Latinos Seeking Retirement Planning Assistance from Employers

Financial planning guidance and Social Security counseling top the list of financial services Hispanics would like from their employers, according to a survey by MassMutual.

More than half (71%) of middle-income Hispanics feel they are behind on preparing for retirement as opposed to 63% of the general population, according to a recent study commissioned by Massachusetts Mutual Life Insurance Company. However, the survey also found that 63% of Latinos wish their employers would provide a greater degree of education on saving for retirement

The MassMutual Hispanic Middle America Financial Security Study also shed some light on the types of financial services Hispanics are seeking from their employers. About 79% want financial planning services, 70% want Social Security counseling, 68% want budgeting assistance, and 54% want tuition reimbursement. Each of these options was preferred by a larger percentage of Latinos than people among the general population, the study found.

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Hispanics may also be more welcoming of professional financial advice. The study revealed that while 49% of the general population said it’s inappropriate for their employers to be involved in their personal finances, this sentiment was shared among only 38% of Hispanics. Moreover, 53% of Hispanics said they felt financial companies wanted to help people like them.

“It is no surprise that our study found that Latinos in the workforce would welcome additional financial help and guidance from their employers,” says David Hufnagel, Latino market director, MassMutual. “In fact, our research revealed that Latinos show much more interest in employer-offered financial planning/counseling services, especially budgeting assistance and debt counseling, than other consumer segments.”

These services can help this segment of the population address vast concerns that are threatening their financial wellness. The study found 49% of Latinos say they don’t understand how to save and invest appropriately for their situation, and 43% struggle to make ends meet. Moreover, three in 10 say they have less than $500 saved for emergencies. Only 5% had $50,000 or more saved for emergencies and 17% had virtually nothing saved at all. About 37% of Latinos said managing household finances was at least somewhat difficult, and 51% cited high levels of debt. In fact, debt and bills topped the list of financial concerns among Latinos. More than half say they worry about household finances at least once a week.

And these worries are bleeding into other aspects of their lives. The MassMutual study found 64% of Hispanics say financial issues are harming their mental health and raising stress levels, 42% say it’s interfering with their social lives, and 36% say it’s hampering their ability to eat healthy.

Some research suggests financial wellness programs are key to alleviating workers’ stress which could significantly impact productivity and a company’s bottom line.

However, many Latinos have difficulty securing the financial services that can help them address these issues. The survey found 59% are unsure about who to go to for financial advice and guidance, 53% say it’s difficult to find financial services companies that know how to help households like the ones they belong to, and 42% believe they have different financial planning needs than the average American household.

“Securing a good financial future requires saving and planning,” says Hufnagel. “We want to empower families with resources and tools to help achieve their financial goals and prepare financially for the long-term.”

Based on its research, MassMutual recommends employees develop monthly budgets and reallocate priorities for short and long-term financial planning and saving; start saving for retirement as soon as possible; and use digital tools to determine how much they can expect to save in order to secure a comfortable retirement.

MassMutual’s Hispanic Middle America Financial Security Study was conducted by Greenwald & Associates on behalf of MassMutual from February 28 to March 14, 2017. Respondents were between the ages of 25 and 65, worked full-time, and had a household income between $35,000 and $150,000. 

Barry’s Pickings Online: Stakes for Retirement Savings in Tax Reform

Michael Barry, president of the Plan Advisory Services Group, discusses what is at stake for retirement savings in tax reform.

Art by Joe Ciardiello

Art by Joe Ciardiello

On September 27, Republican leadership introduced its “framework” for comprehensive tax reform. Billed as a “once in a generation” opportunity, the proposal is producing the expected heated controversy over everything from the elimination of the estate tax and corporate tax cuts to the elimination of the individual deduction for state and local taxes.

How would this proposal—if it were to pass—affect retirement savings policy?

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Let’s start with the good news.

Under the proposal, the highest marginal corporate tax rate would be reduced from 35% to 20%, and corporations would be allowed to immediately write-off new investments in depreciable assets. Lower corporate taxes will increase returns to all investors. Critically, however, the increase in returns will be greater for investors holding stock in tax-qualified plans.

The logic here is relatively straightforward. Individuals holding stock outside a plan will pay taxes at the capital gains/dividend rate on those higher returns. That tax on investments is not (at least as the proposal now stands) changing. For the highest paid, the tax rate on investments is 23.8%. Individuals investing in stock in a tax-qualified plan will not be paying that tax. From there the math is pretty simple—higher (non-taxed) returns = higher tax savings (relative to non-plan investors).

I estimate that an individual saving $18,000 in a 401(k) plan at a (current) rate of investment return of 4% for 10 years saves around $1,400 versus an individual investing the same amount outside a plan (and paying taxes that the in-plan investor does not pay). If that rate of return (as a result of the lower corporate tax rate) increases to 5%, the in-plan investor earns around $1,900 more than an outside-the-plan investor. So the tax-efficiency of saving inside a plan improves (in this example) by $500 or 36%.

Just to be clear, this tax savings is a function of the tax rate on investments, which under the proposal is not changing. The change in income tax rates does not affect this calculation.

Two caveats: First, some (all?) of this increase in returns may either already have been priced into the market or after the legislation is passed, be reflected in a one-time write-up in the value of assets already held in qualified plans. Second, the reduction in corporate taxes will not fall evenly—for instance, not all firms will be able to write off substantial depreciable assets, and the proposal includes a partial limitation on corporate interest deductions.

How are they going to pay for this?

It’s unclear how Republican policymakers expect to make up for revenue losses from the reduced corporate rate and lower individual tax rates. It looks like the plan is to leave the details—and many of the difficult policy tradeoffs—to the committee process.

There is widespread concern that the Republicans will turn to retirement savings policy to make up any revenue shortfall. In this regard, three areas are of concern.

Rothification: At this point, enough ink has been spilled on the cons and pros (if there are any) of requiring that employee 401(k) contributions go in on a post-tax (Roth) basis. Suffice it to say that switching taxation of 401(k) contributions to the front end produces a lot of revenue—more than $500 billion over 10 years—making it a very sweet target.

Democrats and the retirement savings community are pushing back on this issue. There is likely to be a fight over it, and the result, like much with respect to this legislation, is likely to depend on the attitude of a handful of swing Republicans in the Senate.

In the end, however, Rothification may simply be the price that corporate America has to pay for a lower corporate tax rate.

Defined benefit (DB) plan funding: In the last five years, policymakers have used reductions in DB funding requirements and increases in Pension Benefit Guaranty Corporation (PBGC) premiums to fund two separate (and semi-massive) highway bills and to plug a hole in the 2015 budget. Towards the end of that period even those policymakers were admitting that they were going too far—although, sadly, that self-awareness did not stop them from doing it. PBGC premiums and the revenue generated by reduced DB funding are just too easy a way to raise revenues without taxing anybody—except the DB system. Which most agree is unraveling as sponsors look for ways to get out of those ever-increasing PBGC premiums.

The money at stake here is nothing like the revenue gain from Rothification, but when they get down to the short strokes it may—conceivably at the very last minute—be the only way to produce the final $10-$20 billion of revenue needed to make tax cuts look responsible.

Tweaks: There are a number of smaller revenue-producing retirement savings items that Congressional tax-writing committees have been considering. A massive tax overhaul is likely to include at least some of these, e.g., elimination of “stretch” payouts from individual retirement accounts (IRAs) and DB and defined contribution (DC) plans, elimination of the employee stock ownership plan (ESOP) dividend deduction, and enhancement of the ability to do in-plan Roth conversions.

What about some basic retirement savings policy improvements?

In 2016 the Senate Finance Committee unanimously approved legislation that would make a number of improvements to the current system, including providing a path forward for open multiple employer plans (MEPs), fixing the DC annuity fiduciary safe harbor, addressing the nondiscrimination issues presented by closed groups, and requiring lifetime income disclosure in DC plans. There have also been proposals to enhance the 401(k) safe harbor rules that have received strong bipartisan support.

Whether some or all of these items may be included in tax reform is an open question. A critical issue is the extent to which they can be included in Reconciliation legislation under the budget rules.

All of which is to say that there will be a lot at stake for us in this process. And it could go either way. Watch this space.

Michael Barry is president of the Plan Advisory Services Group, a consulting group that helps financial services­ corporations with the regulatory issues facing their plan sponsor clients. He has 40 years’ experience in the benefits field, in law and consulting firms, and blogs regularly http://moneyvstime.com/ about retirement plan and policy issues.

 

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 Asset International or its affiliates.

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