Compliance June 21, 2017

Bipartisan Bill Seeks Middle-Ground Retirement Solutions

Sponsors of the bill, including both Democrats and Republicans, say it will benefit low- and middle-income workers hoping to augment their long-term retirement savings.
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For small-business employees yearning to grow retirement savings, the Retirement Security Act may just be the solution needed to carry them towards a sustainable future, according to its sponsors.      

U.S. Senator and the Chairman of the Senate Aging Committee Susan Collins (R-Maine), along with Senator Bill Nelson (D-Florida), recently introduced the legislation. They say it is aimed at encouraging small businesses to offer retirement plans to more workers, while also establishing a positive savings mindset among employees. 

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According to Collins, at a high level the legislation would “improve the financial security of many Americans by reducing the cost and complexity of retirement plans.” It would direct the Treasury Department to clarify complicated notices, clarify costs, and reduce tax burdens on low- and middle-income retirement plan contributors by implementing a new “saver’s credit” on Form 1040 EZ.

The senators cite data from the Center for Retirement Research, which found American households face a $7.7 trillion gap between savings needed to meet a preferred standard of living, versus the amount workers are actually putting away. Additionally, just 54% of working Americans are certain their savings will last long into retirement, according to a recent Gallup poll.

To combat poor retirement planning, the Retirement Security Act would allow businesses to share the burden of plan administrative without demanding a connection between both entities. This enables businesses to link with multiple employer plans (MEPs) and provide enhanced retirement programs. MEP members, according to the bill, are secured from risking tax benefits in case an employer in an MEP fails to meet the minimum criteria plans need to retain these benefits.

Data and Research June 21, 2017

A Plethora of Data to Help DC Plan Sponsors Benchmark Plans

BMO has issued a report giving details on participation rates, deferral rates, account balances and more.
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Compiling results from leading industry surveys, BMO Global Asset Management has created a report filled with data about defined contribution (DC) plans to help plan sponsors benchmark their plans. The aim is to help sponsors see how their plan compares to other companies in their industry.

The information shows minimum age requirements for plan eligibility by plan size, participation rates by plan size for the years between 2008 and 2015, participation rates by age in plans with automatic enrollment and without, and participation rates by salary. Not surprisingly, in plans without automatic enrollment, the participation rate for people making less than $30,000 a year is only 29%. However, 85% of those making $100,000 or more a year voluntarily participate in their plan.

BMO also shows participation rates by years of service, participation rates by industry between the years of 2011 and 2015, and the percentage of plans with automatic enrollment by number of employees between the years of 2005 and 2015. In 2005, among plans of all sizes, only 25% automatically enrolled participants. By 2015, that had grown to 58%. The charts also show the percentage of plans with automatic enrollment by industry between the years 2011 and 2015. The industry with the highest usage of automatic enrollment in 2015 was non-durable goods manufacturing.

BMO also gives the default deferral percentage of pay in plans with automatic enrollment between 2006 and 2015. The most common rate in 2015 was 3%. Employer matches have grown from 40% of plans in 2010 to 49% in 2015. BMO also shows the average matching contributions by industry type and the percentage of pay matched by industry type between 2007 and 2015.

The research gives the average deferral rate by industry sector between 2010 and 2015. For industries of all types, the average deferral rate in 2015 was 6.8%. By salary, the average deferral rate for those making less than $30,000 in 2015 was 4.4%, but 8.8% for those in the $100,000-plus income bracket.

NEXT: Account balances

 

Looking at account balances, in 2015, 75% of plans had participants with balances under $100,000, with 33% of those under $10,000. Only 25% of plans had people with balances of $100,000 or more. Among those under the age of 25, the average account balance was $4,048, but for those 65 or older, it was $200,358.

BMO also gave account balances by job tenure. For those in their place of employ for less than two years, it averaged $10,247. However, for those who had been there for a decade or more, it was $185,575.

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By industry type, agriculture, mining and construction companies had the highest average balance, $222,084. Education and health care companies had the lowest, $64,565. Lifecycle and target-date funds are the most commonly used default investments, used by 79% of plans in 2015, up from 49% in 2007.

The total plan cost in 2015 averaged 1.5%. However, for plans with $10 million or less in assets, it averaged 1.71%. The fees continued to decrease as plan size increased, with plans with more than $1 billion in assets averaging 0.51% in fees.

The 46-page BMO report, “DC Conversations: An Industry Assessment of Defined Contribution Plans,” can be downloaded here.

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