Benefits June 10, 2015

Judge Approves R.I. Pension Settlement

The settlement resolves six of nine lawsuits against the state.
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A proposed settlement to resolve litigation over Rhode Island’s public pension system reform was approved by a judge.

The Associated Press reports that Superior Court Judge Sarah Taft-Carter overruled objections to the settlement, putting an end to nearly all the lawsuits by public-sector unions and retirees against the state over the 2011 reform. Lawmakers must also approve the settlement.              

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The terms of the settlement include:

  • Two one-time $500 stipends to current retirees, with the first payment a month after enactment and the second paid a year later;
  • A once-every-four-years increase in the pensions paid to current retirees on their first $30,000 in retirement benefits, as opposed to the first $25,000; and
  • A tweak in the retirement age, to allow workers to retire with full benefits at age 65 after 30 years of service; age 64, 31 years; age 63, 32 years; and age 62, 33 years.

Rhode Island’s pension reform was passed in November 2011, and it included, among other things, a suspension of cost-of-living adjustments (COLAs) for retirees, with reinstatement depending on the financial improvements of the retirement system. The reform sparked several lawsuits by both unions and retirees.

Administration June 10, 2015

Sponsors Appear Eager to Tackle Plan Problems

An annual study from Vanguard finds many retirement plan sponsors have embraced auto-features and a deeper sense of ownership over participant outcomes.
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The 2015 edition of Vanguard’s “How America Saves” study shows plan sponsors continue to aggressively evolve and refine the defined contribution (DC) workplace savings model.

The study outlines increased use of automatic enrollment among the Vanguard client base. At year-end 2014, 36% of Vanguard plans had implemented auto-enrollment, a 50% increase since 2009. Today, approximately 60% of newly hired employees participating in Vanguard 401(k) plans were automatically enrolled.

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“Moreover, although this feature was traditionally used only with newly hired employees, sponsors of half of Vanguard plans have now chosen to apply it to eligible nonparticipants,” the firm explains. “In addition, seven in 10 auto-enrollment plans have implemented automatic annual deferral-rate increases.”

Vanguard says these two approaches are leading to very meaningful jumps in retirement readiness for participants.

“The first step in retirement savings is participation,” says Jean Young, lead author of the report and a senior research analyst with the Vanguard Center for Retirement Research. “Over the past decade, we’ve seen a meaningful jump in total participation rates. Three-quarters of eligible workers now participate in their employer’s plan, up from two-thirds 10 years ago, underscoring the impact of autopilot plan designs.”

Another positive trend is a marked shift toward optimally designed portfolios for participants, Vanguard says—especially the use of automatic asset-allocation solutions based on a target retirement date or a targeted level of portfolio risk.

“The value of age- and risk-appropriate portfolio construction choices is most prominently reflected in the continued growth of target-date funds [TDFs], particularly as the default investment option,” Vanguard finds. “With 88% of plan sponsors offering target-date funds, nearly all Vanguard participants have access to this professionally managed and diversified investment choice, and 64% take advantage of this option. Last year, $4 of every $10 deposited in Vanguard plans was invested in target-date funds.”

According to Vanguard’s research, TDFs and other professionally managed allocations “have the added benefit of reducing extreme allocations and establishing appropriate risk levels for participants.” As of year-end 2014, roughly one in eight employees held an extreme allocation position. For example, 8% of participants held only equity investments, while 5% held no equity investments in their portfolios.

These numbers are still too high, Vanguard says, but 10 years ago, one in three participants held an extreme allocation position, so things are getting better. This is also true of extreme allocations to company stock, Vanguard notes.

“In addition to the broad adoption of diversified, balanced investment programs, there has been a dramatic shift away from company stock,” the study notes. “Only 8% of participants held a concentrated stock position at the end of 2014 [employer stock or otherwise], compared with 18% a decade prior—more than a 50% improvement.”

Additional findings from the research can be explored here.

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