Compliance August 28, 2012

$18M Judgment Ordered in Alliant Cash Balance Case

 

A federal judge has approved calculations for an award to former participants in Alliant Energy Corp.’s cash balance plan.

 

Reported by

U.S. District Judge Barbara B. Crabb of the U.S. District Court for the Western District of Wisconsin approved a judgment of $18,677,671.33, calculated by the plaintiffs in the case. Crabb previously ruled that the company ran afoul of the Employee Retirement Income Security Act (ERISA) by using the 30-year Treasury bond rate when calculating lump-sum distributions from 1998 to 2006 for participants who were younger than the plan’s normal retirement age. (See “Judge Settles on Alliant Payout Interest Rate.”) The interest rates used by Alliant did not result in a whipsaw calculation as required by ERISA prior to passage of the Pension Protection Act of 2006.  

Crabb ordered Alliant to use an 8.2% interest rate when it recalculated those payments. However, the company presented a smaller calculation for the judgment than the plaintiffs, which Crabb rejected.   

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Alliant applied the projection rate to the participants’ account balances under the 1998 plan rather than the balances as adjusted by a 2011 plan amendment. The difference lies in the way the plans award interest credits for the participant’s final year in the plan. The 1998 plan awarded a 4% interest credit; the 2011 amendment awarded the actual interest credit for that year, which exceeded 4% some years, according to the court opinion.  

Crabb said the company’s use of the 1998 balances was a misreading of her previous order.  

The opinion in Ruppert v. Alliant Energy Corp. is here.

 

Data & Research August 28, 2012

Gens X and Y Beat Boomers in Retirement Saving

Nearly 60% of Gen X (59%) and Gen Y (56%) are automatically saving for retirement, compared with 46% of Baby Boomers, a survey found.

Reported by

The younger generation is also more eager to get started on their retirement savings; the average Gen X’er, or those age 36 to 47, and Gen Y’er, or those 23 to 35, got a running start on their retirement nest egg in their mid 20s. By comparison, the average Boomer, aged 48 to 66, began saving for retirement at 35, according to a survey by TD Ameritrade.

“Gen X and Y have accepted the reality of the past few years, and rather than being discouraged, they are using what they’ve witnessed to their advantage by saving earlier and regularly,” noted Carrie Braxdale, managing director, investor services at TD Ameritrade Inc., a broker/dealer subsidiary of TD Ameritrade Holding Corporation. “The hope is that tomorrow’s investors, Gen Z, follow suit as they near retirement.”

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Only 8% of Gen Z, who are between the ages of 13 and 22, are saving for retirement, although 41% think that is never too early to begin saving for retirement. Conversely, 71% of the parents of Gen Z agreed with the statement that it is never too early to begin saving for retirement. However, 56% of Gen Z has a savings account, attributing this mainly to conversations with their parents. Eighty-two percent of Gen Z’ers whose parents have spoken about the importance of saving say the talk has been about saving in general. For 67%, the talks have been about saving for college, while the parents of 38% have spoken to them about retirement savings in particular.

The conversations appear to be having an impact, as only 35% of Gen Z say they expect to count on Social Security by the time they retire. Sixty-one percent of the parents of Gen Z, on the other hand, are counting on Social Security. Thirty-nine percent of Gen Z expects an inheritance and think that they therefore will not need to save for retirement, but only 16% of the parents of Gen Z think that the estate they leave their children will set them up adequately for retirement.

TD Ameritrade believes that while Gen Z has some appreciation for the need to accumulate a retirement portfolio, they could use more coaching. As Braxdale put it: “The good news is that Gen Z is starting off with a good understanding of the importance of saving. But that doesn’t mean they should wait to become more educated on proper long-term savings habits. We encourage parents to talk to kids specifically about retirement savings to ensure they understand the importance of getting a head start and taking advantage of the power of compounding.”

TD Ameritrade offers a number of retirement planning resources, including a “Cost of Waiting” calculator, on its website, available here.

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