Benefits October 22, 2014

Who Is More Prepared for Retirement?

October 22, 2014 (PLANSPONSOR.com) - In 2013, 19.7% of employees indicated they were on track to meet their income-replacement goal in retirement, up from 17.4% in 2012 and 16.6% in 2011, according to Financial Finesse.
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The firm’s annual research on the state of U.S. employees’ retirement preparedness found retirement readiness varies significantly by demographics, with women in lower income and age demographics at higher risk of not meeting retirement goals. In addition, repeat users of financial wellness programs show significantly more progress in retirement preparedness than non- or one-time users.

From 2012 to 2013, households in the lowest-income quintile were the only group to experience an increase in average annual expenditures. This may have led to a drop in the retirement plan participation rate of employees from households making less than $60,000 a year, from 85% in 2012 to 82% in 2013. In addition, only 33% of these employees used a retirement calculator to run a retirement projection, down from 36% in 2012. The declines in these areas may help explain why only one in 10 reported being on track to reach their income-replacement goals, the same level as 2012.

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On the plus side, there was a decrease in the percentage of lower-income employees that reported having ever taken a retirement plan loan or hardship withdrawal, from 42% in 2012 to 35% in 2013.

Trouble with cash flow and debt has led to lower participation and contribution rates among women that have taken a financial wellness assessment in 2013. Thirty-seven percent of women do not have a handle on cash flow, and 46% are not comfortable with the amount of non-mortgage debt they carry. Seventeen percent of women are confident they are on track to achieve their income-replacement goals, up from 13% in 2012. However, women are still trailing men in this area, as 26% of men reported being on track (no change from 2012).

Women have so far been less likely to use a financial calculator to run a retirement projection. Only 37% of women that had taken an assessment reported having used a retirement calculator, six percentage points less than men.

Twenty-eight percent of employees reporting $100,000 or more in household income are confident they are on track to achieve their income-replacement goals, up from 23% in 2012. All other income cohorts experienced little or no change in retirement confidence. Only 9% of women younger than 45 in households making less than $60,000 a year are confident they are on track for retirement, compared to 40% of men ages 55 and older in households making more than $100,000 a year.

Financial Finesse also found that among individuals who used its online financial wellness assessment on an ongoing basis, 30% are confident they are on track to reach their retirement-income goal, compared to 17% in 2011. Overall, employees that are on track for retirement tend to focus on the basics, such as controlling cash flow, keeping debt in check, saving for various goals, and investing appropriately. Those not on track often lack these fundamental behaviors, the firm said.

Of the 80% of employees studied that did not indicate they were on track to reach their goals, three in every four have not run a retirement projection. Financial Finesses says running a projection is the first step to finding out how much employees need to save, and how their savings should be invested.

Looking ahead, the firm said its team of certified financial planner professionals has noticed an increase in skepticism and uncertainty among employees who feel that recent growth in the stock market is unsustainable. This, coupled with little to no growth in real wages during the first half of 2014, has resulted in a decline in retirement and investor confidence in the first three quarters of 2014.

Financial Finesse’s research report, “State of U.S. Employee Retirement Preparedness,” is here.

Compliance October 22, 2014

AICPA Asks EEOC to Leave Mandatory Retirement Policies Intact

October 22, 2014 (PLANPSONSOR.com) - The American Institute of Certified Public Accountants (AICPA) has asked the Equal Employment Opportunity Commission (EEOC) to reject staff appeals to investigate and litigate against accounting firms regarding partner retirement provisions.
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The AICPA is encouraging the agency’s commissioners to exercise their authority to reject any attempt by the general counsel to file litigation with respect to accounting partnership retirement practices. Further, the institute is requesting that commissioners direct the EEOC staff and general counsel to “stop these unwarranted and unnecessary investigations of accounting firm partnerships and utilize the Commission’s resources in a more productive manner that will address actual discrimination practices.”

In a letter to EEOC commissioners, AICPA President and CEO Barry Melancon, explained, “We understand that the EEOC staff is currently investigating and considering litigation against accounting firms regarding the partner retirement provisions in their partnership agreements. You will recall that less than eighteen months ago, the EEOC staff completed a similar investigation of another large accounting firm. As the EEOC General Counsel’s office wrote in its July 25, 2013, informal comment letter, control—meaning whether partners control their own work and own and control a portion of their firms—is the touchstone to the determination that they are indeed partners rather than employees. Because of the nature of the accounting profession, we believe that the partners of our member firms—like the firms the staff is investigating—do have such control and that the EEOC should not bring actions against these firms.”

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According to the Wall Street Journal, the EEOC investigated PricewaterhouseCoopers LLP over its policy that requires its partners to retire by age 60, with a view toward whether the policy constitutes age discrimination. The Journal said the EEOC ultimately decided last year not to bring a case against PwC and closed its investigation, according to a person familiar with the situation.

Deloitte LLP has reported it is under EEOC investigation over its required partner retirement age of 62.

In its letter, the AICPA said it understands the EEOC is seeking to expand the scope of the Age Discrimination in Employment Act (ADEA) by requiring that partners in such firms be treated as “employees” for purposes of the ADEA.

Melancon wrote, “The AICPA represents CPAs in the more than 11,000 U.S. accounting firms that almost exclusively operate as partnerships, as generally required under state accountancy statutes. Importantly, the public interest is protected by these statutes and the related AICPA Code of Conduct provisions that require that accounting firm owners also be actively engaged in the firm. Appropriately, hundreds of thousands of non-partner employees are covered by the ADEA. Accounting firm partners, as owners, however, are not covered by the ADEA, and we do not believe such partners should be considered employees, as the EEOC staff is apparently asserting.

“We believe that any change in the EEOC’s classification of accounting firm partners to ‘employees’ for the purposes of anti-discrimination laws would be very disruptive to the accounting profession and its business practices. A change that treats accounting firm partners as ‘employees’ would upend the long-established expectations and business reliance interests of the accounting profession. The members of our profession possess a high degree of business expertise. Those individuals have full knowledge and understanding of the compensation, capital contributions, buy outs, pensions, deferred compensation, voting rights, benefits, governance, termination policies, as well as mandatory retirement provisions, and agree to those terms when signing their firm’s partnership agreement. Further, individuals have the option of choosing to remain employees rather than becoming partners.

“Accounting firms and their partners have adopted these policies for sound business reasons. This business model has thrived and prospered for decades while also serving the public interest. In particular, retirement policy provisions allow for the predictable progression of lesser tenured, and often more diverse, individuals into the partnership, and facilitate the orderly transition of a firm’s clients from senior partners to those who will succeed them.”

In 2000, the EEOC initiated an investigation into a large law firm’s alleged practice of requiring partners to retire at age 65. The law firm eventually settled the EEOC’s charges.

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