Data and Research August 2, 2018

MassMutual Study Scrutinizes Retirement Gender Gap

While most women surveyed want to grow their investments in retirement, they worry more than men about the risk involved and think they’ll need to adopt a conservative investing style.

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A new study and white paper from Massachusetts Mutual Life Insurance Co. suggest women express greater openness to financial education and getting professional financial advice compared with men.

According to the white paper, “Closing the Retirement Gender Gap,” which compiles findings from the firm’s Women’s Retirement Risk Study, financial advisers are in a strong position to help women avoid the prospect of poverty in old age.

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“The difficulty that many women face in preparing for retirement leads many to anticipate living less comfortably in retirement and running out of money five years too soon—a stunning development from a retirement planning perspective,” warns Teresa Hassara, head of MassMutual’s Workplace Solutions.

According to MassMutual, on average, women retirees and pre-retirees expect to spend 25 years in retirement, compared to men who expect to live 23 years in retirement. However, women expect their income will only last 20 years, compared with men who anticipate their income will last 25 years. On average, the data shows, retired women anticipate living 30 years in retirement, while pre-retiree women expect to live only 21 years.

The MassMutual study points to several reasons why women anticipate a more difficult time financially than men when it comes to retirement. Those include being less confident about managing savings and investments, being uncertain about optimizing Social Security, feeling a need to replace a higher percentage of their pre-retirement income, and carrying more concern about taking investment risk.

As Hassara points out, there are many barriers that make it more challenging for women to prepare to retire. She calls this “a reality we need to overcome if women are to enjoy a secure retirement.”

“MassMutual’s study shows that many women are less comfortable with financial issues and money in general,” she adds, “so it’s critical for them to have access to more education, professional financial advice, planning tools and other resources to meet these challenges head on.”

The research shows only about a third of both men and women say they will need to replace at least 75% of their pre-retirement income when they retire—despite the fact that financial advisers generally push for income replacement rates between 70% and 80%. Notably, 41% of men and 45% of women say they will need only 50% or less in retirement income replacement.

“MassMutual’s benchmark for retirement preparedness is the ability for retirees to replace 75% of their pre-retirement income from all sources, including retirement savings, Social Security and a pension, if available,” Hassara notes.

Continuing the pattern of showing less confidence than men financially, MassMutual finds women tend to be more concerned about market volatility and mismanaging their investments. Across the sexes, pre-retirees are more likely to worry about these factors than retirees. Nearly all women surveyed say they “want their investments to grow during retirement,” but, even so, women are less comfortable with investment risk and tend to believe they should become considerably more conservative in retirement than their male counterparts, according to the study.

“Women who work with a financial adviser are more likely to say their adviser recommended that they invest more aggressively,” the study states. “Meanwhile, women may be better investors than they think, given their propensity to save, [to] stick with investments longer, willingness to ask for professional guidance, and open[ness] to professionally managed asset allocation strategies for retirement saving such as target-date funds [TDFs].”

“Retirement plan providers and financial advisers need to connect with women and provide more education to help them become more comfortable with longer-term investment concepts such as taking smart risks, meeting income needs and [determining] how to balance growth and preservation,” Hassara concludes. “MassMutual is making a special point of reaching out to both advisers and women at the worksite to provide the tools and resources they need to be successful.”

The full study results are available here.

Compliance August 2, 2018

Lawsuit Challenges Benefit Cuts Under the Multiemployer Pension Reform Act

Plaintiffs seek government compensation for participants “prevented from accessing their own financial property.”

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Participants in a multiemployer pension plan that received permission from the Treasury Department to reduce member benefits have filed a lawsuit challenging whether the government can indeed authorize a private pension plan’s trustees to cut vested benefits.

In a lawsuit that appears to be the first to challenge benefit cuts under the Multiemployer Pension Reform Act of 2014 (MPRA), the plaintiffs say, if the government allows benefits to be cut, it must pay compensation to participants who are “prevented from accessing their own financial property.” The plaintiffs are seeking class action status to represent all similarly situated multiemployer plan participants.

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According to the complaint, “Empowering a private party—Plaintiffs; pension fund—to cut these payments on an indefinite (and, in reality, permanent) basis is akin to authorizing a trust to refuse to distribute sums to its beneficiaries or entitling an insurance plan to refuse to pay meritorious claims.”

The complaint notes that the Employee Retirement Income Security Act (ERISA) expressly prohibits a plan from reducing vested pension benefits: Until and unless a pension fund is broke, a retiree’s monthly payment may not be reduced. The plaintiffs also allege the government enacted the MPRA for the benefit of the Pension Benefit Guaranty Corporation (PBGC).

According to the complaint, the plaintiffs intend to show that the government’s actions reflect a constitutional violation because, among other reasons:

  • The pension was vested, making it property to which they were entitled;
  • The government interfered with plaintiffs’ access to their own property;
  • The effect on plaintiffs’ property was substantial;
  • The government interfered with the plaintiffs’ investment-backed expectation by altering retroactively the legal status of the pension rights the plaintiffs worked decades to acquire; and
  • The burden is inconsistent with the plaintiffs’ past experience—given that such changes were illegal for most or all of the 30-year period during which they worked to earn their pension, yet the cuts apply retroactively to retirees rather than merely prospectively to active workers.

Plaintiffs are members of the New York State Teamsters Conference Pension & Retirement Fund, and, under the MPRA, they had their vested pension benefits cut beginning last October 1. The complaint says, for nearly all of the plaintiffs, the cut was massive: a 29% reduction each month for the rest of their lives.

“This case will need to either bless the government’s ability to take away from retirement workers’ vested, funded pensions for which a government-run entity receives insurance premiums or, alternatively, confirm what courts have long observed: that the government, if it wishes to alter the terms of a vested pension plan, must provide fair compensation,” the complaint says.

 

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