Participants January 29, 2021

Public Sector Gen X Workers Face More Outstanding Retirement Plan Loans

Likely feeling the same financial squeeze as their private sector counterparts, the new Public Retirement Research Lab also found they are contributing less to retirement savings.

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Public sector Generation X workers have taken more retirement plan loans than any other age group, according to a recent survey by the Public Retirement Research Lab (PRRL) that measured data in public sector defined contribution (DC) plans.

The survey, which was made in collaboration with the Employee Benefit Research Institute (EBRI) and the National Association of Government Defined Contribution Administrators (NAGDCA), was discussed during a webinar hosted by the PRRL. Jack VanDerhei, research director at EBRI, said the organizations reviewed plans based on age, tenure and plan type, which included 213 457(b), 401(a), 403(b), 401(k) and other public DC plans of state, county, city and subdivision government employees.

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Out of all the age groups (defined as workers in their 20s, 30s, 40s, 50s, 60s, etc.), those in their 40s had the highest number of outstanding retirement plan loans, at 7.3% of the total for all age groups. Only about 1% of workers in their 20s had an outstanding loan, with 4.1% of those in their 30s, 6.1% of those in their 50s and 3% of those in their 60s having outstanding loans.

Findings from the PRRL survey show Gen Xers are also contributing less to their retirement savings than those in most other age groups. The report shows that those in their 40s are contributing a mean rate of 5.5% to their retirement, while those in their 20s are contributing 5.9%. Those in their 50s are contributing an average rate of 6.6% and those in their 60s are contributing 8%. Workers in their 30s are contributing the lowest amount, at 5%.

It is likely that Gen X workers in the public sector feel the same financial squeeze as workers in the private sector, juggling mortgages, children’s education expenses, their own student loan debt and caretaking for elderly parents. It has left some to forgo crucial financial needs such as emergency savings or retirement funds.

A 2019 Schwab Retirement Plan Services study found 42% off Gen Xers surveyed said they are more focused on paying off debt than saving for retirement. Because of this, many in this age group are nervous that they will outlive their savings during retirement.

While Gen X had the highest percentage of workers with outstanding loans, the survey found older workers tend to have a larger loan amount than younger workers. “For those with loans, the older the age, the bigger the loan,” VanDerhei said. “Average loans as a percentage of account balance by age were smaller for younger workers rather than for older workers.”

Workers in their 50s and 60s had retirement plan loan amounts ranging from $7,000 to about $8,500, while workers in their 20s had an average loan amount of $1,680. Those in their 30s had an average loan amount of $3,963, while those in their 40s were borrowing an average of $6,184.

Average loans as a percentage of account balance were smaller for younger workers as well. Those in their 20s had an average loan amount of 10.9% when compared with their account balance. Loans were 14.9% of account balances for workers in their 30s, 16.1% for those in their 40s, 16.6% for those in their 50s and 19.2% for workers in their 60s.

When it comes to total contributions, including any employer contributions employees might receive, those in their 20s largely outpaced workers in all other age groups. These workers have a mean total of 9% of their salary being contributed toward their retirement, with just 6.7% for those in their 30s and 40s, 7.5% for those in their 50s and 8.8% of those in their 60s.

Benefits January 29, 2021

Virginia Throws Its Hat Into the State-Run Retirement Plan Ring

A bill passed by state lawmakers would direct the state’s 529 plan board to set up and administer VirginiaSaves.

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The Virginia House of Delegates has passed a bill that would direct the governing board of the state’s 529 college savings plan to establish an automatic enrollment payroll deduction individual retirement account (IRA) retirement savings program, to be known as the VirginiaSaves Program.

Participation in the program would be mandatory for eligible employers, defined in the bill as self-employed individuals, sole proprietors and nongovernmental employers having five or more employees that do not offer a qualified retirement plan to their employees. The bill has been referred to the state Senate’s Committee on Finance and Appropriations.

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The bill calls for the 529 plan board to appoint a program advisory committee “to provide sophisticated, objective and prudent administrative and investment advice and direction, as requested by the board.” According to the bill, “Members of the committee shall demonstrate extensive experience in one or more of the following areas: retirement plan design, retirement plan investments, domestic or international equity or fixed-income securities, cash management, alternative investments, institutional real estate investments or managed futures.”

The 529 plan board will be responsible for setting the default automatic deferral rate for eligible participants, as well as default annual deferral escalation rates. The board is also tasked with developing education and outreach campaigns to eligible employers and eligible employees and exploring incentives to encourage participation in the program by employers and employees, “including a grant program to incentivize compliance with the program and to defray the costs of small businesses with five to 25 eligible employees.”

If the program is established, Virginia will join Illinois, Washington, Oregon and California as states that mandate private employer participation in a state-run retirement program.

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