Data and Research August 25, 2022

Pandemic Disruptions Still Affecting Savers

A sizable majority of savers say the pandemic has been ‘highly disruptive’ to the way they manage their finances.

Reported by

A recent study published by Northwestern Mutual explores the attitudes and behaviors U.S. adults have toward money, financial decisions and the broader issues affecting their long-term financial security.

Today’s investors and savers continue to grapple with the pandemic, inflation and economic uncertainty. As a result, many adults have adapted in their financial lives by improving their financial habits, accounting for emergencies and becoming more confident in themselves.

Get more!  Sign up for PLANSPONSOR newsletters.

Findings from the 2022 Planning & Progress Study show that despite these improvements, financial discipline is not at the level it was last year, and personal savings are starting to shrink. Over 60% of respondents said the pandemic has been highly disruptive to the way they manage their finances. Among them, 48% said they have been able to adapt, while 13% said they have not.

More than 4 in 10 (43%) U.S. adults said they made up for financial ground lost during the first year of the pandemic, compared with 30% who said they haven’t and 27% who said they didn’t lose any ground in 2020, according to the study. Among the 43% who have made up lost ground, 10% said they made up all of it and more, and they are now ahead of where they expected to be financially. Some 12% said they made it up entirely and are fully back on track financially, and 21% said they made up some of the ground lost in 2020 but are not fully back on track yet.

The study found that 60% of adults said they’ve been able to build up their personal savings over the last two years, and 69% of those said they plan to maintain their new saving rate going forward. While more people are saving, year-over-year numbers show the overall amount of savings dropped 15%. The average amount of personal savings in 2022 was $62,000, compared with $73,000 in 2021.

Most adults (73%) said they have adopted better financial habits as a result of the pandemic, with an equal amount who said they expect to maintain those good habits going forward, the study says. This is below the 95% who said the same in 2021.

The study lists the top five behaviors adopted: reducing living costs/spending (35% in 2022 versus 45% in 2021), paying down debt (22% versus 34%), increasing investing (19% versus 33%), increasing the use of tech to manage finances (19% versus 28%) and regularly revisiting financial plans (17% versus 29%).

The study found that people who work with a financial adviser and those who self-identify as disciplined financial planners not only report lower levels of financial anxiety in their lives, but also higher levels of happiness and better sleep.

Among respondents, 54% reported feeling somewhat or very anxious about their finances. That number drops to 46% for people who work with a financial adviser and 47% for those who self-identify as disciplined planners, the study says. Among Millennials and Generation Z, 66% said they feel somewhat or very anxious about their finances.

The study also found a strong generational difference when it comes to how people view the impact of their daily financial decisions. A majority of the youngest group of U.S. adults believe that small daily purchases will have an effect on their long-term financial security.

When asked if a small purchase like a daily cup of coffee would have an impact on their long-term financial security, 44% of adults agreed, including 53% of Gen Z, 52% of Millennials, 46% of Gen X and 32% of Baby Boomers, the study found.

More than 6 in 10 Americans (62%) said their financial planning needs improvement, yet only 35% reported seeking the help of a financial adviser, the study says. Nearly one-fifth (18%) of adults said they didn’t have an adviser before the pandemic but now either have started working with someone or plan to moving forward.

Three-quarters of Gen Z and Millennials said their financial planning needs improvement, the study says. They are the most likely to say they didn’t work with an adviser before the pandemic but have since started doing so or plan to moving forward.

The study also found differences in saving behavior among those who work with an adviser versus those who go it alone, with 80% of those who got professional help reporting that they were able to build their savings during the pandemic. Among those who didn’t receive help, 49% said they were able to save more.

Compliance August 24, 2022

Plaintiffs Claim AME Church Plan Is Subject to ERISA

A consolidated class action complaint claims that the church’s 401(k) plan elected to be governed by the Employee Retirement Income Security Act. 

Reported by

Members of the African Methodist Episcopal Church have filed a consolidated class action complaint alleging retirement plan fiduciary breaches under the Employee Retirement Income Security Act.

The complaint follows a proposed class action lawsuit against named plan fiduciaries that was filed earlier this year. The lawsuit alleges fiduciary breach charges against the defendants, the African Methodist Episcopal Church Ministerial Retirement Annuity Plan; the third-party administrator of the plan, Newport Group; Symetra Life Insurance Company; and Reverend Jerome Harris, the executive director of the AMEC Department of Retirement Services from 2000 until June 2021, among others.

“For nearly two decades, defendants breached their fiduciary duties and engaged in negligent conduct—permitting a single individual to exercise unsupervised control in managing the African Methodist Episcopal Church Ministerial Retirement Annuity Plan and the fund of retirement assets associated with the plan,” the complaint states. “Defendant Harris made a series of self-dealing, illegal, and/or risky investments without any oversight from the African Methodist Episcopal Church and its ministers.”

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

The defendants are being sued for breach of contract, breach of fiduciary duty, negligence and unjust enrichment, among other allegations.

“Plaintiffs bring this class action on behalf of AMEC ministers and other employees who, as a result of defendants’ catastrophic failures to protect their retirement accounts in the plan, collectively lost tens of millions of dollars in career retirement savings,” the complaint states.

ERISA or Not ERISA?

At issue in the lawsuit is the AMEC 401(k) retirement plan for eligible employees. The church 401(k) plan was established in 2003 for eligible employees who wished to contribute savings for their retirement, the complaint states.

In 2005, AMEC consolidated various governing documents of three retirement plans into a single 401(k) plan, the Ministerial Annuity Plan of the African Methodist Episcopal Church sponsored by AMEC. Earlier iterations had established three retirement plan levels.

Per IRS rules, church plans are often not subject to rules and regulations under ERISA.

According to the IRS, “A plan that meets the definition of a church plan in IRC Section 414(e) is exempt from certain requirements imposed on other tax-qualified retirement plans under the Internal Revenue Code. However, a church plan sponsor can elect under IRC Section 410(d) to have the plan treated as though it were not an exempt church plan.”

The complaint similarly states, “As a church plan, the plan is exempted from ERISA unless it affirmatively elected to be governed by ERISA.”

Plaintiffs allege that the church plan is an ERISA plan because the summary plan document clearly states that it is. They further allege that the AMEC 401(k) retirement summary plan document—located on the church’s website for church employees—is the only summary plan description issued by AMEC.

“On its first page, the plan’s SPD declares that ‘the plan is subject to federal laws, such as ERISA (the Employee Retirement Income Security Act),’” the complaint states. “In addition, the Summary Plan Description, as well as other written communications to the church’s clergy and other employees, including the Church’s Doctrine and Discipline—published every four years to provide clergy and church members updated information on church beliefs, teachings and practices—all expressly state that the plan is an ERISA plan, and is to be operated in full compliance with ERISA.”

The consolidated class action complaint was filed in the U.S. District Court for the Western District of Tennessee. A request for comment to the AMEC Department of Retirement Services was not returned.

«