Data & Research July 11, 2017

Most Americans With Set Financial Goals Don't Forego Savings

Those who are progressing with their goals are more likely to have a retirement plan, life insurance and at least one investment account, Lincoln found in a survey.
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Lincoln Financial asked survey participants for open-ended responses about their 2017 financial goals, and found that priorities for those individuals with specific goals tend to focus on some key themes: reducing debt, general savings and saving for retirement.

While about one-third of the general population set specific financial goals, the number jumps up to just less than half of Millennials. Many Americans (55%) also made New Year’s resolutions for 2017. Thirty-six percent of those resolutions focused on finances or career, others mostly focused on health and fitness.

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Most Americans (72%) say they are progressing with their resolutions in some way, versus 28% who are challenged in moving forward. Those who are successful with their goals use extra funds to pay down debt. Fifty percent of the individuals surveyed say debt is a financial issue, and 14% say it is a “major” issue. However, those who show progress toward their resolutions make reducing debt a priority. About one-third of this group would use any leftover money each month toward paying debt.

Lincoln found those who are successful with their goals don’t sacrifice savings. When money is tight, this group is likely to sacrifice vacations—31% have actually done so in the past year. However, they never skimp on savings. Nearly 60% say they have never sacrificed savings. In addition, Americans who are successful with their financial goals leverage financial products. Those who are progressing with their resolutions are more likely to have a retirement plan (52%), life insurance (45%) and at least one investment account (44%).

NEXT: Addressing financial fears

“Those who are progressing toward their goals and resolutions are first and foremost working to ensure they have a solid foundation to build upon,” says Dick Mucci, president of Group Benefits at Lincoln Financial. “Putting some extra money toward debt, savings and insurance coverage certainly pays off in the long run—and those who have financial goals understand this.”

Forty-six percent of Americans say they are excited about having enough money for retirement, but 35% are intimidated by saving for it. This number is highest for Generation X, 47% of whom say they fear saving for retirement. In addition, 42% of Americans are afraid of unforeseen health or accident expenses.

“The things that excite and scare us in regards to money are the same for a reason—they impact one another and are critically connected,” says Mucci. “Without the right protections in place, an accident or illness can derail retirement savings. But if you focus on the outcomes you want and ensure you take the steps to get there, you’ll wind up in a good place. An employer-sponsored retirement plan is a great way to build savings, and insurance coverages offered through the workplace can help protect against the financial challenges that could come with an unexpected injury or illness."

The study—Financial Focus: Goals and Reflections of Today’s Consumer—found most Americans feel “comfortable” or “stable” when it comes to their money—but a significant portion of the population (24%) say they are “barely getting by” or worse.

Results of the 2017 Financial Focus Study are based on an online survey of 2,500 adults 18 years of age or older across the United States, conducted in 2017. More findings can be found here.
Compliance July 10, 2017

Brown University Latest Target for 403(b) Lawsuit

As with similar lawsuits, the one against Brown University attacks the traditional 403(b) plan model.
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With wording that seems to be duplicated from filings against other higher education institutions, a complaint has been filed against Brown University and fiduciaries of its Deferred Vesting Retirement Plan and Legacy Retirement Plan.

As with other lawsuits, the complaint alleges that because the marketplace for retirement plan services is established and competitive, and because the plans have more than $1 billion in assets, the fiduciaries have tremendous bargaining power to demand low-cost administrative and investment management services and well-performing investment funds, but instead, they caused the plans to pay unreasonable and excessive fees for investment and administrative services.

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In addition, the complaint says the retirement plans’ fiduciaries selected and retained investment options for the plans that historically and consistently underperformed their benchmarks and charged excessive investment management fees. It also alleges the fiduciaries failed to negotiate fixed fees for recordkeeping services, rather than asset-based fees, and retained share classes for funds that charged higher fees than other less expensive share classes that were available for the plans for the same funds.

Also similar to other lawsuits against higher education institutions, the complaint says that instead of regularly monitoring all the plans’ investment choices and for periodically reviewing and evaluating the entire investment choice menu to determine whether it provided an appropriate range of investment choices into which participants could direct the investment of their accounts, the fiduciaries offered a “bewildering array” of investment options in the plan. At one time, the Legacy Retirement Plan offered 175 investment options through Fidelity Investments and an additional 24 investment options through TIAA, which included numerous duplicative investment choices (e.g., target-date funds from each recordkeeper), the complaint says. In addition, at one time, the Deferred Vesting Retirement Plan offered 177 investment options through Fidelity and an additional 26 investment options through TIAA, which also included numerous duplicative investment choices.

The complaint also calls out the use of individual annuity contracts offered by TIAA that only allowed participants to withdraw funds in ten annual installments unless they paid a surrender fee of 2.5%.

Finally, the lawsuit alleges fiduciaries approved a TIAA loan program that required collateral as security for repayment of the loan, charged “grossly excessive” fees for administration of the loan, and violated U.S. Department of Labor (DOL) rules for participant loan programs.

NEXT: How will 403(b) plan excessive fee lawsuits play out?

It’s been fairly recent that the plaintiffs’ bar has added Employee Retirement Income Security Act (ERISA) 403(b) plans as targets for excessive fee lawsuits similar to those filed against 401(k) plans for years.

However, before new Internal Revenue Service (IRS) 403(b) regulations were passed in 2007, even ERISA 403(b)s operated very differently than 401(k) plans. The lawsuits attack the 403(b) plan design model of offering an extensive amount of investment options, including individual annuities, and using multiple recordkeepers. Before new 403(b) regulations were passed in 2007, there was little plan sponsor oversight of 403(b)s. Often annuity providers were allowed to meet with employees and set up individual annuities for them, which resulted in many plans having hundreds of investments. “I’m surprised the plaintiffs' bar has turned to 403(b)s,” says David Levine, a principal with Groom Law Group, Chartered in Washington, D.C. “These lawsuits are in a lot of ways clones of 401(k) lawsuits, completing disregarding some of the distinctions between the two plan types.”

Since the 403(b) regulations were passed, plan sponsors have been trying to consolidate recordkeeprs and investment options, and recognize this is better for participants, especially as related to costs. However, what is especially challenging about mapping legacy 403(b) annuity assets into a new lineup of mutual funds is that participants invested in these legacy assets often have full discretion over their money. The plan sponsor cannot force them out.

One can only speculate whether courts and judges know the distinctions between the two plan types or will consider this as it is presented to them by plans’ attorneys.

In the case against Emory University, the U.S. District Court for the Northern District of Georgia granted dismissal of the claim that the plan included too many funds in the investment lineup. The plaintiffs argue that having too many investment options is imprudent. Similar to the Brown University lawsuit, plaintiffs assert that the plans offered 111 investment options, and that many of those options were duplicative. Instead, the plaintiffs allege that the plans should have offered fewer options and used more bargaining leverage with those investment options to obtain lower fees. The judge did not agree with the plaintiffs’ theory. “Having too many options does not hurt the plans’ participants, but instead provides them opportunities to choose the investments that they prefer,” he wrote in his opinion.

However, a judge for the case against Duke University’s 403(b) plan let a similar claim move forward.

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