Benefits January 17, 2007

Survey Finds IRAs not a Primary Retirement Savings Vehicle

January 17, 2007 (PLANSPONSOR.com) - Newly released results of a study from Fidelity Investments indicate Individual Retirement Accounts (IRAs) are not generally being used as a primary retirement savings vehicle and many investors lack understanding about IRAs.
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According to a press release from Fidelity, the study results showed less than half (46%) of investors surveyed are utilizing an IRA as part of their overall retirement savings strategy. In addition, only 7% of non-IRA holders surveyed said they plan to open an IRA before the April 16 tax deadline.

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Even current IRA holders surveyed were not fully utilizing their existing accounts, with just 37% having contributed for the 2006 tax year as of December 1, the release said. Only 16% of respondents said they are extremely/very likely to make a contribution before the April tax filing deadline.

Fidelity suggested lack of knowledge and lack of understanding about IRAs are barriers to IRA ownership. Of the 500 IRA owners and 500 non-IRA owners it surveyed, almost half (46%) of non-IRA owners said they believed that opening an IRA account requires the maximum annual dollar amount contribution. Additionally, 59% did not know they could contribute to an IRA opened to accept a rollover distribution from another source, allowing consolidation of retirement savings in one place.

The study also indicated investor confusion about contributing to both a 401(k) and an IRA, with only 52% of non-IRA owners surveyed saying they knew they could contribute to both in the same year. Also, 56% of respondents overall and three quarters (74%) of non-IRA owners did not know the correct 2006 contribution limits.

Future Savings Habits

Only 26% of IRA owners and 31% of non-owners said they are likely/very likely to make a lifestyle change, such as cutting back on restaurant meals or takeout, in order to save more for retirement next year.

Although 49% of non-owners indicated a lack of money is one of the major barriers in saving more for retirement, when presented with a hypothetical windfall of $5,000, IRA owners said they would invest an average of $2,200 for the long term, while non-owners said they would invest just $1,250 on average. Additionally, of those who would use the money for long-term savings, 49% of non-IRA owners and 45% of owners said they would elect to put the money into a bank account such as a CD or savings account instead of an IRA or other tax-advantaged retirement savings vehicle.

For the Fidelity study, interviews were conducted online from November 21-30, 2006, by Northstar Research Partners among 1,000 Americans who are the primary or joint decision-maker for investments; have household income of $40k or more; and are age 25 to 64 and not retired.

Compliance January 16, 2007

UK Regulators Ban Ericsson Pension Chair for Misdeeds

January 16, 2007 (PLANSPONSOR.com) - UK pension regulators have banned the chairman of the Ericsson pension fund from getting involved with any trust-based pension after finding that he had lied about executive benefits and benefited from conflicts of interest.
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The Pensions Regulator announced the move against David John Foster, an Ericsson human resources manager, in a  news release .Ericsson is a global telecommunications equipment and services provider that is based inStockholm, Sweden.

After being alerted to potential problems by a whistleblower’s report, the Pensions Regulator appointed an Independent Trustee to the Ericsson plan to secure funds and begin an investigation into Foster’s conduct, according to the announcement. The new trustee cancelled planned executive transfers and arranged to hold a second pension for Foster pending an inquiry. Two transfers worth £2.46 million, which had already been paid, were recovered by Ericsson.

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According to the regulators, as chairman of the Trustees of the Ericsson Employee Benefits Scheme, Foster misrepresented the pension benefits of executive members to Ericsson senior management. The representations added as much as £13.4 million to transfer values, increasing pension liabilities of the final salary plan and the sponsoring employer, the officials said.

Foster falsely claimed that executive members’ benefits accrued at a 1/30th rate and were entitled to receive unreduced benefits from the age of 50 – a benefit level he said already existed. The regulators said, however, that such a move would have required approval from Ericsson.

Finally, according to the news release, Foster stands accused of also accepting for himself an “exceptionally favorable” second deferred pension, which had the potential to affect the benefits of other plan members, without informing or seeking approval from other trustee directors.

The panel also found that Foster had failed to properly identify and handle conflicts of interest arising from his roles as chairman of the corporate trustees and as human resources manager. Foster excluded other trustee directors from significant decisions and failed to interact with them to the extent that some trustees were neither aware of the existence of the executive scheme, nor of its financial impact.

Foster was appointed as a director of Ericsson Employee Benefits Scheme Limited in November 2002, and was chairman of the scheme’s board of directors between July 2004 and September 2005 when he resigned.

The actions for which Foster was disciplined took place between April 2004 and June 2005. The Pensions Regulator was alerted by a whistleblower’s report on July 1, 2005 and appointed an independent trustee on July 7, 2005.

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