Data and Research September 28, 2022

Nearly Half of Participants Are Saving Less Than 10% of Income for Retirement

A new report says recession fears are likely driving interest in lifetime income options for workers.

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Workers are anxious about the effects of a potential recession on their retirement planning, which may be driving greater interest in retirement income options, according to new research.

The Protected Retirement Income and Planning Report, produced by the Alliance for Lifetime Income and CANNEX, says 48% of workers believe their retirement savings and other sources of income will last throughout their lifetime, compared with 55% in 2021. Among workers who have an annuity, 74% believe their savings and income sources will last their lifetime, compared with 43% for those without one, the study found.

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“Consumers’ strong desire for protection amid this tricky economic environment is why the alliance is relentless in helping people understand how to protect their hard-earned savings,” Jean Statler, CEO of the Alliance for Lifetime Income, said in a press release. “Not surprisingly, consumers are turning up the heat on their financial professionals and asking them to find ways to protect their portfolios.”

The report shows that overall, 63% of workers worry about their finances several times a month or more often, as 25% worry several times per month, 24% worry every day and 14% fret about finances several times a week.   

Among respondents, 70% said they will be able to fund basic needs in retirement, 23% hope to be able to fund the basics and 3% said “there is not a chance,” the study found. When workers were asked if they would be able to fund “wants” in retirement, 35% said they will be able fund them, while 49% hope to and 11% said “no chance.” For funding “a few splurges” in retirement, 30% said they will be able to fund some luxuries, 48% hope to, 16% said “no chance” and 7% were not sure.

Many workers may not be able to fund the lifestyle they imagine in retirement if their current savings patterns persist, the report says. Data show that 45% of nonretired workers age 45 to 75 are saving less than 10% of their annual income for retirement; more specifically, 27% are saving below 5% and 18% are saving from 5% to less than 10%.

The study also found that 17% of workers are saving 10% to less than 15%; 11% are saving 15% to less than 20%; and 12% are saving 20% to less than 25%.

The report also shows—consistent with data from an earlier iteration of the CANNEX and ALI Protected Retirement Income and Planning Report, which was published earlier this year—that investors place more emphasis on retirement income protection than financial professionals. Whereas 89% of consumers rated income protection as important in the context of retirement planning, 73% of financial professionals said the same. Among consumers, 53% said it is ‘very important’ to include income protection when thinking about your retirement planning, compared with 33% of financial professionals, the study found.

“Unfortunately, the research also shows that many financial professionals are falling short of what their clients expect and want,” added Statler.

Additionally, 54% of consumers who work with a financial professional would grade them an “A” for how much they listen to and understand needs, the report says.

The Alliance for Lifetime Income is a Washington, D.C-based nonprofit that advocates for protected lifetime income in retirement. CANNEX Financial Exchanges is a Toronto-based pricing information provider, with a mission to provide access and transparency to the cost and features of retirement savings and retirement income products.

The study was conducted online by Artemis Strategy Group in April and May among 2,025 American consumers age 45 to 75, and 514 financial professionals who conduct retirement planning for individual clients. 

Compliance September 27, 2022

What Would a Government Shutdown Mean for the DOL?

The Department of Labor would be able to sustain services deemed essential, as well as those that receive forms of funding other than annual Congressional appropriations.

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Most of the federal government is only legally funded through the end of this week.

Senate Democrats have introduced a continuing resolution that would keep the government funded until December 16. If a new budget or resolution is not passed by this Friday, the government would shut down and nonessential services without other sources of funding would be paused.

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Attached to the continuing resolution is a provision that makes it easier for energy projects to receive environmental approval, and would lead to the approval of the Mountain Valley Pipeline, a 300-mile-long natural gas pipeline project in West Virginia and Virginia.

This provision is the product of a deal reached by Senator Chuck Schumer, D-New York, and Senator Joe Manchin, D-West Virginia, to secure Manchin’s decisive vote earlier this year on the Inflation Reduction Act.

It is unclear if the resolution can pass with the rider or if it will be dropped for the time being. It has already attracted opposition from Senator Bernie Sanders, I-Vermont, who circulated a “Dear Colleague” letter last Friday that describes the rider as a “disastrous side deal introduced by Senator Manchin” and highlights the negative effect it would have on the climate and environment.

In the absence of the resolution, however, many government services would cease to operate.

The Department of Labor, like other departments of the federal government, maintains a contingency plan in case of government shutdowns as a result of their increasing frequency. The plan is called a “Plan for the Continuation of Limited Activities During a Lapse in Appropriations.”

The document outlines the services that the DOL would continue to provide, either because they are essential or because they receive funding from a source outside of Congressional budgets.

One such example of a DOL organ that has alternate funding is the Pension Benefit Guaranty Corporation, which is funded by insurance premiums paid by sponsors of defined benefit pension plans as well as by the assets the PBGC controls when it takes over a failed pension. The purpose of the PBGC is to continue pension payments to beneficiaries of private DB plans whose plan has failed. Since its funding does not require a new annual appropriation, the PBGC can continue to function as normal, similar to how programs such as Social Security continue to function since they have alternate funding.

Because of statutory requirements, the DOL would also administer policies essential to the protection of life and property from imminent threat, such as monitoring and responding to unsafe working conditions and child labor reports, as well as investigations and inspections of high-hazard industries.

The Employee Benefits Security Administration would see most of its services close during a shutdown. However, it would still be able to pursue criminal action under the Employee Retirement Income Security Act, and could pursue civil actions that are necessary to protect life, such as an action to restore “retirement benefits necessary for the purchase of life-sustaining necessities.”

Bradford Campbell, a partner at Faegre Drinker Biddle & Reath, and head of EBSA from 2006 to 2009, says that EBSA could also take actions necessary to meet judicial deadlines that were set prior to the shutdown.

EBSA would also be able to bring actions under the No Surprises Act, which is funded by supplemental appropriations and was established to prevent certain surprise medical bills from out-of-network providers and ambulances.

The DOL would suspend nonessential services that do not have independent funding. This includes the Bureau of Labor Statistics, the Office of Disability Employment Policy, the Women’s Bureau and the Veterans Employment and Training Service, among others.

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