Compliance February 4, 2001

Thriving Economy Drives Senate Efforts To Retain Older Workers

April 14, 2000 (PLANSPONSOR.com) - Increasing demand for highly skilled workers is driving efforts by Congress to keep older Americans at work. With February unemployment figures hovering at a low 4.1 percent, companies find it difficult and costly to replace experienced workers lost to retirement.
Reported by

Pension laws eyed

The Senate Special Committee on Aging Committee recently held hearings to explore work incentives like equal access to technology training, phased retirement, revising pension laws that penalize older workers, and combating career stagnation.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Productive older workers also are seen as a way to broaden the taxpayer base and counteract the expected burden on entitlement programs. By the time most baby boomers retire, the ratio of workers to retirees will have dwindled from seven to one in the 1950s to less than three to one in 2030.

Meanwhile, American Association of Retired Persons (AARP) polls reveal only 13 percent of Americans currently aged over 64 still work. Eighty percent of the 76 million-strong baby boomer generation would like to work at least part time after age 65.

AARP weighs in

The AARP recommended phased retirement programs to the Committee; early efforts in Sweden are showing great success. Additionally, the 34-million member group strongly urged review of cash balance pension plans that reduce or freeze accruals in older workers’ accounts.

Already, Congress has repealed the Social Security earnings limit, which had reduced benefits for those still working after age 65. But that’s only a beginning.

Action suggested

“New Opportunities for Older Workers,” a report submitted to the Senate Aging Committee by the nonprofit, nonpartisan 200-member Committee for Economic Development recommended further action:

  • Urge businesses to pursue actuarial neutrality in their pension plans, so that the lifetime value of benefits does not decline after the plan’s retirement eligibility age;
  • Urge policymakers to revisit provisions in the Employee Retirement Income Security Act (ERISA) that limit employers’ ability to offer flexible work arrangements to older workers;
  • Call for employers and government to step up their efforts to educate workers in the area of financial planning;
  • Replace the view that training older employees is a bad investment.

“More customized retirement arrangements and flexible scheduling will be the norm,” declares Senator Charles Grassley, R-Iowa, Chairman of the Senate Special Committee on Aging. “Our nation’s financial bread and butter depends on it.”

– Ann Bidou       editors@plansponsor.com

Products February 3, 2001

Advice Now An Integral 401(k) Component: Vanguard

March 2, 2001 (PLANSPONSOR.com) - Plan sponsors should expect advice as an integral part of their 401(k) program offering, according to the head of Vanguard's institutional services group.
Reported by

Yesterday, Vanguard and Financial Engines announced a “strategic relationship” through which Vanguard 401(k) clients and their three million participants will be able to receive free investment advice from Financial Engines.

According to William McNabb, Managing Director of Vanguard’s Institutional Investor Group, the decision to embrace the new model was strategic and not a reaction to client requests.  “There was no hue and cry to change,” he told PLANSPONSOR.com, while admitting that some clients had been pushing for a more substantive advice solution.

Get more!  Sign up for PLANSPONSOR newsletters.

For Vanguard, the move means that money spent to build, expand and maintain their own advice capabilities can be directed toward other pursuits, including investor education.  For Financial Engines it offers quick access to millions of Vanguard 401(k) participants, as well as the opportunity to tap into the mutual fund giant’s vast retail investor network.

Neither party would disclose the financial arrangements behind the relationship.

Vanguard acknowledged that participant resistance to paying for advice was a consideration in their final decision to consider a partnership. 

“Live” Wire
 
The 401(k) service contemplates access to live advisors, as well as the online component, Jeff Maggioncalda, Financial Engines CEO told PLANSPONSOR.com.  Tim Buckley, Principal of Vanguard Web Services noted that support would likely be provided through Vanguard’s call centers through the use of “collaborative browsing” where support personnel accesses the same screens as a participant, and can walk them through the process.

Vanguard said they “looked at everybody you can imagine” in the advice provider business as part of an intensive due diligence process.  Tim Buckley, Principal of Vanguard’s Web Service Group, said Vanguard considered:

  • Methodology – did the advice “answers” make sense?
  • User Interface – was the approach truly creative, or just bringing a paper process online?
  • People – the talent behind the design and approach
  • Culture – a match with Vanguard’s focus on shareholder interests
  • Creative Business People – willing/able to think creatively in structuring the deal

Tax Take

A key differentiation in this alliance is the commitment to offering “tax efficient” advice to the retail marketplace. Maggioncalda said. “Taxes matter a lot,” acknowledging that uninformed investment advice can trigger “significant tax penalties” as investors liquidate holdings.

While the service will be free to 401(k) participants, it is likely that the retail expansion of the services will have a price tag attached, although the particulars of that approach have not been finalized, according to McNabb.


 

«