plans to help pay off the deficit, and investment returns have been up and the equities the plans have invested in have helped with that we haven’t been able to move this up above 80%,” Glickstein says.
That said, many American corporations are sitting on significant amounts of cash but appear not to be putting money into their retirement plans.
“We have seen companies contributing more to the plans in the past, but each plan is different and each corporation has their own situation. Either a company is cash rich or it is not,” Glickstein says.
“With interest rates being low and the deductions company get for their contributions, for a lot of plan sponsors it has been an easy decision to put a lot of money into the plan,” he says.
“And there are plenty of rewards for keeping premiums down by increasing contributions.”
Further, a new Congress and president could have an impact on corporate contributions especially if new corporate tax codes are enacted.
The broad initiatives of a new administration in the executive branch and legislative branch will have an impact, says Glickstein.
“With tax reforms, the general thrust for corporations and individuals is we are going to lower the rates and broaden the underlying tax base. So for pensions, the underlying tax rates for pensions is probably going to be lower and if [Congress gets] tax reforms done and they lower the corporate rate in 2017, and even make it retroactive,” Glickstein speculates. He predicts that some plan sponsors will want to contribute much more to the 2016 tax year in order to qualify for the deductions at the higher rates while they still can.
“There is a short-term opportunity potentially to put more money in now and capture the higher deduction once tax reform kicks in,” says Glickstein. “And with an 80% funded status, there is plenty of room to put more money in than with an overfunded plan.”
See the original article Here.
Source:
Albinus P. (2017 January 9). Corporate pension plan funding levels flatline in 2016[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/corporate-pension-plan-funding-levels-flat-line-in-2016?feed=00000152-1377-d1cc-a5fa-7fff0c920000