Data and Research June 30, 2016

Millennials Show Investing, Retirement Confidence

More Millennials than Baby Boomers are confident that they’ll reach their retirement savings goal, a survey finds.
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Forty-two percent of Millennial investors say they are very knowledgeable about investments, compared to 17% of Baby Boomers, according to a survey by Securian Financial Group.

Twelve percent of Millennials say they are not very knowledgeable about investments, compared to 25% of Baby Boomers.

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While $1 million was most frequently cited by both generations as the amount they would need to save to feel confident in retirement, more Millennials (52%) than Boomers (45%) are confident that they’ll reach their savings goal. More Boomers (11%) than Millennials (4%) are not confident that they will reach their goal.

“Confidence is a trait younger generations of Americans have never possessed in short supply,” says David Kuplic, Securian’s chief investment officer and executive vice president of Advantus Capital Management, a Securian asset management subsidiary. “Their natural self-assurance, along with the market growth most have experienced since coming of investment age after the financial crisis, could explain the gap between Millennials and Boomers, who have experienced many more highs and lows.”

However, because Boomers have more experience with market volatility, more Millennials than Baby Boomers expressed high levels of concern about market volatility (42% and 29%, respectively) and its impact on them reaching their retirement goals (49% and 39%, respectively). Millennial investors also are more concerned than Boomers about protecting themselves from a volatile market (54% and 43%) and understanding the reasons behind a volatile market (51% and 37%).

Millennials are far more likely than Boomers to take action (i.e., buy more shares, sell shares, shift shares) during periods of market volatility. Most Boomers—59%—say their typical reaction to a falling market is to leave their portfolio alone, compared to 37% of Millennials. Similarly, in a rising market, 61% of Boomers say they make no changes to their portfolio, compared to 40% of Millennials.

Thirty-nine percent of Millennials and a majority of Boomers (51%) say they are moderate investors, but surprisingly, more Millennials (15%) than Boomers (8%) say they are very conservative investors.

Nearly two-thirds (65%) of both Millennials and Boomers seek investment advice from financial advisers. The second-most cited source of investment advice for Millennials is family (54%) and for Boomers is news outlets (39%).

Millennials are much more likely than Boomers to seek advice from money management websites (49% and 29%, respectively), banks (41% and 15%), friends (39% and 18%), blogs (25% and 7%) and social media (13% and 3%).

To compare generational investment behaviors and reactions to the market volatility that began late last summer, Securian Financial Group conducted a survey of 1,997 investors, inclusive of 1,040 Millennials and 957 Baby Boomers. The survey report is here.
Compliance June 30, 2016

Court Finds Equity Compensation Plan Not an ERISA Plan

An appellate court agreed with a lower court that the plan’s purpose was not to provide deferred compensation or retirement income.
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The 9th U.S. Circuit Court of Appeals has ruled that the Stock Rights Plan (SRP) offered to certain Booz Allen Hamilton employees is not a plan covered under the Employee Retirement Income Security Act (ERISA), so former participant Foster Rich could not bring ERISA claims against the company.

The court noted that, under the plan document, although SRP participants were “expected to hold their shares until they leave the firm,” they were “not precluded from selling paid-up stock back to the firm at any time.” The SRP states that its purpose is “to provide incentives for [Booz Allen Hamilton] officers to continue to continue to serve as employees of the Company and its subsidiaries.”

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The court noted that ERISA coverage extends to employee pension benefit plans and a plan qualifies as such if “by its express terms or as a result of surrounding circumstances such plan (i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.”

Rich argued that the fact SRP participants could hold their shares until the end of employment was sufficient to establish ERISA coverage. He cited Tolbert v. RBC Capital Mkts. Corp. in which the 5th U.S. Circuit Court of Appeals found a wealth accumulation plan (WAP) offered to executives of RBC Capital Markets Corporation is a “pension plan” under ERISA. But, the 9th Circuit noted that the plan in that case was referred to by the company as a “deferred compensation plan” and its main purpose was to allow for deferral of compensation.

“Moreover, the mere possibility that income can be deferred does not mandate ERISA coverage,” the appellate court wrote in its opinion. 

Rich received a negative evaluation from the company and it was recommended that he retire, so he did in 2005. He had accumulated 30,500 shares of company stock, and the company repurchased the shares for $4,507,900, or $147.80 per share.

In 2008, Booz Allen Hamilton sold a portion of its business to The Carlyle Group, and shareholders of Booz Allen Hamilton stock received $763 per share. In 2009, Rich filed a lawsuit alleging breach of contract and causes of action under ERISA. The breach of contract claim was found to be time-barred.

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