Compliance March 30, 2017

Senate Votes to Overturn DOL Rules on Government-Run Retirement Plans

The House of Representatives has already passed similar resolutions.
Reported by

The Senate has voted to overturn Department of Labor (DOL) rules that help state and local governments set up retirement savings plans for private-sector workers who have no access to such plans, according to news reports.

Following resolutions introduced in the House, Senator Orrin Hatch, R-Utah, introduced a joint resolution in the Senate aimed at dialing back DOL rules.

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An AARP survey shows that the vast majority (84%) of American private-sector workers “strongly or somewhat agree” that officials should back legislation to enable workers “to save their own money for retirement.” In a statement, AARP Executive Vice President Nancy A. LeaMond, wrote, “AARP is deeply disappointed with the Senate vote discouraging local flexibility to offer workplace savings for the 55 million Americans who currently lack access to retirement savings plans at work. Tremendous momentum has been building across the country to meet the needs of workers who want to save for retirement out of each paycheck but have no opportunity to do so. The Department of Labor last year, at the request of states, provided guidance making it easier to offer savings arrangements to small businesses and their employees. AARP strongly supports these initiatives.  Studies have shown that employees are 15 times more likely to save if they have access to a payroll deduction savings plan at work.”

However, some industry groups were worried the DOL rules would mean individuals in these plans would not get the same protections as those in employer-sponsored plans.

Investment Company Institute (ICI) President and CEO Paul Schott Stevens, said, “We applaud the Senate for working to ensure that consumer protections established by the Employee Retirement Income Security Act of 1974 (ERISA) will apply to retirement plans established by municipalities for private-sector workers. We are hopeful that the Senate will continue working to maintain uniform rules for retirement plans by passing a similar resolution to protect workers in state-run plans. Both resolutions have already passed the House of Representatives.”

In addition, Jill Hoffman, vice president of government affairs for investment management at the Financial Services Roundtable (FSR), commented, “Policymakers should make it easier for more Americans to save for retirement without sacrificing needed consumer protections. Whether you participate in a private-sector retirement plan or one offered by a municipality, hardworking Americans deserve the same level of consumer protections to ensure their money is safe and will be there when they retire.”

Data and Research March 30, 2017

Lack of Financial Literacy Can Cost Americans Thousands

Nearly three in 10 Americans of retirement age reported that lacking knowledge about personal finances caused them to lose $30,000 or more in their lifetime.
Reported by

The benefits of compounding earnings on investments are common talking points when it comes to encouraging people to save for retirement through employer plans or individual retirement accounts (IRAs). However, a lack of financial knowledge can also have a snowball effect that causes money to deteriorate rather than accumulate.

According to the latest study by the National Financial Educators Council (NFEC), 28.8% of Americans at least 65 years old reported that lacking knowledge about personal finances caused them to lose $30,000 or more in their lifetime. While this is typically considered retirement age today, the detrimental effects can become much worse as studies show that Americans are concerned about funding living longer and many are choosing to retire later, often to negative results. 

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The firm asked people of all generations, “Across your entire lifetime, about how much money do you think you have lost because you lacked knowledge about personal finances?” Regardless of age group, respondents estimated that their lack of financial knowledge cost them an average of $9,724.83. This figure was calculated by averaging the total number of respondents choosing each category or money range, using the lowest number in each spread.

The categories broke down as follows: $0-999 (36.28%), $1,000-$4,999 (15.32%), $5,000-$14,999 (13.68%), $15,000-$29,000(10.22%), and $30,000 or more (24.52%).

That leaves almost one-quarter of Americans seeing at least $30,000 disappear simply because they lacked a firm grip on personal finance. The firm concluded that given 240 million adults live in the country, this would spell out to Americans collectively losing about $2.3 trillion in their lifetime, because of their poor financial wellness. 

NFEC notes, “Lack of personal finance knowledge costs people money: bank fees, interest on credit card debt, higher interest rates on loans, and investment losses are just a few examples.”

According to the survey, estimated lifetime losses of more than $15,000 were reported by one out of three respondents, and nearly one in four people reported losses of more $30,000. NFEC notes that respondents in the 55-to-64-year-old category estimated experiencing the highest losses, with 41.5% believing they had lost $15,000 or more. When breaking down who projected losing $30,000 or more based on age group, those between the ages of 55 and 64 accounted for the biggest chunk (32.7%).

Those with time on their side reported the smallest losses, with 42.5% of 18-to-24-year-olds estimating losing between $0 and $999. But, time could be a curse for Millennials not improving their financial knowledge. And those who have lost the most and are closest to retirement may have a difficult time catching up.

These figures highlight a need to boost financial wellness across all generations as soon as possible.

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