The Comfort of a Retirement Income Plan

An MFS Investment Management poll reveals that only slightly more than half of affluent retirees feel comfortable about their finances. The survey also showed that those who had a retirement income plan in place were 34% more likely to feel financially comfortable than retirees without a plan.

Divorce’s Financial Impact

According to a Canadian study, 70% of Canadians age forty or older who become divorced during or just prior to retirement admit that the divorce has had a negative impact on their finances.

A Bailout for Minnesota’s Pension Plan

Through their Education Minnesota labor union, teachers in the North Star state are asking the Legislature for between $207 million and $223 million over four years to restore their pension fund to economic health. Pension funding advocates argue that the $18 billion pension fund has been hit hard by the stock market slump, and needs to be replenished if it is to stay healthy in the years to come. They note that teachers will be contributing to the cause as their own payments to the pension fund increase over the four years. The state funding would come in aid to reimburse school districts for their increased contributions.

Re: Maine Transparent

Maine Senate President Libby Mitchell has proposed “An Act to Provide More Transparency and Protection for Public Employees in the Laws Governing the Maine Public Employees Retirement System." The legislation would provide public sector retirees with more information, make the process more transparent, and create a more effective system of oversight.

During the summer and fall of 2008, a group of Maine Legislators, representative of teachers and state employees, and attorneys met multiple times to look at the issues that were being raised repeatedly by public employees. The common themes in the complaints were that retirees were not being made aware of their responsibilities under the system.

A Golden Parachute or a Cost-Saver ?

The State of Idaho has been operating an early-retirement program for teachers. The program pays an average of $18,000 to teachers who opt out early. The State implemented the plan because it saves the State money in the long run by allowing districts to replace experienced teachers with younger, lower-paid ones.

Many Republicans in the State House of Representatives are now blasting the program as a "golden parachute."

Compare and Rank

AtPrime Media has announced its Compare and Rank Online Service, a detective type software that enables the user to compare and rank retirement plan earnings, expenses, balance sheet items, plan income, and funding ratios with other qualified retirement plans. The Service targets five markets: (1) Plan Administrators, CFO's and Business Owners, (2) Plan Participants, (3) Plan Professionals, (4) Federal Agencies and (5) Plan Marketers.

Early Retirement in North Carolina

Orange County, North Carolina, is considering offering early-retirement packages to more than one-hundred eligible employees.

The incentive would be offered to employees age fifty and older in an effort to reduce the county’s budget shortfall. The County estimates only 10% of the employees will take the offer.

The 401(k) Model Is Strong

Investment Company Institute President Paul Schott Stevens recently testified before the U.S. House of Representatives Education and Labor Committee, avowing that the 401(k) model is working, in spite of the market's downturn.

Ways to Improve the 401(k)

Paul Stevens has also spelled out a number of ways 401(k) plans can be improved. These include:

·        Better education about saving at all stages of life, starting in the first grades of school all the way through the workplace

·        Eliminating the age 70-1/2 minimum distribution requirement, which penalizes those retirees who must withdraw their money now when the market is weak

·        Clearer disclosure of fees, risks, holdings, and performance

·        Automatic enrollment and automatic savings escalation

Retirement Plan Advice

The U.S. Department of Labor is hashing out rules meant to increase access to investment advice for individuals with retirement plans. Members of Congress are also addressing the matter. Rep. Robert Andrews (D-N.J.), for example, introduced a bill last week aimed at ensuring workers receive independent and non-conflicted advice.

Some financial institutions are eager to help their representatives provide investment advice to workers. Others are wary of the complex and evolving regulations and are awaiting further guidance from Washington.

A 401(k) Reform Agenda

Robert Reynolds, President and CEO of Putnam Investments has outlined a sweeping retirement reform agenda at a conference of the nation’s 401(k) industry leaders in Washington, DC.

Among the steps Reynolds called for:

·        Creating a new national insurance charter, a national insurance regulator, and a fund to back up lifetime income guarantees from insurers. The fund would be similar to that which the Federal Deposit Insurance Corporation maintains to protect bank deposits.

·        Curbing the volatility of highly popular lifecycle funds by limiting the share of equity investments in the mature phase of lifecycle funds for people nearing retirement or in retirement.

·        Mandating that retirement plan advisors and providers make full, transparent disclosure of fees, risks, and responsibilities in plain English, without burdening participants with irrelevant details.

·        Providing clear, strong legal protection to employers who offer advice and guidance and to those who include lifetime income guarantee products in their savings plans.

·        Mandating automatic enrollment, savings escalation, and guidance to qualified default options for all employer-sponsored retirement savings plans.

·        Requiring that workplace savings plans build in an option to secure a “retirement paycheck,” enabling any participant to choose an assured lifetime income option in the form of annuities or other insured, non-annuity income streams.

·        Ensuring that all workplace savers have access to the advice and guidance they need for asset allocation, retirement planning, and lifetime income strategies.

·        Recognizing the growing importance of alternative risk-mitigating investment options and strategies (e.g., longevity insurance, absolute return).

·        Extending tax credits to employers who voluntarily “match” worker savings contributions since these employers are helping to meet a national savings challenge. Workers’ own contributions are already tax-advantaged.

Reynolds also called on policymakers and businesses to address the plight of the more than 75 million Americans, roughly half of the total workforce, who have no access to any workplace retirement plan. Even as the existing workplace savings system is upgraded, policymakers must find creative, cost-effective ways to enable small or struggling business to offer automatic, simple and low-cost savings options to their workers, according to Reynolds.