Category Archives: retirement

Human Capital a Top Concern in Public Sector

Since the Great Recession began and even afterward, state and municipal governments have been slashing their payrolls, implementing mandatory unpaid leave for employees and cutting back on once-generous health and retirement benefits. Now the after-effects of those cutbacks appear to be coming home to roost, a new survey finds.

Exterior of the Iowa State Capitol

Exterior of the Iowa State Capitol

Ninety percent of state and local government employees from all 50 states and the District of Columbia consider human capital issues to be a challenge for their organization, according to a nationwide survey from the Government Business Council and  Route Fifty, a digital business-to-business publication from the publisher of Government Executive. Only 41 percent of the 928 individuals surveyed (more than half of whom hold executive-level roles) believe their organization is prepared for the looming baby boomer retirements. And just 40 percent indicate their organization is competitive with the private sector in its ability to recruit and hire talent.

That last item seems to weigh heavily on the minds of public-sector leaders these days, and for good reason. The generous pension benefits commonly associated with public-sector jobs do not appear to have the same lure for today’s younger candidates than in the past, according to the Pew Charitable Trust’s 2014 Recruiting and Retaining Public Sector Workers study, which is based on interviews with state HR officers.

As Sara Walker, director of the West Virginia Division of Personnel, explained:

“People who have been with the state are invested in being state employees and being able to retire from the system. They understand what’s waiting for them. But the generation that’s coming in—I don’t know that the pension plan would retain them because they’re mobile. They’re going to move. We’ll have to figure out how to have continuity of services with a generation that is a revolving door.”

Eugene Moser, former director of the New Mexico State Personnel Office, noted that younger workers tend to move much faster between jobs than the previous generation. For mobile workers like these, traditional pensions based on years of service obviously hold less appeal.

Lee-Ann Easton, administrator of the Nevada Division of Human Resource Management, said younger workers have different work-related priorities: “We are finding that the younger generation who grew up on technology wants more flexibility in their careers such as flexible hours and the option to telecommute. Pay is always a factor as well, but flexibility and telecommuting appear to be gaining in job satisfaction above retirement benefits.”

The study noted that several states, such as Vermont, are experimenting with offering new hires a choice between enrolling in a traditional defined-benefit plan or a new defined-contribution offering, including a hybrid option. And in the future, there may not be a choice: The huge unfunded pension liabilities facing many states is leading many traditional supporters of pensions — including Democrats — to support big changes that would end or significantly alter these benefits.

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Giving New Hires a Boost in Pay

Despite much stronger U.S. jobs reports—the latest released by the Department of Labor this morning showing an increase of 292,000 jobs added in December—employers have typically kept wages in check. Many have expected the tightening labor market to begin to lift take-home pay, but with a few exceptions, that hasn’t materialized. Indeed, wages dropped a penny in this latest DOL report.

ThinkstockPhotos-476196983Of course, it’s another story for those switching jobs, as a study released yesterday by Robert Half confirmed. In a survey of CFOs, the Menlo Park, Calif.-based staffing firm found more than half (54 percent) of those surveyed report increasing new hires’ starting salaries from what they made in their previous jobs, with the average increase around 10 percent.

About 36 percent of the CFOs said the salary was the same, while 5 percent said it decreased and 5 percent weren’t sure.

Asked how the pay increase compared to what they offered two years ago, 68 percent of CFOs responded that today’s salaries were at least somewhat higher.

As Robert Half’s Paul McDonald explains …

“Employers who want to improve their odds of securing skilled talent are offering highly attractive starting salaries right now. Companies are competing not just with other businesses that are hiring but also with the applicant’s current employer, who may make a counteroffer to retain the services of a valued employee.”

McDonald added that “professional job seekers with in-demand skills are receiving multiple job offers. Employers need to put their best bid on the table—and do so quickly—or they risk losing good talent.”

Seemingly good advice, as employers start their efforts to fill some of the positions they’ve budgeted for 2016.

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Making a ‘Financial’ Resolution for 2016

We’re nearing the end of the year, and you know what that means: It’s time to start thinking about making some new year’s resolutions, right?

ThinkstockPhotos-122486570It also means it’s that time of the year when Fidelity Investments’ releases the findings of its latest annual New Year Financial Resolutions Study (now in its seventh year), which surveyed 2,013 adults in the United States (79 percent of whom are employed on either a full-time or part-time basis).

Apparently, according to the Fidelity survey, the number of those who are looking to ring in the New Year by making financial resolutions is on the rise. Thirty-seven percent plan to make one, compared to 31 percent a year earlier.

More precisely, the study found that the top three financial resolution are saving more (54 percent), spending less (19 percent) and paying off debt (16 percent). It also reveals that “paying down credit card debt” is at an all-time high of 11 percent, more than double last year’s figure of 5 percent.

Of those identifying saving as a top priority, nearly two-thirds (63 percent) preferred to set aside money for long-term goals such as college, retirement and healthcare—up from 57 percent in 2014.

Fidelity points to the August market downturn as probably having a hand in the uptick in resolutions that we’re seeing this time around. (Most of those surveyed were optimistic about 2016, with nearly three-quarters—72 percent—predicting they would be better off financially next year.)

Yesterday, I spoke with John Sweeney, executive vice president of retirement and investing strategies at Fidelity in Boston about the findings and what surprised him the most.

Sweeney pointed to the fact that people still are making financial resolutions. “When the market is going well … and people have jobs, they tend to fall off the resolution bandwagon a little bit,” he said. “So the fact that we see nearly three-quarters of respondents thinking they’re going to be better off and still wanting to make resolutions, that’s a really good sign. They’re understanding that the world can change—they saw that in 2008 and 2009, which isn’t so far in the rear-view mirror that they don’t remember [what happened then] and can do something positive with that knowledge, [namely] save more, reduce debt and get their houses in order.”

As to his advice for HR leaders: “The big ask we would have of HR executives would be to do as much as they can to encourage default enrollment in 401(k)s, put in auto-escalation … and [better] asset allocation … .”

Taking Sweeney’s advice to heart, I suppose you can say this is as good a time as any for employers to re-evaluate whether they are giving employees the tools they need to improve their financial well-being and taking the steps needed to ensure that they’re taking advantage of them.

As we all know, making a resolution represents a good first step, but that’s all it is: a  first step.


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Retirement: Expectations vs. Reality

A comprehensive survey of workers and retirees by the Transamerica Center for Retirement Studies reveals a big disconnect between employees’ expectations concerning retirement and what they — and their employers — are actually doing to prepare for it.

The survey finds that the majority of retirees (60 percent) retired earlier than they’d planned to, while 33 percent retired when they planned and 7 percent retired later than they planned to. Among retirement spreadsheetthose who retired earlier than planned, two-thirds say they retired for employment-related reasons such as organizational changes at their company, job loss, being unhappy with their job or career, or receiving a retirement incentive or buyout.

Fewer than 10 percent of retirees say their most recent employer offered flexible work arrangements, retirement seminars or financial counseling. Seventy-six percent of retirees wish they’d saved more on a consistent basis, while 53 percent agree they would have liked more information and advice from their employers on how to achieve retirement goals.

When asked how long they plan to live, 57 percent of retirees provided an estimate and are planning to live to age 90 (median). By comparing the difference between their retirement ages and planned life expectancies, the survey finds that retirees are expecting to spend 28 years (median) in retirement, with 41 percent expecting to spend more than three decades in retirement.

The majority of retirees (60 percent) say their standard of living has remained the same since they retired — a more-positive finding than the sentiment of workers aged 50-plus, only 46 percent of whom expect their standard of living to remain the same during retirement.

Although only 28 percent of retirees said they’ve experienced a decline in their standard of living since retiring, 35 percent report that their personal financial situation has declined during that period. Only 33 percent of retirees say they used a professional financial advisor before they retired, while 41 percent say they currently use on in retirement.

Among workers age 50-plus who are investing for retirement, 41 percent  use an advisor. Among workers age 50-plus, 65 percent have some form of “retirement strategy,” compared to 54 percent of retirees. Few of either age 50-plus workers (14 percent) or retirees (10 percent) have a written strategy, however. For those with a strategy, written or unwritten, benefits such as Social Security and Medicare, ongoing living expenses, investment returns, healthcare costs and savings-and-income needs factor into most. However, few strategies address pursuing retirement dreams, inflation, estate and tax planning and contingency plans.

A significant majority of retirees (68 percent) say they wished they’d been more knowledgeable about retirement saving and investing. Forty-eight percent say they waited too long to concern themselves with saving and investing for retirement, and 41 percent agree they should have relied more on outside experts to monitor and manage their retirement savings.

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The Not-Ready-for-Retirement Workers

Just when you thought it was safe to retire…

A new analysis from Aon Hewitt reveals most workers will likely be working longer to save enough to maintain their standard of living in retirement.

In fact, its analysis of 77 large U.S. employers, representing 2.1 million employees, projects the average worker will need to save 11 times their final pay at retirement (age 65) to keep their preretirement lifestyle. (Exact income replacement, of course, depends on the unique situation of each worker including age, income, anticipated retirement age and Social Security.)

Only one-in-five are on track to meet or exceed their needs in retirement at age 65. An additional 20 percent may be close to having reasonably adequate savings with some lifestyle adjustments. This leaves 60 percent of workers unable to afford to retire at age 65. Aon Hewitt projects that age 68 is the median age U.S. workers will be able to retire with sound financial security, while 16 percent are not expected to have enough to retire even by age 75.

“The benefits landscape has changed over time and U.S. workers are now accountable for a greater portion of their financial needs in retirement,” said Rob Reiskytl, partner at Aon Hewitt. “Unfortunately, most are under-prepared. The most important thing they can do is to establish goals for the kind of retirement they want and determine a savings plan to meet those needs and desires. This might mean starting to save more now, delaying retirement by a few years, or making a conscious choice to retire with a lower living standard.”

Aon Hewitt finds many workers are not planning enough for their long-term financial goals. A separate Aon Hewitt survey found that just over half of workers (54 percent) have estimated their retirement needs, determined savings requirements or forecasted how much income they’ll need in retirement. Only 40 percent of workers have created a financial plan to achieve their retirement goals.

“Many employers are increasing their focus on financial wellness, offering education, tools and resources to help workers achieve their savings goals,” said Reiskytl. “Taking advantage of online tools such as budgeting and debt-management programs and apps, professional investment advice and savings features like target-date funds, automatic rebalancing and managed accounts, are all things that will help workers close the savings gap.”

With retirement seemingly receding from many workers’ view as the days go on, this research only offers further proof that employees need help with planning their futures beyond their working years.

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Here’s a New Gen Y Adjective: Conservative

Gen Yers apparently don’t need to “get real” when it comes to retirement—a survey released earlier this week suggests many may already be “real,” at least when compared to their elders.

ThinkstockPhotos-494091025A study of 1,000 American adults released Wednesday by TIAA-CREF, titled the 2015 Lifetime Income Survey, found that, when it comes to retirement planning, Gen Yers (those between age 18 and 34) seemingly are more conservative than older generations in their retirement outlook, with only 56 percent saying they are counting on Social Security to provide income in their retirement. In contrast, 76 percent of those between ages 35 and 44 and 73 percent of those between ages 45 and 54 indicated that was the case.

According to the study, 34 percent of the respondents said if they could choose one primary goal for their retirement plan, it would be to ensure that their savings are safe, no matter what happens in the market—a marked increase from older generations. Only 16 percent of Americans ages 35 to 44 and 22 percent of Americans ages 45 to 54 reported the same.

The survey also found that Gen Yers tend to take a pragmatic view about the length of time their retirement may last: 34 percent say they plan to accrue retirement savings to allow them to live comfortably for more than 25 years, compared to only 26 percent of respondents overall. However—and here’s the particularly disturbing, though not necessarily surprising data point—31 percent aren’t currently saving any money for retirement, due in part to financial challenges such as student loans or jobs that don’t offer retirement plans.

Here’s one take on the findings, this from Teresa Hassara, executive vice president and head of Institutional Business at TIAA-CREF …

“Many in Gen Y came of age during the Great Recession, which helped shape their attitudes and outlook[s] on their own finances. They face higher student-loan debt and fewer prospects for full-time employment with benefits than previous generations, making it harder to save enough for a comfortable retirement. The gap between the need for financial security and having the will and the means to achieve it may well impact this generation for decades to come.”

All points well worth considering the next time you re-evaluate your benefits-communication strategy.

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Shoring Up Pension Plans

About two-thirds of companies that sponsor defined-benefit plans plan to take steps this year to protect their bottom lines from expected rises in premiums from the Pension Benefit Guaranty Corp.

That’s according to a new survey from Aon Hewitt, which queried 183 DB plan sponsors about their current and future plans. Twenty-two percent said they’re “very likely” to offer terminated vested participants a lump-sum window this year, while 19 percent plan to increase cash contributions to their plans to reduce PBGC premiums in the year ahead and 21 percent will consider purchasing annuities for some of their plan participants.

“A growing number of plan sponsors anticipate increasing pension plan costs due to recent changes to the Society of Actuaries longevity models and rising PBGC premiums,” said Aon Hewitt’s Ari Jacobs, its global retirement solutions leader.

President Obama has once again proposed giving the PBGC the power to raise premiums on single and multiemployer DB plans, a strategy that would raise a projected $19 billion over the next decade (Congress rejected the President’s previous proposal). This move is staunchly opposed by many in the business community, however — including the ERISA Industry Committee —  who say it would “create a direct conflict of interest.”

“This proposal continues to resurface each year, and policymakers appropriately have rejected it as an inappropriate and impractical expansion of government authority that would hurt plan participants and plan sponsors,” ERIC CEO Annette Guarisco Fildes said in a statement.

Although the PBGC is now on sturdier financial footing than in previous years — thanks in part to an improving economy — the agency still faces considerable deficits in its single-plan and multiemployer insurance plans. The annual report estimates that the multiemployer plan has a 90-percent chance of running out of money by 2025.

Late last year Congress passed the Multiemployer Pension Reform Act, which makes it easier for sponsors of plans that are at serious financial risk to reduce payments to retirees, with the intent of reducing the risk that the PBGC will need to take over the plan.

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Five Important Steps for Retirement

retirement reviewMercer has just released its annual “10 Steps DC Plan Sponsors Should Take” for the coming year, or things employers should do to ensure their defined-contribution plans are meeting the needs of plan participants while staying in compliance and taking advantage of recent innovations. Some of these recommendations include the usual about financial-wellness education, monitoring participants’ progress against their retirement goals, reviewing plan fees and checking up on providers to make sure they’re staying compliant.

Rather than list all 10 steps, I’ve focused on the five that address relatively new developments.

First, you should make sure your plan is responsive to participants’ retirement-security needs by studying the latest available options, such as services promoting Social Security optimization. You should also be prepared to “respond to favorable regulatory changes,” such as the increased guidance on the use of in-plan annuities.

Second, you should conduct an in-depth analysis of your current, or future, managed-account provider. Heightened scrutiny of such providers, including the Government Accountability Office’s recommendation to the DOL to conduct an in-depth review of managed-account providers, means you should be taking a close look at your processes for selecting and monitoring these providers.

Third, make sure the capital preservation option in your plan is still the most appropriate for plan participants. Capital preservation options such as money market and stable value options have an important place within the DC framework. Given the new fixed-income products that have arrived on the market within the last few years, along with the increased SEC regulations that will be placed on money market funds in 2016, now is a good time to review your plan’s offerings to determine whether they’re still meeting participants’ needs.

Fourth, think about what a disabled employee can do to keep current with his or her plan while out on leave.  As Mercer notes, when employees go out on disability, their DC plan contributions can take a hit. This causes a gap in participants’ retirement preparedness that, depending on their leave’s duration, they may never be able to fully close. However, new regulations that allow continued contributions during periods of disability could mean that such a gap is not inevitable.

And finally, # 5: keep an eye on liquidity. Last year saw major growth in liquid alternatives, says Mercer, such as diversified inflation and hedge funds. Exposure to options such as these is not new: Many target-date funds have some exposure to these options. Plan sponsors need to review how these liquid alternatives are defined, reviewed, implemented and monitored within the plan. Make sure these exposures are appropriate for plan participants based on what’s available on the market today, and determine whether or not additional exposure should be considered.

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So How Are the Financial Experts Doing?

When it comes to 401(k) performance, you’d think employees might do better with the help of the so-called experts, right? Well, maybe not.

Here’s a disturbing study I ran across today coming from researchers at Michigan State University and the University of Notre Dame: Financial experts do not make higher returns on their own investments than untrained investors.

153430966There’ve been more than a few surveys in recent years that suggest employees would like more help in managing their 401(k)s and preparing for retirement. So you’d think putting their nest eggs in the hands of “the experts”—or at least people they think are more expert than themselves—would give them some level of comfort.  But if there’s any truth to the new study mentioned above, which looks at the private portfolios of mutual-fund managers, they’d be mistaken. Among other things, the study—titled “Do Financial Experts Make Better Financial Decisions”—found the experts were “surprisingly unsuccessful” at outperforming nonprofessional investors. (The study is slated to be published in an upcoming edition of the Journal of Financial Intermediation.)

To reach their conclusion, the researchers—Andrei Simonov, associate professor of finance at Michigan State University, and Andriy Bodnaruk, assistant professor of finance at the University of Notre Dame—compared the portfolios of 84 mutual-fund managers in Sweden against the portfolios of untrained investors and found “no evidence that financial experts make better investment decisions than peers.”

Simonov says he’s not denying there aren’t talented fund managers out there, but does suggest that there are “very, very few of these superstars, and the average investor probably can’t afford to invest with them anyway.”

(Though the study took place in Sweden, Simonov and Bodnaruk believe the findings are just as applicable to the United States and other countries.)

Whether you’re an investor or a fiduciary, the notion that these experts aren’t performing any better than the average nonprofessional investor probably isn’t going to help you sleep any better at night. Most of us would like to think the opposite was the case, especially in an environment in which employees seem to be more stressed than ever about their financial well-being.

Employees certainly don’t need yet another thing to be frightened by. Oh BTW, Happy Halloween!

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A Few Industries Retaining DB Plans

retirementA new analysis by Towers Watson finds that although the number of Fortune 500 companies that continue to offer defined-benefit pension plans to new hires has plummeted during the last 15 years (from 299 companies to 118 at the close of 2013), the number that shifted away from DB plans last year is the lowest number in more than 10 years. The analysis also found that nearly half of the Fortune 500 that no longer provide DB benefits to new hires  still have active employees who continue to accrue benefits.

The analysis also found that the insurance and utilities industries are bucking the trend of shifting from DB plans to defined-contribution plans: More than half the companies in these sectors still offer DB and DC plans to new salaried employees. Among insurance companies, 66 percent offer a pension and DC plan to new hires, while 59 percent of utilities do. Utilities tend to have more long-term career workers than other industries, according to Towers Watson, while the insurance industry includes many employees who “may be more inclined to understand and appreciate DB plans than workers in other sectors.”

Among the Fortune 500 that continue to offer pensions to new hires, only 34 offer a traditional pension, while 84 provide a hybrid, or cash-balance, plan. More than half (57 percent) of employers that established a hybrid plan either before or after 1998 still offered a hybrid plan to new hires in 2013, the analysis found.

Cash balance plans have had a rocky history, particularly when large companies such as IBM turned to them to replace their traditional DB plans a decade or so ago. Since then, however, greater regulatory clarity on the use of such plans appears to have made them more acceptable, particularly among small employers.


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