11/14/2013 1 Comment Account Balances Continue to StrengthenThe latest quarterly statistics released by Fidelity show that 401(k) account balances continue to improve. The average now stands at a record-high $84,300 as of September 30, 2013. This represents an 11% increase from the same time frame in 2012. About three-quarters of the growth was due to stock market gains, with the remainder due to employee and employer contributions. Fidelity examined the data from the nearly 21,000 plans it services,comprised of 12.6 million participants.
A few weeks ago, the importance of looking at a continuous group of participants was discussed in this space. The reason for this is that new hires and frequent job changers can skew the averages. Fidelity now echoes that earlier EBRI data. According to Fidelity, participants who have been continuously active in their 401(k) plan for 10 years saw an increase of 19.6% since 9-30-12, with their average balance now at $223,100. Going a step further, pre-retirees age 55+ who have been in their plan for at least ten years have an average balance of $269,500. One other item of note is that one in three participants now use professionally managed investment options, compared with a decade ago when virtually everyone went the do-it-yourself route.
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11/6/2013 0 Comments Plan Limits for 2014 AnnouncedThe IRS has released its annual cost-of-living adjustment (COLA) update to retirement plan dollar limits. The elective deferral limit remains at $17,500 for the second year in a row. The catch-up limit remains unchanged since 2009 at $5,500. A detailed chart of current and recent (2012-2014) limits is posted on the IRS website, as is an historical chart dating back to 1993.
10/31/2013 0 Comments Plan Design Changes Boost SavingsBehavioral research has suggested that default levels do matter. Just yesterday, I was in the supermarket. Yogurt was 10 for $10, so what did I do? I bought 10, of course. The interesting thing is that it still would have registered as $1 each if I bought a smaller quantity. Cucumbers were 3 for $2, so I naturally bought 3, even though the price would still have been 66 2/3 cents each had I bought a quantity that wasn't a multiple of 3. Limes were 10 for $2, so I bought 10, right? Not this time - but I did buy a multiple of 5 - that is, 5 for $1.
What does this have to do with 401(k) plans? More than you might think. For the longest time, the most popular employer match was 50 cents on the dollar up to the first 6% of employee deferrals. Now, according to Aon Hewitt's "2013 Trends & Experience in Defined Contribution Plans: An Evolving Retirement Landscape," the most popular match is a full dollar on the dollar. According to Aon Hewitt, three-fourths of employees save at or above the company match level, so if that holds, savings would rise substantially. Other noteworthy trends reported by Aon Hewitt include:
For the most part, it appears that employees appreciate the help they get through automated programs and other tools designed to make their decision-making easier. . Few ever decide to opt out. The higher employer match should greatly benefit those who stay with their plan and contribute at the higher employer match level. For those who contribute at lower levels, it would be helpful to determine the obstacles - for example, are other financial challenges standing in the way? If so, is there a way to get these participants to both save more and more effectively address the other financial factors? 10/21/2013 0 Comments Account Balances Show ResilienceSaving for retirement, of course, is a long-term process. Along the way, there may be bumps in the road. In 2008 and 2009, the economic crisis tested the mettle of both experienced and inexperienced investors. Retirement account balances declined, often precipitously. The Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) team regularly to analyze retirement savings data. One of the key metrics EBRI and ICI offer the financial services community and the population at large is the ability to look at data over a longer period. Account balances of 401(k) participants provides a prime example, as numbers may be skewed due to frequent job changes or large numbers of new employees.
EBRI and ICI get around this obstacle by looking at what they call a "consistent group" of participants. In other words, to get a more accurate view of the impact of the economic downturn on retirement savings, EBRI and ICI look at the figures for those participants who remained in the same plan from 2007 through 2011. For this group, there was good news - while there was a sharp drop in 2008, account balances rose and then some for those who remained in their employer's plan. In 2007, the average account balance for this consistent group was $76,534. In 2008, this figure plummeted to $49,912. By the end of 2011, the rebound had reached to an average balance of $94,482. The report contains other interesting data as well, such as breaking down the balances by tenure with the employer and by age, as well as looking at asset allocation and the increasing concentration on equities. 10/14/2013 1 Comment Auto-Enrollment Lowers Employer MatchAccording to the Center for Retirement Research (CRR) at Boston College, the implementation of automatic enrollment is causing some employers to lower the default match rate, based on the belief that this will keep cost pressures in check. The CRR notes that National Compensation Survey data supports the finding that plans with auto-enrollment have slightly lower match levels than do plans without auto-enrollment. The CRR took this a step further, finding that in reality, there was no evidence of higher costs for plans with auto-enrollment. Auto-enrollment naturally improves participation rates, particularly as few individuals opt out of it. The lowering of the match can hurt employees who otherwise would have contributed more to their plan, thus adversely impacting savings over the long term.
According to the latest data from the Investment Company Institute (ICI), total retirement assets grew slightly between the first and second quarters of 2013. The total U.S. retirement market stands at $20.9 trillion as of June 30, up from $20.7 trillion as of March 31. IRAs lead the way with $5.7 trillion in assets, followed by defined contribution (DC) plans at $5.3 trillion, government plans at $5.2 trillion, private DB plans at $2.8 trillion,and annuity reserves at $1.8 trillion. Target-date mutual fund assets have grown from $160 billion in 2008 to $540 billion as of June 30, 2013.
Back in the 1990's, interactive voice response (IVR) was a major tool for providing retirement plan information. Using the internet was, at best, an afterthought. Palm Pilots were around, then the Blackberry became a popular business tool. The iPod was still a few years away. Mark Zuckerberg was a teenager. As we moved into the 21st century, the iPod led an incredibly successful string of product introductions for Apple - first the iPhone and then the iPad. At one time, AOL and MySpace were household brands. In 2004, a new company, Facebook, was launched, dramatically changing the way people interact. LinkedIn was launched a year earlier, in 2003. While not rising to the audience numbers of Facebook, LinkedIn has proved to be an extremely important tool for people in the business world to communicate.
This brings us to a survey released by MassMutual, fielded by Brightwork Partners. Nearly 2,100 defined contribution plan participants were surveyed. Highlights include:
While the social media numbers may seem modest, it's good to remember that not too long ago, even the internet was an afterthought as far as communicating with participants was concerned. Once upon a time, many workers dreamed of an early retirement, perhaps between ages 55 and 65, living financially secure. Economic uncertainty has turned this vision upside down. The 2008-2009 downturn, in particular, made many people realize that they might need to work longer than expected, not shorter.
Several recent reports bear out that retirement savings is problematic for many individuals. The Employee Benefit Research Institute (EBRI) notes that in 1998, some 24% planned to retire before age 60 and another 25% between 60 and 64, versus 9% before 60 and 14% between 60 and 64 here in 2013. Similarly, only 7% in 1998 said they would retire age 70 or later, versus 26% in 2013. PNC released a report whose findings echo the EBRI data. PNC found that 49% of those who have not yet retired will have to delay retirement to later than what they had planned, primarily to be able to increase savings. For those who already retired, almost six in ten (58%) retired earlier than planned, primarily due to health issues (40%) and employer actions (28%) such as layoffs or forced retirement. A Prudential report finds that women are particularly concerned about retirement savings shortfalls. While retaining a sense of optimism, more than one-third of women are either struggling to make ends meet or are falling behind. Women are not particularly confident about saving for retirement and worry about outliving their savings. While there may be signs of economic improvement, it is clear that many individuals are concerned about their financial well=being in retirement. Account balances may have rebounded the last couple of years, but plan participants have their work cut out for them. A recent report from J.P. Morgan Asset Management stresses the important role that automated plan features often play in helping participants achieve a secure retirement. Some plan sponsors are reluctant to modify their DC plans out of concern that their participants will become upset, as well as due to perceived fiduciary obstacles. What is particularly noteworthy is that the report takes it a step further and addresses this concern, finding that most participants are either neutral or would welcome help in achieving a secure retirement, with a rather small group still wishing to handle their finances themselves. The report notes that participants can always opt out of automated plan features. Larger plans appear to be leading the way in addressing the concerns, with greater levels of implementation of automated features. The report takes note of the many financial challenges that participants face and suggests that taking a holistic approach to the financial security of employees is a laudable goal for plan sponsors. Since its inception, this blog has taken the position that retirement savings does not take place in a vacuum, but rather in the midst of other financial challenges. The J.P.Morgan report appears to agree with this sentiment.
8/29/2013 0 Comments Healthcare Industry Retirement Plans Adjust to Changes; Older Employees Take to WebRecent legislation and a flurry of merger & acquisition (M&A) activity have led to dynamic changes in the healthcare industry. The Affordable Care Act (ACA) is resulting in many healthcare employers reexamining their organizational structures and operations. The related pharmaceutical industry similarly has seen significant M&A momentum. Fidelity has released a report, Defining Excellence: Plan Design and Retirement Readiness in the Not-For-Profit Healthcare Industry, that focuses on the challenges faced by these plan sponsors. Data was gathered from 600+ plans serviced by Fidelity, representing about 2 million participants and $72 billion in plan assets. One particularly interesting trend reported by Fidelity is that as employee tenure increases, the gap in participation levels tends to narrow between those in plans with automatic enrollment (AE) and those in plans without AE. While this result is somewhat to be expected as few tend to opt out of participating in their employer's plan, what is notable is that the gap never fully closes, even for employees with 25+ years with their employer. In AE plans, the participation rate hovers within four percentage points on either side of 80%, regardless of tenure. By contrast, in non-AE plans, the participation rate for employees with one to three years of tenure is only 35%. This does improve to 70% for those with 25+ years, but still falls short of the 84% for those in AE plans with a similar tenure.
Surfing Boomers. Another interesting finding in the Fidelity study is that across all age groups except those 70+, participants preferred engaging with their plan through Fidelity's participant website than via phone. The level is very consistent for those in their 30's through those in their 60's, with a slight uptick as one approaches age 65. WIth the continued growth of the smartphone and tablet markets, it would appear that access through a portal will remain strong for the foreseeable future. |
Blog Author - Ken FelsherWith over 25 years of writing, editing, and research experience. I enjoy sharing with my readers my love of working with content on a variety of subjects. CategoriesAll 401(k) 402(g) Boomers Catch-up DB Dc Deferral Limit Defined Benefit Defined Contribution ERISA Healthcare Participation Pension Professionally Managed RCS Retirement Retirement Confidence Tax Code Vanguard Women Working Archives
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