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Private Pension Issues


- Archives 2007 -

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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. 

Bill May Require Pension Funds to Divest if Iran Involved (September 25, 2007)

Governor 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 Hispanics immensely. 

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? (August 2007)
(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.  

Record Numbers 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.

Saving for 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 are."

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 compensation information.

Report: Employee Benefits Security Administration: Enforcement Improvements Made but Additional Actions Could Further Enhance Pension Plan Oversight (January 2007)
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.

Putting a 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.

Women 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 life later. Refer to this article for more information.

Issues Left 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?

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