Data and Research October 15, 2018

Boomers More Confident in Their 401(k) Than Ever

However, 20% said they do not understand the process for withdrawing money from their 401(k) in retirement, according to a Charles Schwab survey.

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Recognizing the fact that November will mark the 40th anniversary of the legislation that paved the way for 401(k) plans, Charles Schwab conducted a survey of Baby Boomers’ attitudes towards their 401(k) plans. Schwab notes that Boomers are the first generation to have access to a 401(k) plan for a majority of their career.

Seventy-five percent of Boomers said they believe their 401(k) plan is in better shape now than ever before. The survey of workers between the ages of 54 and 70, and who are currently saving in their 401(k) plan, also found that only 16% expect to work in retirement due to needing the money. Forty percent said they would like to work in retirement in some capacity, and 25% said they do not plan to work at all in retirement.

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Nearly three-quarters of Boomers said they think their quality of life in retirement will exceed that of their parents, and 78% think it will be better than younger generations’ retirement years.

However, 36% said they do not know how much they will need to safely retire, and 25% do not know how much of their salary they should be saving. Twenty percent said they do not understand the process for withdrawing money from their 401(k) in retirement.

“Forty years ago, we might not have anticipated that the weight of Americans’ retirement would rest so squarely on the shoulders of the 401(k) plan,” says Catherine Golladay, senior vice president, participant services and administration at Schwab Retirement Plan Services. “While it is encouraging that so many Boomers are confident in their ability to retire comfortably, it is not surprising that a large percentage of them are feeling unprepared as they approach the end of their careers.”

Forty-six percent of Boomers said their 401(k) plan will be the largest source of their income in retirement, followed by savings outside of the plan (23%), Social Security (19%) and a pension (11%).

Eighty-one percent of Boomers expect to use their 401(k) funds to cover day-to-day expenses, followed by travel (40%), health care expenses (36%), housing (21%), medical expenses (20%) and offering financial assistance to their children and/or grandchildren (8%). 

Administration October 15, 2018

Third Parties Help Small DB Plans With Administration

Larger DB plans have access to liability hedging, overlay managers and derivatives to manage interest rate risk, and small plans want these capabilities but cannot afford the expense, says James Tamposi with Cerulli Associates.

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Smaller defined benefit (DB) plans rely more heavily than large DB plans on third parties, i.e., asset managers, investment consultants, actuarial consultants and third-party administrators (TPAs), according to Cerulli. The smaller plans require more hand-holding for such essentials as filing regulatory paperwork, and they cannot afford some of the more expensive perks, such as frequent updates from the actuary.

“Consultants generally agree that there may be more upfront effort with smaller clients—educating, developing the relationship, building trust—but once they are on board, they take less time,” says James Tamposi, research analyst at Cerulli. Larger clients have access to liability hedging, overlay managers and derivatives to manage interest rate risk. Many small plans want these capabilities but cannot afford the 

Small DB plans also tend to have a larger allocation to passively managed products due to their lower cost than actively managed products. They also are more loyal than large DB plans.

Additionally, small DB plans are more inclined to have an outsourced chief investment officer (OCIO), Tamposi says. “Because there is so much hand-holding with the investment consultant, smaller clients may decide to forego discretion altogether, letting an investment professional take the reins.”

For TPAs, working with small clients tends to be more time-consuming and difficult. “We often hear from TPAs that smaller corporations craft benefits around owners and management teams, making plan design more complex,” says Alexi Maravel, director at Cerulli. “Therefore, there is most consulting done upfront for the smaller plans. Larger plans’ structures tend to be less complex, because they pool a much larger and more homogeneous participant base.”

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