Data and Research June 1, 2017

SOA Review Shows Positive Funding Picture for DB Plans

Using the smoothed assets as allowed and smoothed bond rates require by current law to discount the liability, the 2014 total funding target liability for single-employer plans of $1.9 trillion was 98% funded, the SOA found.
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Using the Department of Labor (DOL) Form 5500 database as of October 28, 2016, the Society of Actuaries (SOA) finds that for single-employer defined benefit (DB) plans, using the smoothed assets as allowed and smoothed bond rates require by current law to discount the liability, the 2014 total funding target liability of $1.9 trillion was 98% funded, with and unfunded liability of $30 billion.

Based on unsmoothed high-quality corporate bond rates and the market value of assets, the estimated liability of $2.4 trillion was 91% funded, with an unfunded liability of $218 billion.

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According to the SOA report, weighted by plan liabilities, more than 99% of single-employers DB plans contributed at least the minimum amount required by law for both 2013 and 2014. Preliminary data for 2015 indicates results similar to 2014.

Based on smoothed rates for 2014, about 8% contributed at least enough to maintain their unfunded liability and 3% fell short of that benchmark. Eighty-nine percent had no unfunded liability. Corresponding percentages in 2013 were 18%, 4% and 78%, respectively. The SOA explains that fewer plans met the benchmark in 2014 than in 2013 because fewer plans had an unfunded liability in 2014.

For 2014, 7% of single-employer DB plans contributed at least enough to close their funding gaps within seven years, while 4% failed to meet that benchmark. Respective percentages for 2013 were 16% and 6%.

However, using the lower, unsmoothed rates, SOA finds more plans had an unfunded liability and fewer plans’ contributions were sufficient to maintain their unfunded liability. For 2014, 28% had no unfunded liability, up from 16% in 2013. About 44% of plans’ contributions were insufficient to maintain their unfunded liabilities for 2014, down from 53% for 2013. In addition, 55% contributed less than needed to close the funding gap within seven years, down from 73% in 2013.

The SOA’s full report is here.
Participants June 1, 2017

Finances Stressing Workers Out

A survey definitively found that employees want and expect their employers to help them manage their finances.
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Fifty-six percent of employees are stressed out over their financial situation, Bank of America Merrill Lynch found in a survey. This is causing people to spend a median of two hours a week, or 100 hours a year, parsing over their finances while at work. Millennials spend an average of four hours a week on their personal finances; Gen X, two hours; and Baby Boomers one hour.

Among the 56% who say they are financially stressed, 53% of them say it is interfering with their ability to perform their job. Bank of America Merrill Lynch believes the solution to this is for employers to offer formal financial wellness programs, so that their employees can get their financial houses in order.

“Stress over personal finances extends into the workplace, impacting employees’ productivity, health and overall well-being,” says Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America Merrill Lynch. “This confirms our dedication to working with employers to help employees navigate financial concerns and improve their financial wellness.”

One dichotomy that the survey found is that, while many employees are financially stressed, 87% are optimistic about their financial future. The top three reasons for this optimism are living within their means (51%), being in good health (49%) and having a well-paying job (45%).

However, even optimistic employees have concerns, particularly women. Among all employees, the top concern is running out of money in retirement, cited by 64%. The next concern is having to work longer than they had hoped for, cited by 61% of women and 51% of men. That is followed by not being able to work due to a serious illness (58% of women and 52% of men), not being able to pay for a child’s education (57% of women and 52% of men) and losing their job (45% of women and 46% of men).

NEXT: Life events
 
The 1,200 people who were polled said that certain life events impacted their finances, most notably buying a home (22%), losing a job (18%) and dealing with a serious illness (9%). When asked how they would deal with these challenges, more than half said they would have saved more money. Bank of America Merrill Lynch, in its “2017 Workplace Benefits Report,” says that “taking the time to educate employees about the potential impact of major life events can help them better prepare and estimate the financial impact of future events and potentially minimize the impact on other aspects of their lives.”

Another source of financial stress for employees is managing health care costs. Seventy-nine percent of employees said they dealt with rising health care costs in 2016, up from 69% in 2015. These significant costs are causing 72% of women and 59% of men to spend less on recreation or entertainment, and 63% of women and 62% of men to curtail their retirement savings. 

“Managing health care costs and retirement savings go hand in hand and can exert significant influence on each other,” Bank of America Merrill Lynch says. “As employees start to save less for their future needs to cover their health care costs today, their ability to fund the future and retirement they envision is placed at risk.”

NEXT: Looking to their employersThe survey definitively found that employees want and expect their employers to help them manage their finances, with 50% ranking retirement savings as the top priority. Other concerns vary by age, with Millennials and Gen X also being interested in good general savings habits and paying down debt. Baby Boomers are also interested in planning for health care costs and paying down debt.

Forty percent of employees of all ages would like their employer to bring in financial professionals to provide education. An even greater percentage, 86%, said they would participate in a financial education program if their employer made it available. 

“Employers can be a powerful resource in helping employees pursue their financial goals beyond retirement and reduce the financial stress they are feeling,” Bank of America Merrill Lynch says in its report. “Making slight changes to retirement plan design and offering access to an action plan can help employers establish a culture of financial wellness that can help reduce employee stress, help employees save more for retirement and help put them on a path towards retirement success.”

The Bank of America Merrill Lynch 2017 Workplace Benefits Report can be downloaded here.

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