Data and Research October 29, 2024

Public Sector Employees Fear Having Insufficient Funds in Retirement

Workers surveyed in a new MissionSquare report expressed a lack of confidence in their employer-sponsored plans, as well as concerns about emergency savings.

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The vast majority of public sector workers polled in a new MissionSquare Research Institute survey expressed concerns that they will not have enough money­ to last through their retirement years.

These employees also demonstrated a lack of confidence in their employer-sponsored retirement plans, as only 9% said the benefits provided through their employer are “sufficient” to meet their retirement needs.

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However, public sector workers find value in their retirement benefits, as 60% said retirement benefits make them more inclined to stay at their job. Meanwhile, 61% reported that other benefits like health insurance and time off also contribute to job retention.

While most state and local employees have access to defined contribution and defined benefit pension plans, public sector workers are not confident they are saving enough, especially as many struggle to pay their day-to-day living expenses, MissionSquare found.

A lack of emergency savings is also an issue for these employees, as 73% of respondents said they are worried they do not have sufficient emergency savings. Another recent MissionSquare survey found that from 2017 to 2019, 67.9% of public employees reported they would be able to come up with $400 to pay for unexpected expenses. However, emergency savings were less common among Black and Hispanic employees, as well as single women and those without college degrees.

When asked about factors preventing them from saving more for retirement, 48% of public service workers reported that current living expenses, like housing and food, were a major concern impacting their financial stability. In addition, 15% referenced their level of debt as impacting their financial security and retirement readiness.

To bolster retirement readiness, the majority (78%) of workers said they are looking for higher wages, followed by better retirement benefits and better health care benefits in retirement.

This desire for higher wages and improved retirement benefits has become almost universal for a lot of workers. These kinds of benefits are the top motivations for union workers currently on strike from Boeing,  asking for a 40% pay increase, as well as the restoration of the company’s defined benefit pension plan.

The National Institute on Retirement Security released a report on Tuesday, finding that 86% of Americans say all workers—not just those employed by state and local governments—should have a pension. According to the survey, 82% of Americans agreed that pensions are an effective way to recruit and retain qualified teachers, and 84% said pensions are a good way to attract and keep qualified public safety employees.

The average retirement benefit for public workers is about $2,428 per month, though some employees receive more or less, depending on their local cost of living, according to the NIRS.

MissionSquare also found in its survey that public employees believe they would benefit from financial education and planning information on how much to save for retirement, as well as how their employer’s retirement plan is taxed and how to identify the benefits most relevant at various stages of their career.

Employees also expressed interest in better understanding their company’s vesting schedules, how their defined contribution plan works and how their pension plan works.

“Our research underscores the need for more financial education and planning resources,” said Zhikun Liu, vice president and head of retirement research at MissionSquare Research Institute, in a statement.  “Public employees vary widely in their approaches to managing their retirement savings, from seeking advice from friends to performing their own calculations. The process of decumulation of retirement assets carries significant implications, and mistakes can dramatically impact whether employees spend down their nest egg prematurely.”

MissionSquare, in collaboration with Greenwald Research, surveyed 1,009 state and local government workers from September 13 through October 4.

Data and Research October 29, 2024

Plan Sponsors May Be Paying Too Much in DC Plan Fees

Some 80% of companies were spending more than efficient pricing for 401(k) and 403(b) plans, Abernathy Daley 401k Consultants survey finds.

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Research by Abernathy Daley 401k Consultants found that nearly 80% of plan sponsors with at least 100 employees are overpaying on administrative fees for their 401(k) and 403(b) plans. Out of 6,566 companies surveyed, 5,241 were found to be paying more than the most efficient pricing available, based on a review of Form 5500 filings conducted by the firm.

The data suggest that companies have not performed independent benchmarking on their corporate retirement plans, leaving them exposed to excessive costs and potential compliance risks. Over the last three years, retirement plan fees have decreased, yet a significant portion of organizations have not realigned their pricing structures accordingly. Abernathy Daley 401k Consultants is an affiliate of the Abernathy Group II LLC family office.

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Administrative fee pricing typically depends on the number of employees and the total assets managed under the plan. Abernathy Daley’s report advised that companies paying more than 0.3% in administrative costs, based on total assets, are likely overpaying by tens of thousands to hundreds of thousands of dollars annually. This overpayment can severely impact both the employer and employees’ retirement savings.

The lack of regular compliance-related benchmarking has also raised concerns about legal exposure and best practices adherence, according to the New York-based consultancy, which provides advice on 401(k)-plan administration and employee education. 

Importance of Benchmarking

Abernathy Daley recommended that companies conduct annual third-party benchmarking of their retirement plans. Such evaluations should be performed by legal fiduciaries to ensure fees are aligned with best practices and that companies remain compliant with regulatory requirements. Organizations that proactively review their plans can reduce excessive fees, mitigate legal risks and improve retirement outcomes for employees.

According to Abernathy Daley’s analyses, there are several compliance risks for firms associated with overpaying administrative fees. Companies are not complying with the Employee Retirement Income Security Act reporting requirements, which mandate clear disclosures on fees and investment options. This non-compliance can lead to penalties, lawsuits or other legal repercussions, especially if companies are overcharging employees, the firm noted.

Other Issues

Additionally, Abernathy Daley found, many plans suffer from poor design, particularly those with profit-sharing components, leading to operational and legal issues. Internal governance misalignments were also identified, particularly related to employee eligibility for participation based on full-time or part-time status. Further complicating matters, companies with alternative plan structures, such as cash balance plans, often fail to properly manage complex compliance testing, increasing their risk of non-compliance.

Matt Daley, president of Abernathy Daley 401k Consultants, says independent third-party consultants can help plan sponsors conduct an objective evaluation of corporate retirement plans, such as 401(k) and 403(b) options.

“During these assessments, the consultant analyzes plan fees, administrative services and investment options, comparing them against industry benchmarks and ensuring regulatory compliance,” he says. “Consultants can thus help employers uncover potential overpayments for administrative or investment services and identify opportunities to enhance the plan, ultimately benefiting their employees.”

Meanwhile, plan sponsors should also be making sure their plan advisers are doing their best work, periodically conducting requests for proposals for their plan adviser requirements. According to PLANSPONSOR’s Defined Contribution Plan Benchmarking Survey, drawing on 2,100 plan sponsors, 60.5% of firms have not initiated an RFP in at least four years.

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