Benefits March 13, 2013

Addressing Employees’ Conflicting Financial Priorities

March 13, 2013 (PLANSPONSOR.com) – Mortgage payments, credit card debt, college tuition—they can all get in the way of retirement savings, despite employees’ best intentions.
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According to research from the Deloitte Center for Financial Services, “Meeting the Retirement Challenge: New Approaches and Solutions for the Financial Services Industry,” most Americans consider retirement their most important financial priority, but 40% of those surveyed said they are unable to save for retirement because of other financial priorities.

Next to retirement, the second most important financial priority—especially among older participants—is saving money to pay health care costs. This is not surprising, considering 70% of those surveyed said they expect their medical expenses to increase during retirement. Respondents said they were also concerned about long-term care expenses.

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Plan sponsors and advisers cannot ignore these conflicting financial priorities, Val Srinivas, research leader, banking and securities at Deloitte, told PLANSPONSOR. “So it’s [about] understanding your own audience and … understanding their concerns,” he said. “The way I feel is it’s minor tweaks and adjustments, not a wholesale change in the way employers communicate with their employees.”

Srinivas suggested employers can provide incentives for employees to attend financial education meetings; for instance, employers could offer free lunch or a monetary reward for attending. In addition, he said plan sponsors and advisers can work to target different audiences and address their specific financial needs—a young employee might be worried about paying off student loans, whereas an older employee might be concerned about health care.

According to Deloitte’s research, younger employees in particular are concerned about other financial issues aside from retirement. As one respondent said, “Right now I have more pressing ways to allocate my money.”

To begin to overcome the conflicting priority barrier, financial services providers should consider offering prospects and current clients holistic approaches and solutions, Deloitte suggests in its research. It likely does little good to pitch retirement products alone to someone who is more concerned for the moment with mortgage or other debt issues, Deloitte added. Srinivas cites retirement calculators as one example, although the industry has begun moving away from the retirement-only calculations. Putnam Investments, for example, recently launched a health cost estimator (see “Putnam Launches Health Cost Estimator”).

Conflicting priorities could be addressed as part of a comprehensive financial plan that at least gets the prospect started on retirement preparation, even if the initial efforts are relatively modest, Deloitte says. By addressing the bigger picture and taking other priorities into account, consumers will likely gain more confidence that they can start planning for retirement at the same time.

For example, concerns about financing health care and long-term care costs could be addressed in conjunction with retirement savings and income planning. Conversations must be focused around real-life financial events in conjunction with retirement, Srinivas concluded.

Deloitte’s research is available here.

Compliance March 13, 2013

Plan Must Pay Ex-Husband Despite Estate Suit

March 13, 2013 (PLANSPONSOR.com) – A federal court decided that a deceased woman's retirement plan benefits must first be paid to her ex-husband despite a lawsuit by her estate requesting the funds.  
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The 4th U.S. Circuit Court of Appeals agreed with a district court ruling that the Employee Retirement Income Security Act (ERISA) requires the retirement plan’s fiduciaries to pay the woman’s benefits to her ex-husband, even though a lawsuit brought by her estate may require him to hand over the benefits to the estate.  

The court noted in its opinion that in Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, the U.S. Supreme Court held that an ERISA plan administrator must distribute benefits to the beneficiary named in the plan, regardless of any state-law waiver purporting to divest that beneficiary of his right to the benefits (see https://si-interactive.s3.amazonaws.com/prod/plansponsor-com/wp-content/uploads/2017/05/25040257/MagazineArticle.aspx_.jpg?id=4294989884 “Case Sensitive: Estate Planning”). In Kennedy, the Court emphasized three important ERISA objectives: “[1] simple administration, [2] avoid[ing] double liability [for plan administrators], and [3] ensur[ing] that beneficiaries get what’s coming quickly, without the folderol essential under less-certain rules.”  

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The court said allowing post-distribution suits to enforce state-law waivers does nothing to interfere with any of these objectives; Kennedy merely dictates that the plan administrator distribute plan benefits to the named beneficiary. This ensures simple administration regardless of whether post-distribution suits are permitted, because the plan administrator would have no role in any post-distribution proceedings. 

According to the appellate court’s opinion, in July 2006, Scott Andochick and Erika Byrd separated and entered into a marital settlement agreement, in which he waived any interest in Byrd’s 401(k) plan benefits. The couple’s divorce was finalized in December 2008. Then in April 2011, Byrd died and her parents became the administrators of her estate.  

However, despite that waiver, Byrd had not updated her beneficiary designation prior to her death. 

The 4th Circuit Court’s decision is available here.

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