Data and Research October 26, 2018

What It Really Means When ‘Retirement’ Is the Top Financial Concern

Lincoln Financial Group’s Jamie Ohl speaks about the opportunity for plan sponsors to think about their participants’ financial stressors in a more sophisticated way, supporting all the generations in a targeted manner.

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In April, Lincoln Financial Group promoted Jamie Ohl, who was already leading the firm’s retirement plan services business, to the role of executive vice president, at the same time appointing her to the company’s senior management committee.

In an interview with PLANSPONSOR, Ohl said this promotion came after nearly 30 years of work in the financial services industry, much of it closely dedicated to the subject of retirement plans. She said her newly expanded role allows her to ask and help answer important questions about the defined contribution (DC) retirement plan system in the U.S.—about its successes, its shortcomings and its stakeholders.

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As Ohl explained, such questions drove the firm to commission and publish its latest survey report, which was revealed this week in recognition of National Retirement Security Week. Among the key findings of the survey is the fact that a majority of Americans now cite “retirement” as their top financial stressor.

“I don’t think we were surprised by the finding that retirement causes stress, necessarily, but it is interesting to see retirement at the very top of the list this year, in terms of what causes people the most financial stress,” Ohl said. “What else did they cite below retirement? Personal debt was next, followed by insufficient emergency savings, paying monthly bills, facing unexpected medical issues, affording college tuition and finally paying back student loans.”

Ohl was surprised to see student loans ranked below all these other factors in the aggregate survey data, but it makes more sense when one looks closely at the survey and the differences between the generations.

“You can see clearly that Baby Boomers are naturally more stressed about retirement and savings, while Millennials more often point to personal debt and student debt as causing the most stress,” Ohl said. “As an industry, it is important for us to think about what is concerning for our clients and how that shifts over time. We have an opportunity to think about how to address these stressors in a more sophisticated way, supporting all the generations in a targeted manner.”

The survey shows not only that the generations have different worries, but how they also face different hurdles in terms of what they have to overcome to reach financial stability and security.

“Stepping back, I would add that the industry seems to finally have gotten something very important right, which is to make sure employees are aware of how much they need to save for retirement,” Ohl said. “Another of our recent studies showed that two-thirds of people now know that they need to save at least 10% of salary annually for retirement if they hope to replace the majority of their income after they leave the work force. And 45% now believe they should be saving 15% or more.”

Just five or six years ago, Ohl said, most people had no idea that these were the levels of saving that they should be thinking about.

“So in a sense, seeing this stress about retirement is good news,” Ohl said. “People today are more informed and more aware of the long-term financial challenges they face and the opportunities they have.”

Ohl stressed that saving more for retirement “doesn’t have to be a big, involved process.” It can be as simple as cooking at home instead of dining out once a week. As the firm’s retirement projection calculator shows, that small change could generate an extra $113,000 over the typical lifetime of a 401(k) account.

“Even skipping that daily cup of coffee from your local coffeehouse could percolate into an extra $62,000 at retirement,” Ohl said.

When Ohl speaks with plan advisers and sponsors, she sees a much greater embrace these days of more aggressive iterations of automatic plan design features.

“Many plans are now starting with greater automatic deferral percentages and tying this to automatic escalation, pushing more and more people up to that 10% figure,” Ohl said.

With the strengthening of the economy and much lower unemployment, Ohl said there is strong evidence that more people are feeling financially secure for the near-term, which allows their focus—and thus their perceived stress—to move into the longer-term financial challenges like retirement.

“When we asked how financially secure people feel today, 20% said very secure, and 52% said somewhat secure,” Ohl said. “That makes a very impressive 72% who are feeling at least moderately positive about their current financial situation. This represents a real opportunity for the entire industry to take advantage of this enthusiasm.”

Compliance October 26, 2018

New York AG Accuses Exxon of Misleading Investors About Climate Change Risk

The New York State Common Retirement Fund and the New York State Teachers Retirement System hold Exxon shares with a combined value of approximately $1.5 billion, and a lawsuit asks for damages, a disgorgement of all monies obtained in connection with the alleged fraud, and restitution.

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New York Attorney General Barbara D. Underwood filed a lawsuit against Exxon Mobil Corporation, alleging that the company misled investors regarding the risk that climate change regulations posed to its business.

 

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A statement on Exxon’s website says, “The company looks forward to refuting these claims as soon as possible and getting this meritless civil lawsuit dismissed.” It adds that, “There is no evidence to support these allegations.”

 

The Attorney General’s complaint alleges that Exxon told investors that it accounted for the risk of governmental regulation of climate change by applying a “proxy cost” of carbon. A proxy cost serves as a stand-in for the likely effects of expected future events; in this case, the effects of the increasingly stringent climate change regulations that Exxon has publicly stated it expects governments throughout the world to impose and steadily increase over the course of several decades. As the complaint alleges, Exxon told its investors that it used that proxy cost in its investment decisions, corporate planning, estimations of company oil and gas reserves, evaluations of whether its long-term assets remain viable, and estimations of future demand for oil and gas.

 

Yet, contrary to those representations, the complaint alleges that Exxon frequently did not apply the proxy costs as represented in its business activities. Instead, in many cases Exxon applied much lower proxy costs or no proxy cost at all.

 

A statement by Underwood’s office says Exxon marketed the company as a secure long-term investment and courted long-term investors such as institutional shareholders, life insurance companies, and pension funds. As an example, it states, the New York State Common Retirement Fund (CRF) and the New York State Teachers Retirement System hold Exxon shares with a combined value of approximately $1.5 billion. “These investors depend on companies to provide complete, accurate information about the value of their assets to make informed investment decisions. In fact, over the course of the past decade, Exxon institutional shareholders repeatedly sought more information and disclosure regarding the risk the company faced due to climate change regulations,” Underwood says.

 

Underwood claims the impact of Exxon’s alleged fraud on the company’s value is significant in scale and scope. Among other things:

  • For 14 of Exxon’s oil sands projects in Alberta, Canada, Exxon’s failure to apply its publicly represented proxy costs resulted in undercounting of projected greenhouse-gas related expenses by more than $25 billion over the projected lifetime of the projects.
  • Exxon undercounted projected greenhouse gas-related costs by as much as 94%—equal to about $11 billion—in an economic forecast for its Kearl oil sands asset in Alberta.
  • Exxon failed to apply the proxy costs it represented to the public in estimating company reserves at Cold Lake, a major oil sands asset in Alberta, resulting in an overestimation of its projected economic life by 28 years, and an overestimation of company reserves volumes by more than 300 million oil-equivalent barrels, representing billions of dollars of revenues.

 

The lawsuit seeks an order prohibiting Exxon from continuing to misrepresent its practices in this area, and requiring it to correct its past misrepresentations. The suit also asks the court to award damages, a disgorgement of all monies obtained in connection with the alleged fraud, and restitution. Additionally, the complaint requests the court to direct a comprehensive review of Exxon’s failure to apply a proxy cost consistent with its representations, and the economic and financial consequences of that failure.

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