Benefits October 9, 2024

Planning Ahead Can Increase Retirement Savings

Research from Corebridge Financial identifies benefits of preparation and financial planning around open enrollment. 

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As workplace benefit enrollment season approaches, a new survey by Corebridge Financial revealed a strong correlation between advanced planning and an expected increase in retirement saving.

Workers who prepare in advance for open enrollment were, according to their responses, twice as likely to feel positive about their retirement plans as those who did not prepare, the research found.

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The survey also highlighted that plan sponsors and advisers can help participants by prompting early preparation and proactive financial planning. Nearly half (48%) of employees who reported planning ahead said they intend to increase their retirement contributions during open enrollment, while among those who do not prepare ahead of time, only 19% planned on increasing their retirement contributions.

“While many people think of open enrollment as a time to make decisions about medical or dental benefits, advisers can emphasize that this is also good time for a retirement wellness checkup,” says Terri Fiedler, president of retirement services at Corebridge Financial.

The Corebridge survey found that more than 40% of early planners said they would review their current retirement contributions during open enrollment, compared with just 25% of non-planners.

Fiedler says revisiting retirement plans, goals and progress is a great place for advisers who work directly with participants to start their conversation. By gauging the current status of retirement planning, participants and can better evaluate appropriate actions to take during the open enrollment period.

For those participants considering increasing their contribution, advisers may also be able to help them identify space in their budgets and financial plans to offset such an investment.

“Advisers can help participants think holistically about how their various workplace benefits fit together to make more informed decisions,” says Fiedler. “For example, the amount of disability coverage that you opt for during open enrollment can help prevent having to dip into retirement savings if you have to unexpectedly leave work due to a disability.”

Growing Awareness

Among those planning to increase their contributions, younger employees—especially those in Generation Z—are leading the way. According to the survey, 51% of Gen Z workers plan to increase their retirement contributions by at least 2% during open enrollment. This reflects a growing awareness among younger employees about the importance of saving for retirement early and maximizing their contributions during periods like open enrollment.

For those already enrolled in workplace retirement plans, increasing contributions during open enrollment can have a substantial impact on long-term savings, according to Corebridge, which provided a hypothetical scenario to illustrate the potential.

An employee earning $50,000 per year and contributing 6% of their salary could see their retirement savings grow to more than $375,000 over 30 years, assuming an 8% return on investments. If that same employee increased their contributions to 8%, their savings could rise past $500,000, excluding employer matches, salary increases and other factors, according to the firm.

While most employees (82%) find their employer’s open enrollment process simple, a significant minority still reported facing confusion. Those who said they find the process challenging highlighted the need for more personalized support and interactive educational tools. Nearly 30% of respondents cited understanding the various benefit coverage options as the most daunting part of open enrollment.

“Our research found that employees who find the enrollment process confusing value one -on-one support. This was the top factor cited by respondents on how to make the enrollment process easier,” says Fiedler. “Meeting with participants in advance can help them better understand their benefit options, determine cost differences from year to year, visualize the impact of their choices and inspire action.”

Key Provision Now Available

The SECURE 2.0 Act of 2022 aimed to improve retirement outcomes by increasing access to retirement plans and helping individuals manage competing financial priorities while saving for retirement, and Fiedler says plan advisers should be aware of a crucial new option that employers may—but are not required to—offer.

Section 115, which went into effect this year, allows individuals to take up to $1,000 in emergency expenses from their tax-preferred retirement savings accounts without incurring the additional 10% tax that typically applies to early distributions.

“For those hesitant to increase retirement plan contributions during open enrollment because they’re prioritizing building their emergency savings, this provision can help them balance both priorities,” says Fiedler.

The 2024 Corebridge Open Enrollment survey was conducted online by Morning Consult on behalf of Corebridge Financial on August 2 and 3, among a sample of 1,035 adults.

Administration October 9, 2024

Bills to Ban Arbitration Clauses Reappear in House, Senate

The legislation would prohibit arbitration of claims and discretionary clauses in all ERISA-covered plans.

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Bills were recently introduced in the U.S. House of Representatives and the U.S. Senate that would make mandatory arbitration clauses unenforceable in ERISA-covered plans.

If passed, it would mean that all retirement plans covered by the Employee Retirement Income Security Act would be banned from requiring pre-dispute arbitration as a condition of joining the plan. The bills would also eliminate discretionary authority for plan administrators in providing benefits.

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Mandatory arbitration clauses require participants to resolve disputes with the plan or the employer through arbitration instead of the legal system. Many plan sponsors have added arbitration provisions, often in combination with class action waivers, to their ERISA plans in order to limit litigation costs. The Department of Labor reported last year that more than 60 million workers were subject to mandatory arbitration.

Representative Mark DeSaulnier, D-California, introduced H.R.9820 in the House, and Senator Tina Smith, D-Minnesota, introduced S.5169 in the Senate on September 25.

The House bill was referred to the House Committee on Education and the Workforce, and the Senate bill was referred to the Senate Committee on Health, Education, Labor and Pensions.

Both bills propose to amend ERISA to make any mandatory pre-dispute or “coerced post-dispute” arbitration clause, class action waiver, representation waiver or discretionary clause with respect to a plan unenforceable. It would prohibit any such clause or waiver from being included in a plan document or other agreement with plan participants.

According to H.R.9820, participants and beneficiaries would still be able to consent to arbitration after a dispute arises, as long as the participant was not coerced into agreeing to arbitration, the participant is informed in writing of their right to refuse to agree without facing retaliation, and the participant has a 45-day waiting period to agree to arbitration.

The House bill also states that no covered provision related to a plan, other than a multiemployer plan, that gives discretionary authority in benefit determinations or plan interpretations is enforceable. The bill would also prohibit discretionary clauses in single-employer plans.

Plans would have one year to comply with the regulations.

A similar bill was introduced in the House in May 2022 as part of the Mental Health Matters Act. The House passed the bill, and it was referred to the HELP Committee in the Senate.

Congress is currently in recess until after November elections.

The administration of President Joe Biden had previously come out in support of the 2022 legislation, suggesting Biden would sign it if it passed in the Senate.

The law firm Morgan Lewis & Bockius LLP and the U.S. Chamber of Commerce, an advocacy group, voiced opposition to the bill, arguing it would encourage costly litigation and frivolous lawsuits, since many weaker cases are filtered out by the more expedited arbitration process.

Andrew Oringer, a partner in the Wagner Law Group, says the arbitration issue under ERISA is significant because its implications not only question whether plaintiffs should have access to the courts, but also question whether, as a practical matter, class actions can go forward.

Oringer points out that if class action lawsuits are unavailable, cases may become less appealing to plaintiffs’ lawyers, as attorneys make an investment in the cases they bring, so if the potential recovery does not extend to a broad class, the case may become less worthwhile to pursue.

He added that some plans not only require arbitration, but also attempt to foreclose class actions.

“Interestingly, because a number or ERISA fiduciary claims, even if not fashioned as class actions, are essentially brought on behalf of the plan as a whole, even though nominally brought by one or more plan representatives, it will be interesting to see how things ultimately shake out if class actions become harder to bring,” Oringer says.

Meanwhile, courts continue to disagree over the enforceability of mandatory arbitration provisions containing class action wavers. For example, the U.S. 3rd, 7th and 10th Circuit Courts of Appeal have refused to enforce arbitration clauses that prospectively waive remedies under ERISA, whereas the 9th Circuit and some district courts in other circuits have enforced the arbitration of claims seeking plan-wide relief under ERISA.

The U.S. Supreme Court also declined to review the 3rd and 10th Circuits’ decisions in October 2023 cases in which the appeals courts held arbitration provisions unenforceable.

“It remains to be seen whether Congress will coalesce in favor of preventing a plan sponsor from requiring arbitration in an ERISA plan,” Oringer notes. “Until then, or until the Supreme Court resolves the issue, the issue will remain as clear as mud.”

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