Data & Research March 8, 2012

Majority of Investors Haven’t Developed Plan for Retirement

Only 39% of investors between the ages of 21 and 50 are confident that they will have enough money for retirement.
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According to research from T. Rowe Price, despite understanding the importance of planning for retirement, 63% of investors have yet to develop a detailed plan for their finances in retirement. Those who have a detailed plan, however, feel significantly more confident about their retirement readiness, with 58% believing they will have enough money for retirement.

Seventy-seven percent of survey respondents who have a retirement plan said that it targets an anticipated monthly budget; 84% cited having a specific monthly withdrawal strategy; and 78% said their plan considers life expectancy and how long their savings might need to last.

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Turning to their anticipated finances in retirement, Generation X and Generation Y investors said they expect to receive income from multiple sources, most commonly:

  • 401(k)s or other workplace retirement plans—74%;
  • IRAs, 65%—and
  • Non-retirement accounts (e.g., checking, savings, stocks, bonds, mutual funds)—64%.

In addition, 63% of investors age 50 and under anticipate receiving Social Security.

When asked at what age they expect to retire, the mean age investors gave was 62. When asked how many years they expect to live in retirement, the mean answer was 22 years. 

The survey was conducted online within the U.S. by Harris Interactive on behalf of T. Rowe Price from December 1 to 12, 2011, among 860 adults ages 21 to 50 who have at least one investment account.

Compliance March 8, 2012

Court Dismisses Claims of Improper Investment Selection

A federal court dismissed a 401(k) plan participant’s claims that plan fiduciaries inappropriately selected plan funds and allowed excessive fees.
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The U.S. District Court for the Southern District of New York found that Bruce Laboy’s claim of inappropriate selection of the plan’s default fund was time barred, and that Laboy failed to specifically allege that other plan investments underperformed or to compare their performance to any comparable funds. U.S. District Judge Harold Baer Jr. said Laboy failed to state a claim that either the default fund or the alternative funds were imprudently selected or monitored.  

According to the opinion, Laboy’s claim of excessive fees for the funds also fails. Even among Laboy’s handpicked group of funds, the fees charged by the default fund are not outliers: one fund has higher management fees, a second has identical management fees, with the remaining six funds charging fees that are lower by varying amounts, the court found. Laboy also failed to allege facts indicating that the default fund fees were excessive in light of the services rendered, and as to the other funds, Laboy failed to provide any evidence of their expenses at all.   

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Baer noted that decisions in which courts have allowed allegations of imprudence to go forward rested on allegations that the defendants selected certain funds out of self-interest or demonstrated clear incompetence. In the present case, there is no similar allegation that defendants chose funds with high fees based on affiliation with the defendants or the plan sponsors.   

Though he dismissed the claims, Baer granted Laboy leave to amend the complaint within 30 days. 

According to the opinion, Local 32BJ is a union with more than 120,000 members within the Service Employees International Union. After a qualifying period, members of 32BJ are eligible to participate in a defined contribution 401(k) plan. Putnam Investments provided investment services to plan participants from January 1, 2001, until June 2011. Participants had the option of self-directing investments among 14 alternative funds or allowing their funds to be invested in the default fund, Putnam Asset Allocation: Conservative Portfolio.  

The opinion in Laboy v. Board of Trustees of Building Service 32BJ SRSP is here.

 

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