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Do Financial Literacy and Mistrust Affect 401(k)
Participation? (November 2007)
Employers have changed pensions significantly over the past years, moving away from the traditional defined benefit plans to a defined contribution plan, known as 401(k)'s. Under the traditional pension the employer contributed to the
employees' pension. Oftentimes the employee would add his or her contribution as well. Companies use the former pension monies to fatten their profits. This study looks at why workers choose not to contribute to 401(k)'s.
Can You Sue if Your 401(k) Nest Egg is Mishandled? (November 26, 2007)
A new case boosts the debate around the financial abuses of the 401(k) plan. Like millions of American workers, James LaRue was counting on his 401(k) retirement savings plan to provide a financial cushion when he stopped working. He made regular contributions to it, and he gave instructions to the plan manager on how to invest his portion of the funds. But, according to LaRue, on at least two occasions the manager allegedly ignored Mr. LaRue's investment instructions and LaRue's retirement account was deprived of $150,000 in potential profits. LaRue sued the plan manager in federal court for alleged breach of fiduciary responsibilities, but the case was thrown out. On November 26 LaRue takes his case to the US Supreme Court, where the justices must decide whether the federal law regulating retirement plans allows LaRue to sue his plan manager to recover the $150,000.
Report: State and Local Pensions are Different from Private Plans (November 2007)
The Center for Retirement Research College has undertaken a study about US state and local pension plans. Nearly all workers in state and local governments have defined pension benefits with about 70% also getting Social Security. Public pensions, while based on lower wages, provide larger benefits and cost-of Ėliving adjustments which are unknown in the private sector. Private sector workers have mostly 401(k)s with less than half of the employees covered; almost all have Social Security coverage. The study examines funding assumptions, investment strategies and possible future directions.
Employers Find Racial Divisions in 401(k) Plans (November 12, 2007)
Employers such as Exelon Corp., McDonald's Corp. or Ariel Mutual Funds have discovered troubling racial differences within their 401(k) retirement plans. It appears that African American workers do not participate in voluntary retirement plans at the levels of white workers. Instead, a larger percentage of blacks raise children in single parent families and are caring for aging parents. This situation may trigger a gap that could leave today's black workers far less financially prepared for retirement than whites. Workers are largely expected to decide for themselves. The decline of pensions may disproportionately affect blacks.
Report: Employment-Based Retirement Plan
Participation: Geographic Differences and Trends, 2006 (November 2007)
For both current and future retirees, an important source of additional
retirement income is money from an employment-based retirement plan. In
2006, the percentage of workers participating in these plans decreased.
This report focuses on the level of participation by workers in public or
private sector employment-based pension or retirement plans, based on the
US Census. Participation in retirement plans depends on factors like age, gender, race and geography of workers.
Making a Pitch for 401(k) Clarity (October 24, 2007)
Senior citizens, as well as others, have a difficult time understanding their retirement plans. Understandably, the inclusion in these plans of loopholes and exceptions, all written in legal verbiage, often leave policy holders confused about why they receive the payments they do, and intimidate others from questioning what they believe are payment shortages. US Senators from the Senate Special Committee on Aging are addressing this problem by introducing legislation calling for full disclosure of retirement plan information. If enacted, will this legislation help?
For Women, Greater Obstacles to Retirement (October 23, 2007)
More women are doing retirement financial analysis because they canít generally afford to retire. Whether they have a traditional pension or a 401(k) plan, women consistently enter retirement with about half as much money as men do. The reason is simple: financial discrimination against women. They generally earn only about 80 percent of what men earn, and because the pension rate is based on income, their retirement income is less.
REM: Blacks' Retirement Security at Risk (October 11, 2007)
Several companies such as McDonald's Corporation, Exelon Corporation and Ariel's Hobson have recently discovered that African-American employees invest less in their pensions than do whites. Scholars attribute this inequality to inadequate instruction on financial topics in public schools. Also, US blacks have traditionally preferred to invest in real estate. Thatís why some firms are considering providing educational sessions about investment strategies that respond to the concerns of their black employees.
May Require Pension Funds to Divest if Iran Involved (September 25, 2007)
Arnold Schwarzenegger said on Monday that he is
submitting legislation intended to require the state's pension funds to
divest from companies that do business with the energy and defense sectors
of Iran. He wants to be a model for the
US, so that other states will imitate his actions. However, Californiaís two major pension funds denounce this measure, as costly in penalty
fees and undercutting their goal to seek the best return on investment.
Hispanic Age 65 and Older: Sources of Retirement Income in 2005 (September 2007)
This report reveals two findings that are significant to the aging Hispanic population living in the U.S. First, the poverty rate for older Hispanics is twice that for all persons age 65 and older. Second, older Hispanics have fewer sources for retirement income than others in the same age group. These statistics suggest that financial retirement planning should be encouraged by local communities in order to better prepare this increasing population for their retirement. GAA
suggests that access to higher wages during their employment years would help
Battle of the Boomers
(August 29, 2007)
A recent analysis from the Center for Retirement Research at Boston
finds that baby boomers will have a shortfall in their retirement
savings. The study surveyed the age group 51-61 finding that 32% will
not be able to sustain the same standard of living during retirement
years. A rapidly changing financial environment may explain the new
results. In addition, seniors cannot rely on employer pensions that
earlier generations received. They may collect Social Security benefits
only after 65, while lower interest rates may mean less income from
annuities and other investments.
Report: What Explains
Trends in Labor Force Participation of Older Men in the United States?
(PDF format 85 p.)
Labor Force Participation Rate (LFPR) among older men in the United
States has experienced a progressive increase since the 1990s after
nearly a century of decline. Examining Social Security, pension
coverage, wages, lifetime earnings, health and educational composition
of labor force, the report concludes that increasing participation rate
of older men is largely due to the changing educational composition of
the labor force. Men with higher levels of education enter and exit the
labor force at later age.
Pensions A Weapon in Fight Against
Offensive Music (August 8, 2007)
Pensions are taking on new dimensions. On August 7, several hundred
people protested at the Virgin Megastore in Times Square against the
growing violence and sexism in rap lyrics. The Day of Outrage requested
state governments across the US to abandon pension funds invested in
entertainment companies that encourage offensive language. "New York
State has $3 billion invested in companies that use [derogatory] words
..." said Rachel Noerdlinger, spokeswoman for the National Action
Network. "They need to quit."
Report: Employer Awareness and Attitudes
about Automatic 401(k) Plans (June 2007)
(PDF format, 33 p)
Employees increasingly have the option to contribute to 401 (K) plans as
employers abandon responsibility to support old age pensions for their
workers. However, research in 2006 finds that many workers do not
participate in the plan and as a result do not save sufficiently. Now
employers are enrolling workers automatically in 401 (k) plans unless
employees unless they decide not to participate. The following AARP
national telephone survey tests the awareness of 800 mid-size employers
about the plan features and reasons for enrollment. The study concludes
that most mid-size employers are familiar with the features of the
automatic enrollment plan, and that the latter results in greater
savings for employee retirement.
Employers Closing Door on Traditional Pensions (July 25, 2007)
Researchers at the Employee Benefit Research Institute and Mercer Human
Resource Consulting discovered that a growing proportion of the American
companies are trying to avoid traditional defined-benefit pension plans.
Instead, defined-contribution plans such as 401 (K), have become rather
common. The major drawback? Risk is transferred from employer to
employee. However the 401 (K) plans present particular advantages, such
as better portability in case of frequent job change. In the end, the
study underlines that younger employees, rather than the senior citizens
planning to retire now, will be the ones mostly affected by the change.
Retirement Accounts Climb to $16.4T (July 24, 2007)
A recent study carried out by the Investment Company Institute (ICI)
shows that Americans have collected a record savings in retirement
accounts equaling to $16.4 trillion. Sarah Holden, senior director of
retirement and investor research at ICI, said the findings show that
Americans "are actively saving for their retirements." Growth in
retirement savings can be partly attributed to a recent trend of active
enrollment in employer-sponsored plans.
Report: Pension Benefit
Guaranty Corporation: Governance Structure Needs Improvements to Ensure
Policy Direction and Oversight (July 2007)
(PDF format, 42 p)
The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of
private sector employees and retirees in over 30,000 employer-sponsored
pension plans. With this report the Government Accountability Office
(GAO) tries to determine PBGC’s ability to meet its growing fiscal and
operational obligations, particularly with respect to the high risk
listed programs such as the single-employer pension insurance program.
The study examines PBGC’s governance structure and distribution of
administrative responsibilities. The results reveal a lack of formal
guidelines concerning the distribution of administrative roles and
responsibilities in the PBGC board which lead to inefficiencies. In
conclusion GAO report recommends that the board create policies
corresponding to corporate governance practices and to develop detailed
guidelines clarifying board responsibilities.
Work Past Retirement Age (July 20, 2007)
A recent survey by the Office for National Statistics found that the
number of people working past retirement age has reached its peak. There
are around 1.2 million working people of retiree age, two-thirds of
which are female. It can be partly explained by that fact that fewer
employers support their employees in their desire to leave early. Sam
Mercer, chief executive of the Employers Forum on Age, said "As people
live longer there is a realization that they can't afford a 30-year
Retirement: The Female Perspective (July 9, 2007)
Women face a precarious retirement as a result of longer life
expectancy, lower salary level and more frequent rate of leaving jobs to
take care of children. For this reason MetLife has published a free
guide called "What Today's Woman Needs to Know: A Retirement Journey." The guide gives recommendations to
women on creating a successful retirement saving strategy. As Sandra Timmermann, director of the MetLife Mature Market Institute said. "The
sooner you start saving, the better off you are, no matter how old you
Pension Plans Face More Cuts (July 3, 2007)
In response to new federal regulations that require companies to report pension funding shortfall as a liability, many companies are scaling back their pension plans. A recent survey reported that almost forty percent of pension sponsors expect to close their pension plans to new hires within the next two years. When they close their plans, companies tend to contribute more to their employees’ 401(k) accounts, but employees will still have to save more themselves to compensate for the discontinuation of their pension benefits.
Report: Private Pensions, the Tax Code, and the Erosion of Retirement Income Security (July 2007)
(PDF format, 46 p)
The author of this report argues that the decline of labor unions, big business, and government-sponsored social programs, the burden of providing for retirement security has shifted to individual workers. Private pensions, which have largely converted from defined benefit to defined contribution schemes, and financial services firms, which manage private pension plans but are primarily concerned with turning a profit, are among the culprits in Americans’ decreasing income security. How can the government consider lowering Social Security benefits when the private sector is clearly unwilling to provide pension security?
Report: Defined Benefit
Pensions: Conflicts of Interest Involving High Risk or Terminated Plans
Pose Enforcement Challenges (June 28, 2007)
Conflict of interests between the consultants and pension plans can turn
costly for the employees’ hardly-earned savings for retirement. The
conflict occurs when a consultant has a competing professional or
personal interest. The preceding report by Securities and Exchange
Commissions identified 13 pension consultants who had undisclosed
conflicts of interest. GAO analysis uncovers that the defined benefit
plans using these consultants resulted in 1.3% lower annual returns.
Although the new finding suggests that there is a link between conflicts
of interests and negative pension returns, it cannot serve as a proof of
direct causality. Consequently, a new regulation is expected to be
published soon requiring all the service vendors to disclose fees with
Employee Benefits Security Administration: Enforcement Improvements Made
but Additional Actions Could Further Enhance Pension Plan Oversight
The Department of Labor’s Employee Benefits Security Administration (EBSA)
is the main agency responsible for protecting private pension plan
participants and beneficiaries from the abuse or theft of their pension
assets. In 2002 the Government Accountability Office (GAO) proposed
recommendations to eliminate the weaknesses of the agency and to improve
the existing enforcement program. Yet the task has not been fully
accomplished, particularly in terms of the enforcement of Employee
Retirement Income Security Act of 1974 (ERISA) which defines the
standards for pension plans sponsored by private sector employees. The
report comes up with recommendations to evaluate EBSA enforcement
strategy with regards to other agencies’ strategies, to increase
coordination with the SEC Commission and to determine how attrition
affects the agency’s operations.
Initiative Would Take
on Pensions. New Government Employees Would Get Less, at an Older Age
(June 22, 2007)
The California Foundation for Fiscal Responsibility president filed an
initiative on Thursday which seeks to cut California’s State pension
costs. The scheme intends to offer less generous pensions to state and
local government employees and to extend the retirement age starting
from July 1, 2009. The justification for Richman’s proposal is that
private sector employees’ working into their 60s and 70s pay the
pensions for public employees who can retire at 50 or 55. This attack on
public employees’ pensions reflects the continued slashing of pensions
for all workers, pitting public vs. private workers.
Report: A New Benefit Platform for Life Security (June 13, 2007)
The ERISA Industry
Committee, which represents some of the largest US employers, revealed a
plan to offer retirement and health care plans through third-party
“Benefit Administrators” such as banks and investment companies. This
will allow employers to pool their purchasing power and outsource the
costs of administering the plans while, the report claims, expanding
healthcare coverage and increasing the opportunities for participation in
retirement plans. The plan would also require subsidies from state and
local governments, allowing big business to shift costs to taxpayers.
Price on Retirement (April 4, 2007)
While some economists like to reassure about pension saving plans,
others are complete alarmists. Kevin Hassett from the conservative
American Enterprise Institute, says that people will never be able to
save the correct amounts if they want to keep their standard of living
upon retirement. He presents the conclusions from a Dartmouth economist
who used a computer program to estimate the amount of wealth that people
need to have. Those amounts are already large, but Hassett warns about
growing health expenditure and insurance rates.
Pension Funds Push Climate Change Laws (March 19, 2007)
Large pension funds and companies called Monday for Congress to place limits on emissions of carbon dioxide and other gases blamed for global warming, the latest among several business-oriented groups to call for a national climate policy. The 65 signers of a letter to President Bush called for a 60-90% reduction of greenhouse gas emissions from 1990 levels by 2050, a goal that could require, among other changes, a major shift away from fossil fuels used to run power plants and automobiles. The letter promotes a market-based system that would give companies the incentive to curtail growth of these emissions.
Supreme Court Declines to Consider Xerox Pension Plan Case (March 19, 2007)
The Supreme Court has declined to consider a dispute centered on whether Xerox Corp. improperly calculated pension benefits for several employees who left the company and were later rehired. The decision lets stand a ruling by the 9th Circuit Court of Appeals that determined the company's formula for calculating certain pension benefits violated the Employee Retirement Income Security Act, or ERISA.
With No Pension Plan, NASCAR’s First Stars
are Easily Forgotten
(February 7, 2007)
Unlike veterans of other sports, NASCAR champion Sam Ard has no
pension to support his old age. According to NASCAR, drivers are
"independent contractors" who bear full responsibility for their
finances, health care, retirement and life insurance. Yet, the booming
stock-car series remains the only major-league sport without a pension
plan. "You can drive for NASCAR, but when it's over, it's over. You
get nothing,” Ard states. For years, other veteran drivers have lobbied
for some fund to help repay the men who contributed to the sport and now
struggle to make ends meet.
Face Uphill Challenges in Keeping their Financial Strength
(January 18, 2007)
On average, women have less, earn less, invest less and end their
lives poorer than do men. College-educated
women between 36 and 45 earn 74.7 cents for every dollar their male
counterparts make, according to the Economic Policy Institute. The
challenge for women is to maintain financial strength without forfeiting
their healthy longevity or balanced approach to life. Retirement savings
and learning how to invest may be crucial to a financially stable in
later. Refer to this article for more information.
Unresolved on Pensions (January 17, 2007)
The Supreme Court’s decision not to hear arguments that IBM
illegally discriminated on the basis of age has ended a longstanding
battle between IBM employees and employers. Workers claimed that freezing
their pension plans was unfair and discriminated against those nearing
retirement. Similar lawsuits around the country are still pending.
Some courts have issued rulings that favor employers, while others seem to favor workers.The
increasing controversy over flaws in pension standards has led the
Financial Accounting Standards Board to write new rules.Lawsuits on this issue continue to wind their way through the legal
process and may yield different results. For the IBM retirees, the Supreme
Court has ruled against them.
The Private Sector: New
Law Makes it Easier for Workers to Get Advice on 401(k)s (January 2, 2007)
The Pension Protection Act of 2006
attempts to address the difficult issues of investor control of 401 (k)
plans. Many employees do not have the experience, time or training to make
critical life-altering decisions regarding investment decisions.
Through this legislation, companies can provide investment advice
to their 401 (k) participants while shielding themselves from liability
for losses that may occur. Although
plan sponsors have always been able to provide investment advice, few
actually did out of a fear of being held responsible if a participant lost
money. Who can assure that
employees will get good advice? Who will monitor if there’s collusion
between the employer and a 401 (k) provider? Is this another way of
emptying a workers’ wallet while pretending to assist them with their
savings for retirement?