Data and Research October 30, 2018

Employees Want Retirement Income Certainty

Ninety-four percent said they would keep all or at least some of their money in a target-date fund that guaranteed an income stream for life, an AllianceBernstein survey found.

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Forty-seven percent of U.S. workers are confident about their retirement prospects, up from 32% last year, an AllianceBernstein survey found. This level of confidence is at a 10-year high, the investment management firm says. In addition, 67% of workers reported feeling confident about making investment decisions, up from 53% in 2017.

Workers’ top retirement goal is a steady income, cited by 56%. Forty-six percent said they will prioritize their retirement plan savings to live comfortably.

Forty-nine percent said they would like retirement income certainty, and 94% said they would keep all or at least some of their money in a target-date fund (TDF) that guaranteed an income stream for life.

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“Plan participants want longer-lasting savings, and a steady income stream in retirement,” says Jennifer DeLong, head of defined contribution at AllianceBernstein. “Unfortunately, not enough U.S. workers know how to save wisely, early and continuously. While many defined contribution [DC] plans have adopted automatic enrollment in conjunction with a qualified default investment alternative [QDIA], fewer include automatic escalation of savings rates starting at high enough levels. Additionally, more plans should consider offering a lifetime income solution. We believe these are key factors that could significantly improve plan participants’ retirement outcomes.”

The survey also found that 20% of workers either plan to work part-time in retirement or delay their retirement, and 17% either said they have not thought about retirement or never plan to retire. More than 90% are concerned about Medicare and Social Security, and 66% said these programs are very important.

More than 70% of retirees said their lifestyle is in line with or better than their expectations. Sixty-four percent of retirees said their standard of living has stayed the same or improved. Seventy-five percent are satisfied with their financial status, and 50% said that after paying their bills each month, they have money left over for leisure activities. Twenty-three percent of retirees said they are very comfortable. However, 33% said they are dissatisfied with their life or finances in retirement.

Ninety percent of plan participants think the investments offered in their retirement plan should align with their core ethical values. Seventy-one percent said that if they were offered socially responsible investment choices, they would select them. Fifty percent said they volunteer in their communities, and 80% donate money to charities.

Should a significant market downturn occur, 47% said they would monitor the situation but take no immediate action. However, 24% said they would move their money to different investments, and 47% said they would become more conservative investors.

Ask the Experts October 30, 2018

(b)lines Ask the Experts – Turning Salary Into Employer Contributions When Limits Are Met

“One of our employees, who consistently defers the maximum to both our 403(b) retirement plan and 457(b) deferred compensation plans, wants to contribute additional funds to the plan and came to me with a proposal.
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“Instead of her current salary of $150,000, she proposed that we pay her $140K and that we make a $10K employer contribution to the 403(b). We are a public higher education organization, so there are no nondiscrimination issues, and the employee would still be within her 415 limit on total contributions to the plan as well. Can we do this? And, if so, do we need to offer this option to other employees as well?”

 

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Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

 

While this is quite a novel suggestion on the part of this employee to contribute additional funds to her 403(b) plan, unfortunately for her, this generally cannot be done. The reason is that employer contributions to a 403(b) plan that are considered to be “individually negotiated,” are considered to be elective deferrals that are subject to the 402(g) limit, and NOT an employer contribution. What does “individually negotiated” mean? Well, it is a “facts and circumstances” issue, but it would likely include the situation you describe, where an employee attempts to negotiate with his/her employer to get around the 402(g) limit by having you make an employer contribution to the plan. Thus, the employee generally could not take this action to turn salary into employer contributions.

 

You stated that the employee in question has maxed out to both your 403(b) and 457(b) plans, but you did not state whether or not she is eligible for special elections such as the age-50 catch-up, which allow her to defer additional amounts to both the 403(b) and 457(b) plan (since you are a public employer, age-50 catch-up contributions to both plans would be permitted if provided for in each of the plans), so that may be an option for her. And finally, if you offer a health savings account (HSA) for which this employee is eligible, she could defer amounts to that program as well (if she is not already doing so) that could be used for retirement purposes, both for certain medical expenses in retirement and for other expenses if she is over 65 years of age (without penalty, but subject to ordinary income taxation on distribution).

 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

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