Posts belonging to Category retirement

Employers are always on the lookout to save money, especially in uncertain times like these. So it’s probably not a huge surprise to see a story titled “Benefits Leader Reins in 401(k)s” on the front page of today’s Wall Street Journal detailing IBM’s decision to institute an annual lump-sum match for the company’s 401(k) plan participants. (As someone reminded me, it’s not every day a 401(k) story makes page 1 in the Journal.)

The WJS reports that IBM, starting in 2013, will make a lump-sum contribution to employees’ 401(k)s each year on December 30, instead of contributing on a semi-monthly basis. (The news was reportedly delivered to IBMers via an email on Wednesday from IBM  Senior Vice President of HR Randy MacDonald.)  If plan participants leave the company before that date, they won’t receive the match.

No doubt  that change should net IBM some significant savings in terms of cash flow and (especially) expenses.  (It also should give talent thinking of leaving before year-end reason to reconsider.)

In a statement, IBM said that the change “reflects our continuing commitment to invest in our employee 401(k) plans while maintaining business competitiveness in a challenging economic environment.”

But as you might imagine, not everyone sees it as a good thing. On its website, Alliance@IBM (CWA Local 1701) promptly posted a petition titled “IBM must REVERSE the decision changing the IBM match 401(k) contribution.”

True, lump-sum matches are rare.  According to a study released two weeks ago  by the Chicago-based Plan Sponsor Council of America,  just under 14 percent of employers match on an annual basis. Just under 5 percent do so quarterly.

PSCA Interim President and Executive Director Robert A. Benish told me earlier today that the number of companies that have taken this route over the years has held pretty steady.

But will having IBM, a company that’s viewed as a “benefits leader,” change that? Is the IBM name enough to give other Fortune 500 companies reason to take a closer look at this approach?

Martin Schmidt, an advisor with the Institutional Retirement Income Council in Chicago, told me he believes that’s a real possibility. “Many will look at IBM and say, ‘If they’re doing it, then we can too,’ ” he says. (He adds that the approach makes a lot of sense for companies with high turnover.)

In this particular case, Schmidt explains, you have a clear benefits leader that’s taking the lead. Guess time will tell if that’s enough to spur others to follow.

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It’d be nice to think that employees are, in general, long-term planners, always taking into account the big picture in terms of what they and their dependents will need the most further down the road: adequate retirement funds, money put aside for unforeseen medical expenses, perhaps some long-term care insurance. And then there’s reality: When 10,400 workers in 10 key markets around the world were asked in a recent survey to choose from a list of benefits the ones they’d most like to have, the No. 1 choice was a salary increase (The exception were respondents in Canada, where paid time off proved slightly more popular).

Who can blame them? Well, Mercer doesn’t seem too happy with their choices. Mercer conducted the survey, titled Making Smart Benefit Choices. Dave Rahill, president of Mercer’s health and benefits business, had this to say: “Employees valuing more time off and increased pay in the current stress-filled environment may be understandable, but there are other benefits that have the potential to create more income protection through health benefits and income replacement through retirement and savings vehicles.”

To the survey participants’ credit, it’s not as if they’re unaware of their retirement challenges: In general, the percentage who indicated they’re fairly or very concerned about retireemnt ranged between two-thirds and three quarters. Mercer notes those concerns are valid, pointing out that in markets outside of Asia, approximately 75 percent of employees are putting aside less than 10 percent of their total compensation towards retirement savings.

The survey also asked employees to rank the “voluntary” benefits (extra benefits, such as home, auto and life insurance, that are typically paid for by employees but usually include a group discount) they’d be most willing to pay for themselves. The top three benefits U.S. employees were willing to pay for are disability, life and auto insurance. Accident and hospital indemnity insurance was also fairly popular, while legal assistance and identity theft insurance proved the least popular.

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That’s a question that a new service has set out to answer. Corporate Insight is a New York-based firm that’s been providing “competitive intelligence and user experience research” to the financial-services industry for the past 20 years. Now, it’s moving into the retirement-plan space with a new service called Retirement Plan Monitor, a series of reports that will evaluate and compare the participant-facing materials from plan providers. Essentially, it will monitor the websites, marketing materials, calculators and retirement-planning tools offered to retirement-plan participants by 16 defined-contribution plan providers in order to provide clients with a “firsthand view of the user experience” offered by these firms. The firms being monitored include big names like ADP, Aon Hewitt, Mercer, MassMutual, TIAA-CREF, Fidelity and Vanguard, among others.

“We’ll be looking at things such as how concise the communication is, how prominently participants’ account balances are displayed, the navigability of the websites,” Drew Maresca, senior analyst at Corporate Insight, told me. “People who are planning for retirement these days most likely aren’t going to have a pension to rely on. HR needs to ensure these employees know what resources are available to them, and are acting on them.”

If the information provided to participants is hard to follow, difficult to read or provided in a cluttered, random fashion, it’s less likely they’ll understand it or even read it, says Maresca. In fact, plan providers tend to be behind the curve in terms of their online offerings, with many relying on antiquated navigational systems and sites that lack the crispness and clarity that consumers have come to expect from the web thanks to the likes of Google and Apple, he says.

HR executives who subscribe to Retirement Plan Monitor will be able to see for themselves the sort of user experience that employees who are enrolled in their companie’s DC plans are getting, says Maresca. Although I don’t personally use this service and can’t vouch for its effectivness, I find the idea intriguing. After all, numerous reports have documented the low retirement savings among employees and their lack of preparedness in this area, especially among members of Generation Y. And I can certainly vouch for the fact that the online experience offered by a number of plan providers leaves quite a bit to be desired.

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The number of federal employees choosing to retire is up, year over year, by 25 percent, according to a new survey of federal executives by the Partnership for Public Service, a Washington-based nonprofit. And finding replacements for those workers–particularly ones with backgrounds in science, engineering and technology–will be especially tough, according to the report.

Declining budgets, high turnover due in part to retirements, inadequate leadership development and succession planning and competency gaps in HR and agency leadership skills are some of the biggest hurdles facing federal executives, respondents to the survey (about half of them CHROs, or “Chief Human Capital Officers,” in government parlance) said.

It’s getting harder than ever for federal executives to manage effectively because of attrition, said John Pagluta, the PPS’ vice president for policy, in a recent interview with the Baltimore Sun. “Experienced folks are leaving, partly from negative public attitudes” about government employment, he said.

On top of all this, government executives are finding they can’t turn to contractors to fill in for departing talent because of reduced budgets, said Pagluta.

Trained cybersecurity experts are but one example of the skilled workers Uncle Sam is in desperate need of, according to the report. These experts are the ones who protect computer networks used by the Defense Department, intelligence agencies and other units that do vital work.

I think we’ll all sleep a bit better at night once the government learns how to more effectively attract and retain such folks. “Good enough for government work?” Maybe an attitude check (for those of us outside as well as inside the federal workforce) is needed.

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A new report from Vanguard shows that blacks and Hispanics are more likely to take loans and hardship withdrawals from their 401(k)s than whites and Asians — but all of those groups borrow roughly the same amount. 

The report — Diversity and Defined Contribution Plans: Loans and hardship Withdrawals — states “there was no meaningful difference in 12-month loan default rates among groups. This higher incidence of loans among blacks and Hispanics occurs after controlling for income, account balance, and other demographic differences.”

The implications of such activity, according to Vanguard, is:

Loans and hardship withdrawals offer participants pre-retirement liquidity from DC plan savings, and are thought to increase plan participation and contribution rates. Our findings suggest that blacks and Hispanics disproportionately make use of these features, although the fraction of account wealth “at risk” among individual black and Hispanic participants is not meaningfully higher.

These findings may also reflect other unobservable characteristics, such as differences in financial literacy, trust in financial institutions, or constrained access to credit outside the plan.

For sponsors concerned about participants borrowing from retirement savings, one plan design strategy is to consider limiting participants to one loan outstanding and/or other modest borrowing restrictions. This strategy appears to reduce borrowing levels across all participants and all racial and ethnic groups.

Personally, while I understand employers are concerned about workers saving enough for retirement — and it certainly is a totally valid concern – I think it oversteps the boundaries for any employer to limit the availability of an individual’s own money when he or she may be in dire straits pre-retirement.

And if the worker is raiding their retirement savings to foolishly waste his or money now, that’s the individual’s choice. It’s a choice with consequences — and employers should attempt to increase financial literacy efforts — but I don’t believe most workers will be willing to cede control over their own funds.

And I wonder what the impact would be on participation in defined-contribution plans should that occur. That’s another choice with potential consequences.

The study looked at 2010 data for nearly 250,000 participants in seven large defined-contribution plans.

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Looks like 401(k) participants are taking stick-to-it-ness to a new level, at least when it comes to target-date funds.

Just released research from the Employee Benefit Research Institute in Washington found that roughly 90 percent of those investing in target-date funds in 2007 stuck with them in 2009. The rate was even higher for those auto-enrolled in them—95 percent.

“Target-date funds are still very new in 401(k) plans, but these results suggest that once they are used, TDFs are very likely to continue to be used for a number of years afterward, certainly in the short term,” says Craig Copeland, senior research director at EBRI. 

EBRI’s research also includes some interesting demographic data, finding that younger 401(k) participants were more likely to use TDFs and to continue to use them than those who were older. 

No question TDFs are relatively new and there’s only so much one can read into just three years of data. (EBRI stresses that point in its press release.) But that said, the EBRI research does shed some important, much-needed light on what employers might expect as they add TDF options to their plans and implement and tweak features such as auto-enrollment in the months ahead.

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Have you ever wondered just how important a role the 401(k) plays in the retirement plans of American workers?

Well, we now have an answer: The starring (and sometimes solo) role.

According to the good folks at Fidelity Investments, 55 percent of 1,000 recently surveyed Americans say they would not be saving for retirement if they did not have a 401(k), and 19 percent say their 401(k) is their only savings for retirement.

“This research helps us better understand how Americans use their 401(k)s to help achieve their long-term retirement savings goals,” said James M. MacDonald, President, Workplace Investing, Fidelity Investments. “It also provides an interesting snapshot of the actions of workplace plan participants in an uncertain economic climate and highlights the importance of Fidelity’s wide array of financial education offerings, from online tools to one-on-one guidance.”

But the survey does offer a ray of hope on the retirement-savings front, showing that 37 percent of working respondents are “building retirement savings in an IRA”:

In addition, 33 percent are in an employer-sponsored pension plan, 28 percent have savings in bank accounts, and 28 percent have investments in stocks or bonds. Pre-retirees 55 and older are the most active users of IRAs, with 44 percent saying they utilize these retirement savings investments

But, with the overall survey highlighting just how dependent American workers are upon this retirement vehicle known as the 401(k), we can only hope that HR leaders are using all the tools in their communications toolboxes to ensure that their workers participate in retirement-savings programs whenever and whereever they are available, regardless of whether the company is matching contributions.

Otherwise, retirement may never come for many workers.

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EBRI released a clarification, essentially disputing the Wall Street Journal’s angle on its story about auto-enrollment and retirement savings, which Andy wrote about earlier today.

In its statement, Jack VanDerhei, EBRI research director, said the WSJ ”reported only the most pessimistic set of assumptions from EBRI research and did not cite any of the other 15 combinations of assumptions in the study.”

“The WSJ also chose not to report any of the positive impacts of auto-enrollment 401(k)-type plans in the simulations that were done by EBRI,” according to the statement.

“The headline of the article reports that auto-enrollment is reducing savings for some people. What it failed to mention is that it’s increasing savings for many more — especially the lowest-income 401(k) participants,” VanDerhei said.

The entire text of EBRI’s statement, “What Do You Call a Glass That Is 60−85% Full?” is on EBRI’s blog site.

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When the Pension Protection Act of 2006 included provisions allowing employeers to automatically enroll new hires in their 401(k) plans, it was hailed as the cure to the low rate of retirement savings among U.S. workers. Well, a new study from the Employee Benefits Research Institute finds that auto-enrollment has had an unexpected result: many of the enrollees are saving less for retirement than they otherwise would.

The study was sponsored by is a summary of recent EBRI research and is published in the www.wsj.com Wall Street Journal, which highlights the findings in a story on its front page today.  About 40 percent of new hires at companies with auto enrollment are saving less money than they would if they were left to enroll voluntarily, according to the EBRI, which performed algorithms on data from more than 20 million 401k participants. Experts quoted in the story said part of the problem is that employers are setting contribution rates at 3  percent or less–too low, they said. 

Although many companies with auto enrollment have “automatic escalation” features that bump up employee contributions by 1 percent a year, those generally top out at around 6 percent a year–still too low to provide for a decent level of retirement, say the experts.

To arrive at the findings, EBRI evaluated the contribution rates of people of similar ages and salary levels eligible for plans with auto enrollment compared to those in plans that require workers to join voluntarily.  It ran a computer simulation based on a variety of scenarios to project future savings patterns among auto-enrolled participants.

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Late Sunday afternoon, SHRM invited members of the press to a briefing on the results of its annual employee benefit survey.

The survey of 600 HR professionals didn’t reveal too many surprises. As might be expected, the economy continued to take its toll on benefit plans, with about 77 percent of those surveyed saying the economy has negatively affected benefits, up from 72 percent in 2010.

What areas were hit the hardest?

Mark Schmit, director of research at SHRM, cited healthcare (including the amounts companies are spending on healthcare, the coverages they are providing and the individuals they are providing them to), relocation benefits and pension plans.

In particular, Schmit said, the relocation data suggests a “structural problem” in the employment market. 

In the past five years, the survey found, housing and relocation benefits experienced significant declines, including temporary relocation benefits (25 percent in 2011 vs. 42 percent in 2007) and location visit assistance (18 percent in 2011, compared to 40 percent in 2007).

Despite 9 percent unemployment, Schmit said, HR professionals report they don’t have skilled workers for certain markets. Nonetheless, he added, employers are cutting back on their relocation support, even though 30 percent of families are now underwater in their homes.

Schmit predicted that the convergence of these factors and the nonmobility of the current workforce could have a significant economic impact in the next 12 months.

Workplace flexibility was one of the few benefit areas that experienced an increase in the 2011 report. More than half of those surveyed (53 percent) in 2011 said their organizations currently provide flextime as a benefit, up from 49 percent in 2010; and 20 percent now offer telecommuting on a full-time basis, up from 17 percent a year earlier.

Schmit surmised that companies were using workplace flexibility “to offset the benefit losses.”

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