Opinions October 23, 2024

Gen Z’s Optimistic View of Retirement May Turn Out to Be Justified

Retirement confidence tends to fade with age, but widespread access to advice and educational resources could help buck the trend.

Reported by

Lee McAdoo

It can be easy to put the idealism of youth down to a lack of experience. But when it comes to retirement outlooks, we choose to take a more optimistic view.

We recently conducted Schwab’s annual 401(k) Participant Study and found Generation Z workers are the most hopeful about achieving retirement savings goals, with 50% saying they are “very likely” to achieve their goals, compared with 40% for both Baby Boomers and Generation X.

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Members of Gen Z also expect to retire at age 60, younger than other generations, and they are more likely to believe that their lifestyle will improve in retirement.

It is reasonable to assume that older workers have the more realistic view, since they are closer to retirement age, have a clearer sense of how much they need to maintain their desired lifestyle and understand how feasible it is for them to retire comfortably based on their current situation.

But that does not necessarily mean that younger workers’ optimism should be scoffed at or discounted. They are saving at a time when the range of resources available to them is far different than it was for older workers when they started out. That matters. With greater access to education and advice, and powerful new tools for both, Gen Z’s optimistic view may just turn out to be right.

Access to Financial Wellness Resources

Retirement plan providers and advisers have evolved their offerings in recent years to provide more holistic financial wellness services to address a range of needs. Most employees (64%) told us their employer took action to help them manage financial stress in the past year, with Gen Z (81%) the most likely to vouch for their employer’s support.

Many 401(k) participants today have access to professional advice, managed accounts and a myriad of online tools and resources, plus virtual live and on-demand education sessions through their plan. These sessions often cover topics like creating a financial plan, setting goals, budgeting, managing debt, building emergency savings and investing for long-term goals. In short, there’s a lot of help out there.

Widespread adoption of automatic enrollment and automatic contribution increases have done tremendous good helping workers not only to get started in their 401(k) but to progressively increase how much they are saving as well.

Advice Adoption

We are also seeing more appetite among workers for advice, which they are most likely to seek through their 401(k) plan. Fifty-three percent of Gen Z think their financial situation warrants professional advice, which reflects a significant increase from 47% last year. Imagine the impact three or four decades of professional financial management could have on someone’s future retirement. No wonder Gen Z is optimistic.

Across generations, workers tell us they are more likely to follow human professional recommendations over computer-generated recommendations for financial advice. Gen Z is even more inclined to follow human advice (63%) than Gen X (58%) and Boomers (56%).

But technology is also an increasingly important part of the advice process for many, especially those just starting out. About one in four Gen Z workers are very likely to follow computer-generated recommendations for financial advice.

It is important to note that accessing human advice and digital advice is not an either/or proposition. We often see participants engage with digital tools and resources as a first step, then connect with a human professional as a gut check before implementing recommendations. The combination of the two tends to lead to higher confidence.

We already see encouraging signs that workers are on the right path from an early age. Eighty-four percent of Gen Z respondents told us they know how their 401(k) is performing, 88% told us they know how their 401(k) is invested, and 61% told us they know what investments to choose to have enough for retirement.

Members of Gen Z may not have as much experience as older generations, but they are off to a great start and have decades to continue building both knowledge and wealth for their nest eggs. Of course, there will be twists and turns along the way, but if innovation and engagement continue going up from here, so too does the chance for a bright future for the youngest members of our workforce.

Lee McAdoo is managing director of Schwab Retirement Plan Services, supporting employers and their employees with their overall retirement planning needs. McAdoo has been in the financial services industry since 2005 and with Schwab since 2021. She has held a variety of positions throughout her career, including roles in strategy, marketing, sales and service, trading, finance and investor education.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.

Compliance October 22, 2024

6th Circuit Revives Kellogg Excessive Fee Case Over Arbitration Clause Dispute

The appeals court ruled that a Michigan district court wrongly dismissed the lawsuit in April 2023 in favor of arbitration.

Reported by

The U.S. 6th Circuit Court of Appeals on Monday granted an appeal overturning a district court decision that would have forced into arbitration a lawsuit against the Kellogg Co. over excessive 401(k) plan fees.

The appeals court reversed the U.S. District Court for the Western District of Michigan decision that the arbitration clause in the Kellogg Co.’s plan’s document prevents the plaintiff, Bradley Fleming, from bringing his breach of fiduciary duty lawsuit on behalf of the plan, stating that the plan’s language “has the practical effect of blocking a whole class of claims.”

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The Original Case

In Fleming v. Kellogg Co. et al., filed in the Western District of Michigan in June 2022, Fleming, a participant in Kellogg’s 401(k) plan, claimed that Kellogg and its board of directors breached its fiduciary duties by failing to monitor plan recordkeeping costs, by causing participants to pay excessive fees and by failing to adequately monitor other fiduciaries. Fleming alleged that Kellogg’s imprudence cost the plan $7 million in excessive recordkeeping and administrative fees paid between 2016 and 2020.

Kellogg moved in April 2023 to dismiss the complaint and compel arbitration pursuant to the arbitration clause in its plan document. The district court granted the dismissal, concluding that enforcing the plan’s arbitration provision would not prevent Fleming from effectively vindicating the statutory remedies sought in his complaint.

Fleming appealed the dismissal, and the 6th Circuit has now reversed the lower court’s decision, leaving Fleming free to proceed with the original complaint in district court.

According to the appeals court’s opinion, the Kellogg 401(k) plan was amended, effective January 1, 2020, to require arbitration for certain claims, including those for breach of fiduciary duty. After the amendment, the plan document stated that “any arbitration would be conducted on an individual basis only, and not on a class, collective or representative basis.”

Fleming stopped working at Kellogg about four months before the arbitration clause went into effect and contended that he neither received notice of the mandatory arbitration clause nor personally assented to arbitration. About seven months after the plan adopted the mandatory arbitration provision, Fleming rolled out of the plan.

In December 2021, Kellogg retroactively amended the plan document to include, “The arbitrator shall have no authority to arbitrate any claim on a class or representative basis and may award relief only on an individual basis; provided, however, that the arbitrator may award any relief otherwise available under [the Employee Retirement Income Security Act].”

The Appellate Decision

Because Fleming’s breach of fiduciary claims were brought on behalf of Fleming and the plan, the arbitration clause prevented him from proceeding in a representative manner. While Kellogg argued that the manner of bringing suit is “merely a procedural matter,” the appeals court ruled that it effectively eliminates a participant’s right to bring a fiduciary breach claim under Section 502(a)(2) of ERISA.

“Arbitration clauses that forbid participants from obtaining planwide remedies under ERISA are unenforceable,” the 6th Circuit ruling stated. “And because the clause is void, we decline to reach Fleming’s alternative argument for reversal that he did not consent to the arbitration clause.”

The Bigger Picture

District courts have been split over the enforceability of arbitration clauses in ERISA plans, and Argent Trust Co. recently filed a petition in the U.S. 2nd Court of Appeals, asking the Supreme Court to provide guidance on whether complaints under ERISA should be addressed by arbitration or at trial.

In its filing, Argent asked the Supreme Court to consider “the important federal questions presented here as follows: ERISA does not require participants to bring claims on behalf of their entire benefit plans, and nothing in ERISA precludes individual arbitration.”

In addition, bills were recently introduced in both the House of Representatives and the Senate that would make mandatory arbitration clauses unenforceable in all ERISA-covered plans. If one were passed into law, all retirement plans covered by ERISA would be banned from requiring pre-dispute arbitration as a condition of joining the plan.

In the Kellogg case, Fleming is represented by law firms Haney Law Office PC and Walcheske & Luzi LLC, and Kellogg is represented by Jenner & Block LLP.

Kellogg did not immediately respond to a request for comment.

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