Data and Research October 18, 2022

Even Millionaires Worry if They Have Enough to Retire

Most high-net-worth individuals believe they will have enough to retire, but many still have lingering doubts.

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A new study from Natixis Investment Managers examines what it means to be financially secure in retirement and if $1 million will be enough to last more than 25 years.

The report, “The million dollar question: How much do I need to retire?” surveyed 1,617 individuals who have accumulated $1 million or more in investable assets and who participated in the 2021 Natixis Global Survey of Individual Investors.

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The survey found that on the surface, most high-net-worth individuals (79%) say they will be financially secure in retirement, but deeper down they are far less confident. Millionaires were nearly as likely to say it will take a miracle to achieve a secure retirement (35%) as investors overall (40%). One key reason may be that the million-dollar mark may not be as significant as it once was, the survey adds.

“It’s not that a million dollars isn’t a lot—it’s still the qualifier for most definitions of high-net-worth individuals—it’s just that there are a lot more millionaires,” the report says. “In fact, Capgemini’s World Wealth Report shows that the number of individuals at this asset level globally has nearly doubled from 10.9 million in 2010 to 20.8 million in 2020. That report finds large numbers of millionaires in North America (6.98 million), Asia (6.9 million) and Europe (5.36 million).”

High-net-worth individuals reported that they have accumulated more than four times the median assets of the overall population ($2 million vs. $450,000)—but they are not as far ahead when it comes to retirement savings, the report says. HNWI report retirement savings of $625,000, which comes out to 2.5 times the $250,000 median retirement savings of the overall survey.

The survey also found that HNWI report saving an average of 19.4% of their income, that rate is still just under 3 percentage points higher than the overall average of 16.6%, the report says. While the numbers look good on their own, the difference between the savings of HNWI and the rest of the population surveyed “is not great enough to merit any substantial difference in sentiment,” Natixis reported.

The report found that 79% of HNWI say they will be financially secure in retirement—but they still have lingering doubts.

Employment raises several questions for HNWI, the report says. Even though they plan to retire at the relatively early age of 63, almost six in 10 (58%) say they accept the fact that they may have to work longer than they plan. The need to work beyond their planned retirement age may result from a variety of situations, including a change in finances, health issues that require extended insurance coverage, needing additional income to care for an elderly parent or support an adult child.

A late-career layoff, or stepping aside to care for family, can have just as much impact on retirement security, with 44% in the HNW group who worry they may not be able to keep working as long as they would like to, the report says. Thirty-six percent worry they may never be able to retire, while 42% are so worried they chose to not think about it altogether.

HNWI also worry about factors out of their control, such as whether or not public benefits will still play a factor into their retirement plans.

This has especially concerned the 38% of investors with more than $1 million in assets who say it will be hard to make ends meet without public benefits.

Nearly seven in 10 also see inflation as a threat, the report says. After experiencing the highest inflation in 40 years, investors are wise to recognize the impact that rising prices can have on their finances in retirement. Costs have increased for food, energy and health care, with 65% of this group worried that health care and long-term care costs will impact their financial security in retirement.

Compliance October 18, 2022

Rising ERISA Litigation and the Importance of Section 104 Disclosure

Defense and plaintiff attorneys offer strikingly different accounts of the systemic issues haunting the ERISA litigation space.

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The ERISA Industry Committee (ERIC), along with the American Benefits Council and the American Retirement Association filed an amicus brief with the U.S. District Court for the Eastern District of Virginia on behalf of defendants in an Employee Retirement Income Security Act lawsuit, arguing that the plaintiffs in Tullgren v. Booz Allen Hamilton, and many plaintiffs in general, are essentially frivolous and rely on hindsight.

In the brief, ERIC argues that a case that relies on underperformance in hindsight should not survive a motion to dismiss. They also argue that the recent increase in ERISA litigation will only lead to a reduction in the number of employer-sponsored retirement plans.

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They also state that looking solely at the short-term performance of a fund would be imprudent, because it would cause a fiduciary to overlook other factors such as risk and diversification. The fund in question in the Tullgren case, a target date fund managed by BlackRock, is considered a low-risk fund, and the fact that it underperformed some of its peers in the short term is not evidence of imprudence, ERIC wrote.

James Miller of Miller Shah LLP, an attorney representing the plaintiffs in the Tullgren case disagrees with this characterization. He described the amicus brief as a “pretty transparent attempt to avoid responsibility” and “motivated by insurance industry actors that are seeking to avoid to have to pay on insured claims.”

Specifically, Miller said that the BlackRock fund actually has greater exposure to equities than some of its peers in the TDF market, such as those managed by Vanguard or T. Rowe Price, and is therefore riskier. Since it is riskier, its relative underperformance, the basis of the lawsuit, is unjustified, Miller said.

Miller also rejected the characterization of ERISA case as frivolous. “For every case we accept we probably reject three. We only accept cases we believe in,” says Miller.

Section 104 of ERISA, which requires certain disclosures to be made by fiduciaries on the request of plan participants, is also inadequate for plaintiffs, says Miller. A section 104 request may only yield a summary plan description and administrative services agreements, but does not require that other items, such as the minutes of fiduciary committee meetings, be turned over to plan participants.

This limited disclosure makes it difficult for plaintiffs to have the insight they need into the fiduciary’s process without resorting to time-consuming discovery, Miller said. He said that an expansion of Section 104 to include a wider range of pre-dispute disclosures could reduce wasteful lawsuits and help keep fiduciaries more accountable. He adds, however, that in cases where they obtain meeting minutes, he finds that fiduciaries often only take a “passing interest” and have “no idea what they are doing.”

David Levine, an attorney with Groom Law, which specializes in ERISA defense, says that many ERISA cases are based on “20/20 hindsight” and compare “apples, oranges, and pears.” Mere underperformance is not an adequate claim because “ERISA is about a prudent process” and some prudent processes will lead to some plans outperforming others. Plan sponsors are “not required to be an omniscient Warren Buffett” to avoid the charge of imprudence.

Mark Boyko, an attorney with Bailey & Glasser, who represents plaintiffs in other ERISA lawsuits says that the amicus brief’s arguments are “just framing.” In order to have standing in these cases, there must be plan underperformance, otherwise there would be no damages to claim. Without looking to underperformance in hindsight, one has no metric by which to assess actionable damages.

Boyko also accuses fiduciaries of wanting it both ways. On the one hand, defendants normally decline to voluntarily share information not required by section 104 of ERISA, but on the other, they want to dismiss complaints about a lack of detailed information on the fiduciary’s process.

He says that if a fiduciary is “confident in [its] process, it makes no sense not to overprovide info including those meeting minutes.”

Boyko also rejects the argument that ERISA lawsuits are disincentivizing 401(k) plans. He notes that 401(k) plans are becoming more, not less, common, and there is no decline in participation. He adds that the threat of litigation helps keep plan sponsors honest and likely makes defined contribution plans perform better.

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