Category Archives: retirement

The DOL’s New Fiduciary Rule

The new fiduciary rule issued yesterday by the Dept. of Labor, which is designed to address conflicts of interest among financial advisers, will require HR departments to review their arrangements with vendors that provide retirement-plan services, say experts.

“The definition of ‘fiduciary’ is being expanded, and HR will need to determine if they have vendors that will now fall under this category,” says Robert Kaplan, associate attorney in Ballard Spahr’s employee benefits and executive compensation group.

The rule is designed to protect the best interests of retirement-plan participants and sponsors by applying the “fiduciary standard” to all those who provide investment advice in order to prevent conflicts-of-interest, which the White House Council of Economic Advisers says costs retirement savers $17 billion a year.

In many cases, vendors that provide services for employer-sponsored retirement plans that hadn’t been fiduciaries before the new rule – such as broker-dealers, mutual-fund representatives, etc. – will be considered fiduciaries once the new rule takes effect (it goes into final effect on April 1, 2018, with a “transition period” starting April 1, 2017). HR will need to carefully evaluate all advisers that provide services to their organization’s retirement plans to determine whether they’ll now be considered fiduciaries, says Kaplan.

For example, many 401(k) record-keepers offer “reach out” campaigns targeted at plan participants (including former employees who still have accounts in the company plan) who may be considering whether to rollover funds from a 401(k) plan into an individual retirement account. Today these services only need to meet a “suitability” standard, says Kaplan; under the new rule, they must meet the fiduciary standard.

Much of the compliance duties for the new rule will be handled by vendors and record keepers, says Kaplan. However, in a few instances HR may encounter vendors that refuse to recognize that they will now be considered fiduciaries – in such cases, HR will need to terminate the relationship, he says.

“There are some less-than-reputable vendors that don’t want to be held to the fiduciary standard, and they will probably be driven out of the business,” says Kaplan.

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Helping Older Workers Find the Work they Want

OK, this baby boomer officially feels old now. I was just informed by Paul Magnus — vice president of workforce development for Akron, 474168522 -- older workerOhio-based Mature Services — that “mature” actually refers to 40 and older.

I was asking him to elaborate on his organization’s 26th Annual Mature Workers’ Job & Career Fair, coming up on Tuesday, April 12, at the Akron Fairlawn Hilton, designed “to help the 40-and-older population find employment,” as its release states.

Shocked as I was by that clause, Magnus pointed out that the oldest of the “Gen Xers [those born from the early 1960s to the early 1980s] started turning 52 in February 2016.” (Stop the world, I want to get off!)

But whether they’re 40 or 52 or on up into baby-boomer territory, he says, “we advocate for all older workers” and the extensive experience, skills and work ethic they bring to the workplace.

If you consider baby boomers alone, he adds, they possess the “highest level of intelligence and institutional knowledge, highest motivation factor and highest skill set of any demographic that has come through the workforce to date.”

Though many are staying in the full-time workforce out of necessity, a growing share are just heading into retirement age and are trying to “reinvent their lives,” be it through a mentor or tutor role or a part-time consultant’s role, says Magnus, whose agency helps those people achieve their desired situations as well.

In all work situations, says Don Zirkle, Mature Services’ training and placement supervisor, “[o]lder workers bring to the job commitment, experience and the ability to work as part of a team.” Older workers, he adds, have “adapted to technology as well.”

“These are traits that all employers are looking for in a new hire,” Zirkle says.

Unfortunately, far too many employers are still disregarding senior job candidates, especially those who have been long-term unemployed — a problem we’ve certainly written about on this site and on HREOnline.com.

“Many older workers have gotten trapped in that long-term-unemployment racket,” Magnus says. “We’re seeing that individuals who are not working aren’t getting the calls back. The longer they’re unemployed, the longer they’ll remain unemployed.”

Also on the unfortunate side, many baby boomers, when they started working, “didn’t necessarily need a degree for all the positions that were open to them,” he says. “Now, students are coming out of college with certificates and degrees for those same jobs,” and older workers trying to compete find themselves way behind the eight ball.

Through numerous programs run by his organization, including the U.S. Department of Labor-funded Senior Community Service Employment Program, which most other states also run, seniors are getting pointers and guidance in educational opportunities, job-hunting and skills training, and even tips on best ways to use social media, which many — surprisingly — aren’t that well-versed in, he says.

Times have changed, he adds, and seniors need to change with them.

I asked Magnus to describe the challenges and changes he’s seen in his 31 years with Mature Services.

The biggest difference he’s noticed over time, he said, is that everyone now has a different idea about what retirement means, from semi-corporate retirement to at-home part-time consultancies, and his agency is there to adjust to the changes, and guide and advocate for all older workers in his corner of the world — i.e., the Akron and surrounding areas.

“I remember starting this job when I was 28 years old,” Magnus says. “I remember walking up to a senior group of men and asking them if they would be interested in the recruiting help my agency had to offer, and they just laughed at me and said, ‘Why would I want to work when I’m retired?’ ” So at least that’s changed.

Second to that, he says, is that a growing number of employers are starting to see the value older workers, in any capacity, can bring to the workforce.

Though many still “do get bogged down in the older-worker perceptions that aren’t based on reality [like they can’t perform or produce like they once could, or they simply don’t want to be there], many others aren’t getting that hung up on age anymore.”

So there’s some progress at least.

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U.S. Employees Feeling Glum on Retirement

Many working Americans aren’t exactly chomping at the bit to get their retirements started, according to a new survey, and it’s easy to see why.

Seventy-six percent of  5,083 U.S. employees surveyed  believe they will be worse off in retirement than their parents, according to the 2015 Global Benefits Attitudes Survey by Willis Towers Watson. Additionally, the survey revealed employees’ concern over their finances is having a negative effect on their daily lives, job performance and productivity.

“While the financial situation is improving for many employees, long-term financial worries linger, leaving them feeling vulnerable,” said Steve Nyce, senior economist at Willis Towers Watson. “Many employees still wonder how long they will have to work and how much they will have to build up in savings until they are able to retire.”

The research revealed that financial worries, which are strongly linked to stress, ultimately have an impact on people’s ability to perform their best work. In fact, 28% of people who are struggling with their finances admitted that it prevents them doing their best at work.

In addition, higher levels of absenteeism can occur in employees with financial concerns. The survey found that people who are not worried about their finances reported they took an average of 1.9 absence days from work per year, whereas employees who are struggling financially are absent for an average of 3.5 days per year. Further, those who are struggling financially report being highly distracted on the job 12.4 days per year on average, compared to 8.6 days for those not worried about their finances.

“Financial security is a top-of-mind issue for employees,” said Shane Bartling, senior retirement consultant at Willis Towers Watson. “Financial worries can have a negative impact on an employee’s personal and work life, and inevitably affect productivity, employee engagement and satisfaction. Employers are in an excellent position to help employees achieve both retirement and financial security in the short and long term as well as reinforce good personal financial habits by providing tools, resources, and benefit and total rewards programs that best meet their employees’ needs.”

Interestingly, the survey found that more than six in 10 employees (61%) believe their employers should actively encourage them to save for retirement. However, employees are less comfortable with their employers becoming involved in their personal financial issues and are particularly uncomfortable with targeted messages. Only four in 10 (41%) are open to having their employers encourage them to better manage their personal finances. Even fewer — 30% — feel comfortable with their employers sending targeted messages to employees with financial issues.

“Employers have a long-established track record around retirement messaging and more recently have been pushing healthy lifestyles through their health and well-being programs. Employers that think they have permission to charge ahead in a similar fashion on personal finance issues could end up disappointed or, worse yet, upset employees, which would be counterproductive to their goals. Employers have to be mindful of their approach if they are including personal finance education,” said Nyce.

 

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Is the Tide Turning on Retirement-Readiness?

There appears to be a shift away from what, heretofore, have been dismal findings on Americans’ retirement preparations. You’ve heard them. You’ve read them. And we’ve certainly written about 505511380 -- retirementthem, all the stories positing the harsh reality that many people nearing retirement in today’s workforce can’t see themselves ever affording it.

Enter a recent piece in USA Today suggesting “Americans are finally doing something right when it comes to saving for retirement.” It cites a report from Fidelity, based on a poll of 4,650 people, showing more households are on track to cover essential expenses in retirement today than in 2013.

To conduct its research, Fidelity issued each household a score based on how well they’ll be able to cover basic expenses — food, shelter, healthcare — in retirement. The number of households that scored an 81 or above, meaning they can cover at least the basics, increased to 45 percent, up from 38 percent in 2013, the last year Fidelity conducted the study.

At the same time, the number of households that need to make adjustments to retirement plans in order to have enough money saved decreased to 32 percent from 43 percent in 2013.

As John Sweeney, executive vice president of retirement and investment strategies at Fidelity, says in the story, “[p]eople are becoming more aware of the fact that they need to take control of their own retirement, and they need to save more.”

Bert Doerhoff, CPA and founder of Jefferson City, MO-based Aura Wealth Advisors, cautions in this more recent piece about the study that we shouldn’t overlook the fact that one-third of Americans are still failing to prepare for retirement. So don’t start throwing confetti just yet.

As that piece states:

“Many factors contribute to the increased savings rates for retirement, including an improved economy and Americans becoming more aware of the importance of saving for retirement. Many investors are becoming increasingly educated about the individual nature of saving; it is up to each individual to secure their future.

“Doerhoff notes that getting started early is one of the keys of careful retirement planning: ‘Starting too late in life means you have to do most of the saving rather than letting your money have time to work for you and grow while you work.’ Doerhoff also mentions another reason why it is critical to save money early in a career: [A]n unexpected health problem could move an investor into retirement long before planned.

“Doerhoff adds that even during times of market fluctuations, [investors should be encouraged] to observe the basic tenets of successful retirement planning, such as starting early and investing for the long term. ‘A market downturn, like the one in early January 2016, can spook investors and cause them to move money that really should be left alone to recover from the volatility,’ he says.”

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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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