The Pension Benefit Guaranty Corporation Wednesday announced approval of the Legacy Plan of the Unite Here Retirement Fund’s application for special financial assistance. The PBGC will provide $868.6 million to the White Plains, New York-based plan.
The plan, which covers 91,744 participants in the hospitality industry, was projected to become insolvent in 2030 without the SFA grant. According to the plan’s Form 5500 for plan year 2023, the pension fund had a funded status of 29.8%.
Unite Here is a labor union which counts more than 300,000 members in the U.S. and Canada and represents workers in the hotel, casino, airports, food service, textile manufacturing and distribution, and transportation industries.
“With this Special Financial Assistance to the Legacy Plan of the UNITE HERE Retirement Fund, 91,744 UNITE HERE workers and retirees will have their pension benefits protected from expected future cuts,” Acting Secretary of Labor Julie Su said in a statement. “These workers are the backbone of our economy and deserve to retire with dignity.”
The Special Financial Assistance Program grants funding to underfunded and distressed pension funds that are nearing insolvency. As of January 15, the PBGC has provided $70.9 billion in special financial assistance to 109 pension funds covering more than 1.3 million retirees. The program was enacted in 2021 as part of the American Rescue Plan Act.
Plans that receive special financial assistance must allocate two-thirds of their assets to high quality fixed-income investments. Another one-third of assets can be invested in return-seeking assets like stocks and stock funds.
Employers can significantly enhance workers' retirement savings by making savings rates portable, shortening eligibility and vesting timelines, and improving choice architecture at job terminations, says Vanguard’s Fiona Greig.
Employers have made extraordinary progress in getting workers to enroll, save and invest in workplace retirement plans. But today, a worker can expect to have nine employers in a lifetime. In fact, many workers experience setbacks in their retirement savings journey when they change employers, including stalled savings, forfeitures, withdrawals, loan defaults and cash drag.
We can do better. Employers can help workers save and invest seamlessly, even as they switch jobs. Here are three ideas.
Vanguard research shows that a typical worker sees a 10% increase in income when switching employers, but a one-percentage-point decline in their retirement saving rate. When an employer does not automatically enroll workers in its retirement plan, one in four new hires stops saving for retirement altogether. In other cases, saving rates decrease because the new plan sets a default saving rate—typically 3%—lower than the worker’s rate at their prior employer.
Employers can help workers maintain their savings momentum by automatically enrolling them in their retirement plans at 6% of compensation or higher, while inviting new hires to continue saving at the rate from their former job. In essence, employers can make workers’ savings rates “portable” by asking about, and defaulting new hires into, their prior savings rate.
Scrap the Fine Print: Shorten Eligibility and Vesting Timelines
In a workforce that comprises job switching, tenure-based eligibility and vesting requirements can lower retirement readiness. Today, in plans administered by Vanguard, 79% of new workers are immediately eligible to contribute to the plan, 56% are immediately eligible to receive employer matching contributions, and 49% are allowed to keep all employer matching contributions, regardless of their tenure.
Our analysis shows that roughly 30% of workers—disproportionately lower-income employees—switch employers before their retirement savings are fully vested. Those workers forfeit an average of 40% of their account balances.
Longer vesting requirements do not deliver retention benefits or significant cost savings to employers. Workers are just as likely to leave in the year after a vesting deadline as the prior year, and vesting forfeitures account for just 2.5% of employer contributions. Shorter eligibility and vesting timelines could help workers save immediately upon joining an organization and retain their savings when they leave.
Nudge Better at Exit: Preserve and Consolidate Assets
When workers leave an employer, they are often nudged in precisely the wrong ways—they can be sent a check, forced to roll their savings over to an individual retirement account or defaulted on a loan. Indeed, terminations might be the single largest opportunity to improve retirement savings. Recent research estimates that withdrawals at separation wipe out 42% of retirement savings. Better choice architecture at the end of a job could help workers consolidate their savings, remain invested and stay on track for retirement. Specifically, employers should:
Strengthen plan design for terminating workers: Employers could consider allowing terminated workers the option to remain in the plan regardless of their balance, continue to pay off any loans against their retirement savings and consolidate retirement savings from other qualifying plans or IRAs;
Promote auto-portability. Employers and recordkeepers that opt into the Portability Services Network enable workers to automatically transfer a balance (provided it is less than $7,000) to the next employer’s 401(k) plan. This is a far better alternative to sending a check to the worker’s home, and it could promote consolidation of retirement accounts; and
Make target-date fundsa default alternative in IRA accounts. After leaving a job, many workers roll balances over to, and continue to save in, IRAs. However, 28% of rollover investors—most unwittingly—leave their funds in cash for at least seven years. Defaulting IRA assets to a broadly diversified fund like a target-date fund could generate an additional $130,000 in retirement wealth for individual investors and approximately $170 billion in aggregate for U.S. workers annually.
Retirement security should be accessible to all, regardless of a worker’s career path. We have made great strides in plan design. Let’s make it easier for workers to save and invest seamlessly throughout their career by carrying their benefits forward when they change jobs.
Fiona Greig, Ph.D., is global head of investor research and policy in Vanguard’s Investment Strategy Group, where she leads Vanguard’s global retirement and investor behavior research efforts. She is a leading expert in household finance and the use of financial data to drive insights for both policymakers and business leaders.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.
