EBRI-ERF Forum Traces Retirement Challenges and Solutions

How can we best address the challenges we face concerning retirement security? Speakers at the Employee Benefit Research Institute-Education Research Fund policy forum held May 12 in Washington, D.C. offered ideas from several perspectives.

“It’s a crisis for you if you’re not prepared,” said G. William Hoagland, Senior Vice President at the Bipartisan Policy Center (BPC). Frederik Axsater, Global Head of Defined Contribution, State Street Global Advisors, sounded a similar theme, saying “retirement today is different than it was before.”

Access

The importance of access to retirement plans was a recurring theme. “Too many Americans lack access to employer retirement savings programs,” said Hoagland, adding that access is one of the six challenges to retirement security BPC’s Commission on Retirement Security and Personal Savings addresses in the report it will release on June 9.

John Scott, Director, Retirement Savings at the Pew Charitable Trusts, provided a more detailed look at access. He noted that in general, employees in New England, the upper Midwest and the Pacific Northwest have the most access, while those in the Southwest and Deep South have the least.

Scott also noted that the likelihood that an employer offers a retirement plan increases with employer size, citing this breakdown:

  • Less than 10 employees: 22% offer a plan
  • 10-49: 37%
  • 50-99: 52%
  • 100-499: 63%
  • 500 or more: 74%

Salary level is another indicator, according to Scott, who said that the likelihood that an employee had access to a retirement plan increases with salary:

  • Less than $25,000 per year: 32% of employees have access;
  • $25,000-$49,999: 56%
  • $50,000-$99,999: 71%
  • $100,000 or more: 75%

Certain industries are more likely to give access to a retirement plan, Scott reported. More than 60% of the employees in the manufacturing, financial, educational services, health services, transportation and utilities industries participate in plans; on the other hand, 40% and 34% of employees in the construction and leisure/hospitality industries, respectively, participate.

Longevity

Longevity is another key. “Americans increasingly are outliving their savings,” said Hoagland, adding that the average retirement age has been stagnant while life expectancy is increasing. He noted that longevity is another of the six challenges the BPC commission has identified. “Longevity risk is a problem we must solve,” remarked Axsater.

Leakage

Because so many Americans lack the income and resources to save, they borrow from their retirement accounts, said Hoagland. Another major contributor to leakage of plan funds, he said, are cash-outs when employees change jobs.

Financial Literacy

“Americans lack basic knowledge of how to manage their personal finances,” Hoagland said. Compounding that problem, he noted, it that one-quarter of Millennials and one-fifth of Gen X-ers spend more than they earn. Axsater argued that one of the findings of a retirement income charrette of plan sponsors that State Street convened in 2015 was that a comprehensive communication package is essential.

Social Security

Hoagland said that he expects the trust fund “to exhaust” and that “even today, it pays more than it takes in.” Social Security, he said, is “completely out of sync with the way the workforce really operates” and that part of the problem is that Social Security was designed for the 20th Century household, not that of the 21st Century.

Home Equity

Hoagland argued that home equity can be a valuable tool for some retirees. “We think it is underutilized in retirement planning,” Hoagland said, noting that half of the homeowners older than age 62 are “home rich.”

Comprehensive Solution

“A comprehensive package of efforts” would help establish a better savings culture, Hoagland said. Similarly, Axsater said that “hope is the main retirement strategy” to focus groups State Street has worked with, and that it is necessary to translate hope to planning.

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