Participants May 8, 2015

All Age Groups May Have Misguided Retirement Ideas

Insights from the 16th Annual Transamerica Retirement Survey of workers.
Reported by

On average, workers of all ages estimate that they will need $1 million of savings to feel financially comfortable in retirement, according to the 16th Annual Retirement Survey from the Transamerica Center for Retirement Studies.

The majority of Americans in each age group surveyed—20-, 30-, 40-, 50- and 60-somethings—reported that they are currently saving toward that target, and the most commonly cited goal for their golden years was to spend the time traveling. Their most common fear is outliving their money, and 20% overall report that getting out of credit card debt is their top financial priority.

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These similarities among the ages, on their own, are not surprising—cruises have been popular since the Titanic hit movie theaters; Iris Apfel is still going strong at 93; and many respondents were probably solicited for their first credit card in college or even high school. What is problematic, though, is that workers in their 20s and 40s share nearly equal concerns about debt. Twenty-one percent of Millennial workers rank credit card debt as their first priority, 1 percentage point less than the 22% of 40-somethings who say the same.

“Each age range has its own successes and opportunities for improvement,” says Catherine Collinson, president of Transamerica Institute and Transamerica Center for Retirement Studies. “All age ranges present a tremendous opportunity for plan sponsors to work with their benefits advisers and plan providers to ensure that they’re maximizing the benefits of their plans.”

More and more workers are saving for retirement as they age—67% of workers in their 20s, 76% in their 30s and 82% in their 40s—but younger workers do not understand even the basics of retirement investing. One-quarter (24%) of Millennial respondents are enrolled in low-risk, low-return investments, which could cost them many of the benefits they would otherwise get from their long investment horizon.

Older workers, 50- and 60-somethings, do not know how to transition out of retirement, and their expectations for that phase may be way off the mark. Nearly half (47%) of 60-somethings expect Social Security to be their primary source of retirement income, but most (71%) do not know a great deal about this benefit.

Average savings tick up over time: $16,000 for 20-somethings, $45,000 for 30-somethings, $63,000 for 40-somethings, then $117,000 and $172,000 for 50- and 60-somethings, respectively. What this means, however, is that pre-retirees have not saved even one-fifth of their target millions. Given that 53% of workers say they guessed what their retirement needs would be, this presents a clear opening for outreach efforts by plan sponsors and advisers to participants.

Although 20- and 30-somethings are strong savers, their choices are not necessarily backed by financial literacy or expert advice. In fact, 87% of workers in their 30s report that they prefer to do their own research (45%) or seek out advice (42%), but ultimately make their own financial decisions. Yet, 68% admit they do not know as much about investing as they should.

Forty-somethings are unique in that they are in their “sandwich years,” Collinson says. “They are so busy with work and kids and, possibly, aging parents.” They are at tremendous risk, she adds. This age group’s median deferral rate is 7%, below the 8% median among age groups overall. “Many are just stretched. The message is: Find ways to save more.”

Workers in their 50s and 60s need help as they approach retirement, and many are planning a transition into that phase of life. Six in 10 50-somethings (59%) plan to work into retirement or to never retire, and 82% of 60-somethings say the same—or are already doing so. This may be unrealistic, as many older workers are forced to leave the workforce for unexpected reasons, and Collinson warns that both groups have to focus on their own financial futures. For 50-somethings who may be contemplating taking time off of work to care for an aging parent, for instance, the immediate loss of earning power could lead to reduced benefits at retirement age. Aging parents are a factor that “we can’t talk about enough,” Collinson says. “What is done out of love for the family could be at their own financial detriment 20 years out,” she notes. “Make it a family conversation and a shared responsibility.”

Likewise, 60-somethings need to clarify their plans and expectations. Just 15% of workers in this age group have a written strategy in place, and one-quarter (27%) are not certain that their transition into retirement will take place at their current employer. Overall, only 12% of workers report that their employers offer financial counseling about retirement. “There are many choices and strategies available” when these individuals begin to take their Social Security benefit, Collinson says. “That is where advisers and plan sponsors can make a huge difference in helping their employees prepare for retirement—extending educational resources and guidance on how to go about claiming Social Security in a way that optimizes their benefits.”

The first big step for all Americans, Collinson says, is calculating an accurate savings goal. “The U.S. retirement landscape has been changing over time, and it is continuing to change and, at least at this moment in time, workers are at the forefront of effecting changes. All of these changes bring opportunities for plan sponsors and their advisers to keep up with the times, enhance their plans and help their workers achieve retirement readiness.”

A report of the 16th Annual Retirement Survey findings is here.

Compliance May 8, 2015

Proposed Wellness Program Rules Leave Questions Unanswered

A proposal from the EEOC did not address all the issues between employer wellness programs and the Americans with Disabilities Act (ADA).
Reported by

“The idea [behind issuing proposed rules for employer wellness programs] was to provide clarity and consistency, and while the EEOC was conceptually in the neighborhood, it provided a little more clarity, but a lot more inconsistency,” says Michael Dermer, chief incentive officer at Welltok, a Denver-based company that created the CaféWell Health Optimization Platform.

Dermer, based in New York City, notes that the proposed rules recently issued by the Equal Employment Opportunity Commission (EEOC) did not address issues with the Genetic Information Nondiscrimination Act (GINA)—tying incentives to family history information—and that was the basis for one of its claims in a lawsuit against Honeywell International. He also tells PLANSPONSOR that if the proposal is passed in its current form, it will establish two sets of rules, one for outcomes-based incentives and one for participation-based incentives, particularly when it comes to smoking cessation.

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For background, Ryan Gorman, an associate in the Employee Benefits and Executive Compensation practice of King & Spalding LLP, in Atlanta, Georgia, explains that in 2013, the Internal Revenue Service (IRS) and the Departments of Labor (DOL) and Health and Human Services (HHS) issued final regulations based on changes made by the Patient Protection and Affordable Care Act (ACA) to set up an affirmative defense for employers that wellness incentives complied with Health Insurance Portability and Accountability Act (HIPAA). However, the EEOC said wellness programs could satisfy HIPPA under those regulations, but may not be in compliance with Americans with Disabilities Act (ADA).

Following the filing of several lawsuits by the EEOC challenging employers’ wellness program practices, many called for the EEOC to issue rules for wellness programs. The EEOC had previously said employers cannot make disability-related inquiries, and medical examinations are restricted to only those that are part of a voluntary program. Employers wanted clarification of what qualified as voluntary, Gorman notes.

He says the proposed rules define what requirements must be met if you make a disability-related inquiry or medical testing in order for it to be voluntary—employers cannot mandate all employees participate, cannot deny access to health coverage or limit coverage if someone chooses not to participate, cannot take any adverse action towards an employee such as threatening to discipline the employee if he or she doesn’t participate or achieve certain outcomes. But, Gorman notes there are still questions about the underlying principle of incentives not discriminating, especially if the incentive is tied to health insurance premiums. 

For example, some employers tie smoking to premium rates, adding a surcharge to the rates paid by smokers. “It is difficult to reconcile whether a reduced rate is an incentive to participate in smoking cessation programs or a penalty for not participating,” Gorman notes. “It gets murky as to whether the program is really voluntary and whether it’s nondiscriminatory.” He says he is seeing a trend of employers not tying incentives to premiums because of this fine line. The proposed rules ask for comments about what the requirements should be for a program to be considered voluntary.

Smoking cessation is one of the areas in which the proposed rules create inconsistency, says Dermer. Prior rules allowed for an incentive of up to 50% of the cost of employee-only coverage for employees that successfully complete smoking cessation programs, but the proposed rules only allow for an incentive up to that amount if the employer simply asks the employee if he stops smoking, not if a blood test for nicotine is required, he explains. Dermer adds that there is a trend of employers using testing as opposed to someone just checking a box to self-report they are not smoking.

In general, the proposed rules say that employers are allowed to offer both financial and in-kind incentives in the form of a reward or penalty totaling no more than 30% of the cost of employee-only coverage. Dermer notes that this is a reduction in the incentive amount allowed by current rules, which calculate the incentive based on total cost of family coverage.

As for wellness program design, the proposed rules say gathering information to alert employees of health risks is appropriate, but gathering information without providing feedback or using the information to design programs is not appropriate, Gorman says. The proposal also requires more disclosure to participants. If the wellness program is part of a group health plan, employers have to provide participants with written notice that explains what medical information will be obtained, how it will be used, who will receive it, privacy rules and procedures the employer will use to make sure the information is not improperly disclosed or to handle breaches.

Neither Dermer nor Gorman have a clear opinion about how the proposed rule would affect current EEOC lawsuits, but Gorman says his colleagues do not think the EEOC will pull back on future enforcement activities concerning wellness programs given its commitment to pursue enforcement of discrimination laws. 

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