Administration October 10, 2018

Money Personalities Can Inform Financial Wellness Program Decisions

PwC has identified findings about money personalities and behaviors that can influence how employers tailor their approach to financial wellness programs.

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Asked about their attitude towards money, 51% of Americans, the largest percentage, say they are savers, according to PwC’s 2018 Financial Wellness Survey.

In fact, this is true for each generation: Millennials, Gen X and Baby Boomers. However, nearly one-third of savers have less than $50,000 saved for retirement, and more than one-third would not be able to meet basic expenses if they were out of work for an extended time. Furthermore, one-quarter of savers are having a hard time meeting monthly household expenses or are using credit cards to pay for necessities.

This shows that savers need help, PwC says. They good news is that this group is motivated, so financial wellness programs should encourage people to check in with a coach for periodic financial check-ups, PwC says. “This group welcomes opportunities to talk periodically with a financial coach to refine what may be vague retirement goals, find out if they’re on track, and develop bite-sized action steps for follow up and accountability,” PwC says. “This approach helps improve employee confidence and opens the door for future financial coaching on other topics.”

Givers, which 18% of the American population identifies themselves as, are risking their own financial security and need help understanding the ramifications of this, PwC says. Nearly half have less than $50,000 saved for retirement, and two-thirds either don’t have sufficient emergency savings or do not know what to do. Only 35% are confident they will be able to retire, compared to 55% of savers. One-quarter of givers have taken out a loan from their retirement account.

To serve this population, financial wellness programs should—ever so gently, as this group’s heart is in the right place—explain the impact of putting someone else before themselves, such as paying for a child’s education rather than saving for retirement. It would also be helpful to show this group how much they need to save for retirement, as this might inspire them to get on track.

Sixteen percent of the population identifies themselves as spenders. Not surprisingly, 75% of this group consistently carry credit card balances, and 45% have taken out a loan from their retirement account. This group is the most likely to stress out over their finances.

This group is particularly receptive to financial wellness programs from their employer that help them manage cash and debt, PwC says. “Given that spenders are the most likely to find it embarrassing to ask for help with their finances, it’s critical that financial wellness program messaging acknowledge that it is not a sign of weakness to seek help,” PwC says. “Make sure to emphasize that working with a financial coach doesn’t mean they’ll be judged or tested on their financial knowledge.”

Nine percent of the population says they are risk haters. Less than one-third of this group is confident they will be able to retire. This group could best be helped by estimating their insurance needs, PwC says. They are also receptive to getting a second opinion from a financial coach.

Finally, 5% of the population say they are hands off when it comes to money, and 1% say they are gamblers. More than half of the hands-off group are stressed about their finances, with emergency savings and retirement being their foremost concerns.

Even though hands-off and gamblers may not be receptive to a financial wellness program, if it embraces their autonomy but offers the resources of a financial coach, they might participate in such a program, PwC says.

PwC’s findings are based on a survey of 1,600 workers. The report can be downloaded from here.

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Administration October 10, 2018

Corporate Pension Funding Ratios Greater Than 90% After September

Some firms that track pension funded status point out that plan sponsors should prepare for changes in the future as a market correction is expected and funding relief fades and higher plan sponsor contributions will be required.

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The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 1% in September to 92%, as a result of an increase in discount rates and an increase in equity markets, according to Mercer.

As of September 30, the estimated aggregate deficit of $171 billion decreased by $18 billion compared to $189 billion measured at the end of August. The S&P 500 index increased 0.4% and the MSCI EAFE index increased 0.6% in September. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 9 basis points to 4.20%.

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“Pension funded status again reached new highs in September, as an uptick in discount rates added fuel to already rising equity markets,” says Matt McDaniel, a partner is Mercer’s US Wealth business. “With the bull market about to reach its 10th anniversary, plan sponsors are now wondering ‘when’, not ‘if’, a correction will occur. Time may be running short to evaluate whether current risk management policies will be able to protect funded status when the inevitable pullback occurs.”

According to Wilshire Consulting, the aggregate funded ratio for U.S. corporate pension plans increased by 0.9 percentage points to end the month of September at 91.5%, up 7.2 percentage points over the trailing twelve months. Wilshire’s aggregate figures represent an estimate of the combined assets and liabilities of corporate pension plans sponsored by S&P 500 companies with a duration in-line with the FTSE Pension Liability Index – Intermediate.

The monthly change in funding resulted from a 1.6% decrease in liability values partially offset by a 0.6% decrease in asset values. The aggregate funded ratio is up 2.0 and 6.9 percentage points for the quarter and year-to-date, respectively.

Ned McGuire, managing director and a member of the Pension Risk Solutions Group of Wilshire Consulting, says, “September’s 0.9 percentage point increase in funding brings the aggregate funded ratio to a high point for the year for the third consecutive month and is the second highest since the end of November 2013.”

Northern Trust Asset Management reports that during the month of September, the average funded ratio for S&P 500 corporations with pension plans rose to another multi-year high at 90.7%. This was primarily driven by:

Higher discount rates:  Average discount rate increased from 3.82% to 3.92% during the month, and

Positive returns in return-seeking assets:  Global equity markets were up approximately 0.4% during the month.

October Three’s traditional Plan A improved for the sixth straight month—up less than 1% in September and now ahead almost 9% for the year, while the more conservative Plan B was flat last month but remains up almost 2% year-to-date. Plan A is a traditional plan (duration 12 at 5.5%) with a 60/40 asset allocation, while Plan B is a largely retired plan (duration 9 at 5.5%) with a 20/80 allocation with a greater emphasis on corporate and long-duration bonds.

October Three’s report says Congress passed a budget in 2015 that includes a third round of pension funding relief since 2012. The persistence of historically low interest rates, however, means that pension sponsors that have only made required contributions will see contributions ramp up in the next few years as the impact of relief fades (barring an increase in long-term rates). It also states that discount rates rose last month, and the firm expects most pension sponsors will use effective discount rates in the 4.0% to 4.4% range to measure pension liabilities right now.

For the quarter

Barrow, Hanley, Mewhinney & Strauss, a value-oriented investment manager, estimated that the corporate pension plan funded ratio rose to 90.5% as of September 30, from 88.4% as of June 30. It says assets returns drove the increase; liabilities were unchanged during the quarter.

The Barrow Hanley report highlights differences in funded ratio by industry.

Legal & General Investment Management America, Inc. (LGIMA) announced in its Pension Fiscal Fitness Monitor, a quarterly estimate of the change in health of a typical U.S. corporate defined benefit pension plan, that pension funding ratios rose over the third quarter of 2018. LGIMA estimates the average funding ratio rose from 89.7% to 91.5% over the quarter based on market movements. LGIMA also anticipates further funding ratio gains from tax reform-driven plan sponsor contributions, which will be disclosed in company filings in the coming months.

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