Fair Disclosure for Retirement Security Act

The House Subcommittee on Health, Employment, Pensions and Labor today approved landmark legislation by a 13 to 8 vote that would expose hidden 401(k) that may be eating into Americans' retirement security. The bill will be considered by the full Education and Labor Committee.

The 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984) will help workers shop around for the best retirement options by requiring simple fee disclosure on the investment options contained in their employer's 401(k) plan. Current law does not require all fees workers pay to be disclosed; and even for information that is available, it can be difficult for workers to find and evaluate.

The 401(k) Gets a “B”

Charles Schwab brokerage firm has released a new study “Getting Retirement Savings Back on Track: Employer Views on the 401(k) and Financial Education in the Workplace.” It reveals that a majority of senior finance and human resource executives in corporate America support the 401(k) as an effective savings tool for retirement.

More than 200 senior finance and human resources executives from large companies in various industries across the nation were questioned about their perceptions of 401(k) plans and the role companies should play in helping their employees plan for retirement.

Key findings include:

• Eighty percent think greater access to 401(k) investment planning advice is more important for employees now than it was a year ago.
• Two-thirds (66%) believe that making broader financial education in the workplace is more important for employees now than a year ago.
• Despite negative performance, 51% of executives report no change in their 401(k) plan participation rate.
• Sixty-three% say employee concerns over personal finances are creating a more difficult work environment.

When asked to grade the 401(k), a majority of executives surveyed (56%) gave the current system a “B.” The system is working and needs only slight improvements.

401(k) Information Preferences: More Summary, Less Detail

While the national policy debate about 401(k) fee disclosure heats up, new research conducted by the Transamerica Center for Retirement Studies(®) sheds light on preferences among American workers for receiving information about fees and expenses associated with their 401(k) plans. This research also revealed a significant disparity between employer awareness of fees compared to that of workers who are participating in a 401(k) or similar retirement savings plan.

The 10(th) Annual Transamerica Retirement Survey asked workers how they would prefer to access fee-related information, a key area of focus in the policy debate. Seventy-five percent of workers said they would prefer to receive information through an electronic format such as electronic quarterly account statements or through their plan provider’s Web site.

When asked what level of detail they would like to receive information about fees, more than two-thirds of the workers stated either a preference for some form of summary information (54%).  Only 31% of workers prefer a highly detailed account of fees and expenses.

America's Loss of Net Worth

Americans lost 18% of their net worth last year. The decline has disproportionately hit those nearing retirement.

Americans at Risk

The Center for Retirement Research [CRR] at Boston College estimates that 43% of Americans are at risk of not being able to maintain their current standard of living in retirement.

Postponing Retirement

As many workers are being hit by large losses to their retirement funds, a significant number of older workers are planning to delay their retirement, according to a survey by Watson Wyatt, a leading global consulting firm.

The Watson Wyatt survey found that a third (34%) of all workers have increased their planned retirement age in the last twelve months. These changes are more pronounced for older workers. Although the average planned retirement age for all employees is sixty-five years old, half of those aged fifty or more plan to retire at age sixty-six or later.

AARP’s Take

Baby Boomers, born from 1946 to 1964, are planning to work longer, save more money and spend less, to reach any semblance of the retirement they once envisioned according to AARP.  An AARP study has found that

35% of those ages 45 to 54 have stopped putting money into their 401(k), IRA or other retirement accounts.

25% said they have prematurely withdrawn funds from their retirement accounts.

56% have postponed a major purchase.

24% have postponed plans to retire.

The Norm of Sixty-Three

Despite the trend toward postponing retirement, sixty-three is still the average retirement age in the United States.

The Health Savings Requirement

Men retiring at age 65 in 2009 will need from $68,000 to $173,000 in savings to cover health-insurance premiums and out-of-pocket expenses in retirement if they want a 50/50 chance of being able to have enough money, and $134,000 to $378,000 if they prefer a 90% chance, according to a study published last week by the Employee Benefits Research Institute (EBRI).

Women -- with their greater longevity -- will need even more money. A women retiring at age 65 in 2009 will need from $98,000 to $242,000 in savings to cover insurance premiums and out-of-pocket expenses in retirement for a 50/50 chance of having enough money, and $164,000 to $450,000 for a 90% chance.

It gets worse. Many Americans may need even more money because the analysis does not factor in the savings needed to cover long-term care expenses, nor does it take into account the fact that many individuals retire prior to becoming eligible for Medicare.

Vermont’s Retirement Lottery

The Retirement Division of the Vermont State Treasurer's Office has mailed letters to approximately a thousand State employees informing them that they are eligible to apply for voluntary retirement under a 2009 incentive program

If more than 300 eligible employees apply to retire through the program, the Retirement Division will initiate a lottery process to select the final group.