Data and Research December 6, 2016

Americans Lagging on Retirement Savings

However, a survey finds they are managing bills and debt.
Reported by

Fifty-one percent of Americans worry about their financial situation and only 37% are confident they are track for a comfortable retirement, according to the 2016 EY Financial Wellness Assessment, based on a survey of 4,000 people conducted between August and October.

Asked when was the last time they tried to figure out how much they will need in retirement, 41% said it was within the last 12 months. However, 67% of those between the ages of 18 and 25 have never thought about retirement planning, and 33% of those older than 50 have never tried to figure out how much they will need to comfortably retire.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Eighty-two percent contribute at least 4% of their salary to retirement savings, yet 14% contribute less than 4%.

Sixty-nine percent said at least a portion of their portfolio is invested in a cash-type investment such as a money market or stable value fund. Conversely, 51% said they would not move their money out of stocks into safer investments in the event of a market downturn.

Forty-one percent are satisfied with their financial situation. However, among those 18 to 25, 35% are dissatisfied with their current financial situation. Exactly half of those between the ages of 50 and 64 are satisfied—representing the most satisfied of all age ranges.

NEXT: Timeliness of paying bills

Seventy-one percent of the respondents said they have never paid a bill late. However, 20% said they were tardy on a bill once or twice in the past 12 months.

Seventy-four percent said their debt is manageable, and 9% are carrying no debt at all. Among those 18 to 25, 66% said their debt is manageable. Among those 50 and older, that jumps to 77%.

Ninety percent said their household spending is less or equal to their household income. “This shows a conscious effort across all generations to effectively manage their cash flow, and having a plan on where to best use the surplus they have will be key to improving their financial health,” EY said.

If an unexpected financial emergency arose, 87% said they are confident they could come up with $2,000. Among those 65 and older, 95% are confident they could come up with these funds. Even 80% of 18- to 25-year-olds said they could access this amount of cash.

Sixty-three percent of those who have credit cards pay the balance in full each month, and 28% pay more than the minimum due. Only 6% pay only the minimum.
Investing December 6, 2016

DC Plans Use Passive Investments for Fiduciary Ease

“If they are choosing a passive investment option simply because it is less work for them, this is not in line with the spirit of ERISA,” says Jessica Sclafani, associate director at Cerulli.

Reported by

A new survey report from Cerulli Associates examines how the unprecedented number of lawsuits being filed against 401(k) and other defined contribution (DC) retirement plan sponsors and providers have impacted the pace of innovation.

Cerulli finds more than half of plan sponsors express serious concern over potential litigation—and it’s not just mega-sized plans feeling vulnerable. Cerulli’s survey data shows that smaller plan sponsors are also taking notice of the “increasingly litigious litigation environment,” as reflected by the nearly one-quarter of small plan sponsors (less than $100 million in assets) who describe themselves as “very concerned” about potential litigation.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

“In particular, fee-related lawsuits have been a pervasive theme in the 401(k) plan market in 2016, further underscoring the DC industry’s intense focus on reducing plan-related expenses,” Cerulli researchers explain. “A significant consequence of this focus on fees is an increased interest in passive investing.”

Direct polling of plan sponsors shows that the top two reasons for which 401(k) plan sponsors choose to offer passive or indexed options on the plan menu are because of “an adviser or consultant recommendation” or because they “believe cost is the most important factor.” In addition to this, several defined contribution investment only (DCIO) asset managers tell Cerulli that the demand for passive products is driven, primarily, by the desire to reduce overall plan costs.

“As advisers become increasingly fee conscious, some view passive options as a way to drive down overall plan expenses, which in turn demonstrates their value to the plan,” explains Jessica Sclafani, associate director at Cerulli.

NEXT: Passive investing associated with fiduciary simplicity 

Rightly or wrongly, Sclafani observes, nearly one-quarter of plan sponsors select passive investment options because they are “easier for a fiduciary to monitor.”

“This reasoning is inextricably tied up with the mistaken view of some plan sponsors that passive is a way to mitigate their own fiduciary liability—a common misconception,” she explains.

Put simply, plan sponsors have a fiduciary duty to do what is in the best interest of the plan's participants and their beneficiaries. This is a task that goes beyond just favoring “passive” investment options over “active” options; the cost, value, quality, complexity and objective of any investment product offered to plan participants must be carefully considered and closely monitored. In some cases active may be better, while in others passive will be the superior choice.  

“If they are choosing a passive investment option simply because it is less work for them, this is not in line with the spirit of ERISA,” Sclafani adds.

The Cerulli report goes on to suggest that one “unfortunate byproduct of the rash of litigation” is that it stifles innovation in the 401(k) market.

“Plan sponsors feel they have little to gain by appearing ‘different’ from their peers due to the risk of being sued,” Sclafani concludes. “This mindset can make plan sponsors reluctant to adopt new products, such as those focused on retirement income … This issue may be forced if, as a result of the fiduciary rule, a greater amount of DC assets remain in employer-sponsored retirement plans instead of flowing to the IRA market, in which case DC plan sponsors will need to more closely evaluate the viability of using DC plans as a retirement income platform.”

More information about this report, “U.S. Retirement Markets 2016: Preparing for a New World Post-Conflict of Interest Rule,” as well as other Cerulli Associates research, is available here. 

«