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Category: Pensions
A recent study by EBRI (Employee Benefit Research Institute) reports that many experienced employees might delay retirement if offered the right incentives. In partnership with the HR Policy Association, EBRI interviewed employees and retirees from 11 aerospace and defense industry companies. Nearly half of those polled said that feeling needed would be enough to get them to stay as much as 2 years longer. Half also said that receiving a full pension while adopting a part-time schedule would delay their retirement. Nearly as many would be enticed by a partial pension while working part-time. An overwhelming majority say that they would look positively on an employer asking them to stay longer. Employers have a narrow window to offer incentives for working longer, though. Many employees start thinking and planning for retirement as much as 2 years before they retire.
Join Cowden Associates on January 31, 2008 for a complimentary breakfast and seminar. Recent guidelines regarding default investments and fee disclosures have added important clarification. Process and documentation are critical features. This seminar will focus on practical examples and walk through actual case studies. Topics to be covered include:
- Formation and duties of an Investment Committee
- Review/creating Investment Policy Statements
- Investment review and selection of plan offerings
- Qualified Default Investment Alternative (QDIA)
- Full fee disclosures
- Performance monitoring and changes in offerings
- Documenting the process and rationale
- Employee communications
- Evolving DOL Fee disclosure requirements including 5500 data
This is your opportunity to learn the critical features of process and documentation requirements now required by Plan Sponsors.
Older Workers: Employment and Retirement Trends, a Congressional Research Service Report, wonders if a mass exodus of retirement age “baby boomers” might significantly alter the profile of the American Workplace.
According to the Census Bureau, while the number of people between the ages of 55 and 64 will grow by about 11million between 2005 and 2025, the number of people who are 25 to 54 years old will grow by only 5 million. This trend could affect economic growth because labor force participation begins to fall after age 55.
Employers may soon be facing a shortage of labor force participation and experienced job candidates as Boomers retire en mass, although current trends away from defined benefit pension plans and the decline in retiree health insurance offerings may force Boomers to work until they are eligible for Medicare at age 65. The report predicts that many employers may lure older workers back into employment with “phased retirements” – job sharing, reduced work schedules, and rehiring retired workers on a part-time or temporary basis.
The complete report can be found at benefitslink.com.
The Government Accountability Office (GAO) has released a report, State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs, that provides an overview of state and local government retiree benefits, including "the types of benefits provided and how they are structured, how retiree benefits are protected and managed, and the fiscal outlook for retiree benefits and what governments are doing to ensure they can meet their future commitments."
Using a model that stimulates the fiscal outlook for the state and local sector, the GAO obtained data from various organizations and conducted site visits to three states that illustrate a range of benefit structures, protections and fiscal outlooks. The report estimates that future pension costs (currently about nine percent of employee pay) would require an increase in annual government contribution rates of less than a half percent. Estimated future retiree health care costs (currently about two percent of employee pay) would more than double by the year 2050 if they continue to be funded on a pay-as-you-go basis.
Read the highlights and full report at the U.S. Government Accountability Office website.
The IRS, Social Security Administration and Medicare have all updated their limits for 2008. These updates are listed on our Annual IRS Limits page.
Cowden Associates' 401(k) Survey got a mention on SmartMoney:
...today presented results from its first Tri-State 401(k) Plan Sponsor Survey. The results identified areas of 401(k) plan sponsorship and participation in need of improvement as the plans emerge as America's primary retirement vehicle...
and Forbes:
The survey provides a baseline for measuring the effectiveness of the Pension Protection Act, which was passed to make participation in 401(k) plans easier. In light of a recent federal court decision to change the way investment brokers must provide investment recommendations to 401(k) plans, the survey results also reveal the prevalence of brokers in the region who provide investment support to plan sponsors...
America’s workforce is getting older, or rather more people over the age of 55 are continuing to work full-time, year-round jobs according to the Employee Benefit Research Institute’s August 2007 Notes. "Those ages 55 or older in the labor force increased from about 38 percent in 1993 to 45 percent in 2006. For those ages 65–69, the percentage increased from about 18 percent in 1985 to 29 percent in 2006." EBRI speculates that this is due to the rising cost of health care in the individual market. The report also anticipates that the number will continue to rise as employers phase out retiree health insurance and defined benefit pensions are replaced with defined contribution retirement plans. The full report can be downloaded at the EBRI website (pdf).
This trend is neither unexpected or alarming, but it presents both opportunity and challenge to employers: with many older employees needing the income and/or benefits associated with employment, employers lacking a defined benefit retirement and retiree medical plans will find it more difficult to encourage early retirement to reduce labor costs; it will make experienced talent easier to attract and retain; but it’s corollary might prove true – employers may find it challenging to retain only highly-productive older employees.
PLANSPONSOR.com reports on a key 401(k) fiduciary breach case (free registration required) that is scheduled for Supreme Court Session beginning October, 2007. The case (LaRue v. DeWolff, Boberg & Associates, U.S., No. 06-856) will determine if 401(k) participants can sue to restore their account balance when a fiduciary breach results in lost money. Lower courts ruled that recovering those funds falls outside of the scope of "equitable relief" authorized by ERISA.
If overturned, plan sponsors could be facing significant liability without strict fiduciary controls and a well defined and carefully followed Investment Policy Statement.
Let’s look at the key points:
- The U. S. Supreme Court “will decide” whether participants can sue to restore their account balances when a “fiduciary breach” caused them to lose money. Think ENRON!
- The U. S. Solicitor General stated in legal briefs filed with the court that: “It makes little sense that plans and their participants should be left with no relief when plan assets are lost through fiduciary mismanagement.” This puts all fiduciaries and co-fiduciaries on notice that they will, if the court rules in favor, have to “put their money where their investments are.”
Does the SEC Ruling Related to the Status of Your Broker-Dealer Affect Your Pension Plan?
On March 30, 2007, The U.S. Court of Appeals for the District of Columbia Circuit ruled that the SEC exceeded its authority in granting a 2005 disclosure exemption to brokers who provide investment advice that is incidental to their business, but who nonetheless are paid a special fee for the advice. This effectively eliminated the broker exemption created by that SEC rule.
Acknowledging that plan sponsors may not be accustomed to having such frank conversations, employers need to ask TPAs how their fees are calculated and if they receive any compensation from mutual funds or trading platforms, comments Jim Bartoszewicz, executive vice president with Cowden Associates.
"Most hidden costs are in the investment management fees or contract charges," says Bartoszewicz, "so we generally calculate a bottom line number that includes all ongoing fees charged, plus the total investment management fees."