Data and Research September 13, 2023

US Drops to 20th in Natixis Global Retirement Index

Despite improvements in employment and income inequality, the U.S. slipped in the ranking, as high inflation and public debt caused overall retirement security to deteriorate.

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Due to high inflation, steep public debt and a sharp decline in U.S. health scores, the U.S. fell two spots in the 2023 Natixis Global Retirement Index. 

The U.S. dropped to 20th from 18th among the 44 countries included but received a higher overall score for retirement security than in 2022. The higher overall score is mainly the result of improvements in employment and wage gains, according to the report. 

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Research revealed that optimism on the macro level, however, is not being felt in the everyday lives of retirees and working Americans. 

Natixis created the GRI in 2012 in collaboration with CoreData Research to “establish a global benchmark that incorporates the wide variety of factors essential for people to enjoy a healthy and secure retirement including not only important financial factors but also access to and cost of health care, climate conditions, the state of governance and general happiness of the population.”  

Across four sub-indices, the U.S. ranked as follows in the 2023 GRI: 

  • 13th for finances in retirement, down from 11th 
  • 21st for material well-being, up from 30th 
  • 21st for quality of life, no change 
  • 25th for health, down from 17th 

The sharp decline in the health sub-index is largely due to the effect on life expectancy of the COVID-19 pandemic and an increase in drug-related and accident deaths, according to Natixis.  

The U.S. received an overall score of 71% in 2023, up from 69% in 2022. Among the top 25 countries in the index, the U.S. received the second-lowest scores for inflation and government indebtedness.  

For the second consecutive year, Norway held first place, followed in order by Switzerland, Iceland and Ireland—all of which held the same rankings in 2022. The U.K. moved ahead of the U.S. for the first time in five years at 16th, up from 19th. As a whole, nearly all developed countries received a higher overall score for 2023.  

“The common drivers of performance among the top 25 countries on the GRI are higher interest rates as well as improvements in employment levels and progress on environmental policies,” the report stated.  

After surveying affluent, individual investors with at least $100,000 in investable assets, Natixis found that 46% of working respondents in the U.S. said inflation is “killing their dreams for retirement.” Meanwhile, many Americans expressed concern about the potential threat of reduced Social Security benefits, which ranked as their top fear about retirement, the survey found.  

The survey also revealed that 47% of those still working think it will take a miracle to be able to retire securely, up from the 41% who said the same in 2021. 

“It’s important for plan sponsors to recognize the savings challenge facing plan participants,” said David Goodsell, executive director of the Natixis Center for Investor Insight, in an emailed response. “Inflation has left a mark and as we see with investors, many are making tough choices between short term cost increases and their ability to save for long term goals.” 

Besides concerns of Social Security depletion, 77% of Americans surveyed by Natixis said they worry that high levels of public debt will result in reduced retirement benefits. When asked about their greatest fears about retirement, the top answer was a cut in government benefits, which 51% agree would make it difficult to make ends meet financially.  

In addition, rising interest rates should be good news for retirees, creating more favorable conditions to generate steady income from their retirement savings and enhancing the ability of bonds to provide a “risk ballast” in portfolio construction. But even though interest rates have risen, only 22% of retirees and 45% of workers plan to add bonds to their portfolios this year, in part because only 3% of U.S. investors understand how rates affect bond prices and yields, Natixis found.  

According to the survey, 53% of Americans said they accept that they will have to keep working longer than anticipated, and more than one-third of retirees said their finances are tighter than they had expected.  

In the short-term, Goodsell said participants will need more incentives and opportunities to save, like those included in the SECURE 2.0 Act of 2022.  

“Emergency savings, student loan matches, and increased contribution limit are all new tools to use in plan design,” Goodsell said. “The investment offering is another place that can help drive participation and contribution rates. For example, 73% of plan participants in the U.S. say they are likely to up their participation if they have access to sustainable investments.” 

Natixis’s GRI rankings are based on an aggregate of mean scores from 0% to 100% for 18 performance measures in each of four categories—finances in retirement, material well-being, health and quality of life—which were then combined to provide a final overall ranking of the 44 nations studied.  

Compliance September 13, 2023

Department of Labor Recovers $22.5M for ESOP

The plan’s former trustee, Reliance Trust Company, settled a complaint following an investigation.

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The Department of Labor has recovered $22.5 million from an employee stock plan’s former trustee, Reliance Trust Co., for its overpayment for a recreational rental company’s stock after a federal judge in Arizona approved a consent judgment.

Senior U.S. District Judge Roslyn O. Silver, who presided over the lawsuit in U.S. District Court for the District of Arizona, compelled Reliance to pay the settlement to the RVR Employee Stock Ownership Plan, according to the consent judgment filed last week. The consent judgment directed Reliance to distribute recovered monies to the accounts of individuals who were participants in the plan as of May 28, 2014, or to individuals who were participants but have since closed their plan accounts.

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Silver directed Reliance or its insurers to pay $20,454,545 million—the settlement amount, within 30 days of the court’s August 30 entry of the consent judgment, the DOL stated in the press release. Charges against individual defendants in the case remain ongoing.

“The DOL has historically had special concerns about these plans and has focused from time to time on ESOP enforcement,” says Drew Oringer, a partner in and general counsel at the Wagner Law Group, which is not involved in the litigation. “This settlement shows that the DOL continues to be active in this area.”

The DOL brought the lawsuit against Reliance for alleged ERISA violations, claiming the trust company improperly facilitated an employee stock ownership transaction. Alleged fiduciary breaches stemmed from the overarching allegation that Reliance, as trustee, caused the ESOP to overpay by tens of millions of dollars the individual defendants for all of the then-outstanding stock of RVR, according to court documents.

The DOL’s assistant secretary for employee benefits security, Lisa Gomez, admonished the defendants’ actions and reminded fiduciaries of their obligations to ESOP participants in the press release announcing the settlement.

“When a trustee purchases stock on behalf of a retirement plan such as the RVR Employee Stock Ownership Plan, its first responsibility is to make sure that the plan’s participants get a fair deal and don’t pay more than the worth of the stock,” Gomez stated. “Plan fiduciaries’ duty of loyalty is owed to the plan’s participants, not to sellers looking out for their own bottom line. When fiduciaries cut deals for the financial benefit of sellers at the expense of their employees, the Department of Labor will take appropriate action to ensure that plan participants get full value for their money.”

For the 2021 plan year, the RVR ESOP held $137 million in retirement assets for 204 participants, according to the latest Form 5500 data filed to the Department of Labor.

While the case included an ESOP, dismissing the retirement plan arrangement as useful for participants is unwise because, with the right conditions, “ESOPs can provide a fantastic opportunity for succession planning for business owners and for amassing potentially significant retirement savings for employees,” said Douglas Neville, an ERISA attorney, officer and practice group leader at St. Louis-based law firm Greensfelder, Hemker & Gale PC, by email.

“Nevertheless, the Department of Labor has become increasingly aggressive in scrutinizing ESOP transactions throughout the last couple decades,” he says. “This settlement is yet another example of the intensity and gravity of the DOL’s scrutiny. DOL settlements involving ESOP transactions (large settlements in particular) illustrate the importance of ensuring that ESOP fiduciaries engage in a prudent, arms-length process in negotiating such transactions and establishing the price at which ESOPs purchase employer stock.”

The consent order did not convince one observer of the legal grounds for the alleged fiduciary breaches the DOL brought in the lawsuit.

“The Department of Labor claimed in their lawsuit that the former owner’s shares were sold to employees in the ESOP at an inflated value, in a ’pre-ordained, rushed process,’” says Daniel Aronowitz, the managing principal in Euclid Fiduciary, which is also not involved in the litigation, quoting the DOL’s complaint. “Based on our review of the public filings in this case, however, RVR retained a well-qualified, experienced financial adviser and high quality law firms to validate that the ESOP transaction was properly valued and complied with ERISA. They followed the best practices for an ESOP transaction and we did not see any validation of DOL’s claims of a ‘rubberstamped,’ ’pre-ordained’ valuation.”

The active and amended complaint was Martin J. Walsh v. Reliance Trust Company et al., brought earlier this year by then-Secretary of Labor Marty Walsh, while the consent judgment filing was updated to list acting Secretary of Labor Julie Su as the plaintiff.

Neither DOL representatives nor representatives for the Reliance Trust Co. returned a request for comment.

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