Data & Research May 8, 2014

DIY Retirement Plan Investors Not Acting Optimally

Do-it-yourself (DIY) retirement plan investors are falling behind their peers in meeting certain objectives, suggests a study from Guardian Life Insurance Company of America.
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The second annual “Guardian Workplace Benefits Study” reveals four in 10 employees identify themselves as DIYers (do-it-yourselfers) when it comes to making financial decisions; men are more likely than women to identify themselves as a DIYer. DIYers were found to underperform overall on key financial objectives compared with the one-quarter of employees queried for the study who identify themselves as DIFMs (do-it-for-me). For example, when asked how well they are doing with having financial security if a wage earner can no longer work due to a disability or serious illness, 64% of DIFMs answered positively compared to 51% of DIYers.

The study finds 34% of employees that identify themselves as DIYers use a DIY approach when making decisions about retirement planning and saving. The problem escalates for DIYer Millennials who continue to struggle with prioritizing the right kind of financial objectives and lack a clear understanding of their workplace benefits. Only one-quarter of Millennials actually use most of the benefits learning opportunities available through their employer. Instead, they rely too heavily on non-expert sources such as friends, family, the Web and social media for benefits education, which may lead to inaccuracies and misinformation.

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According to the study, 52% of DIYers attribute all or most of their financial preparedness to the benefits and retirement plans available through their employers, yet because DIYers are resistant to being helped, employers and providers alike need to rethink their approach to reach this segment.

“DIYers forgo professional help managing their finances and may think they’re in charge, but the fact is they’re falling behind their peers when it comes to living up to their financial responsibilities,” says Phyllis Falotico, assistant vice president, Group Marketing at Guardian, based in New York. “These employees are not getting the information they need on their own, so it’s important for employers to provide access to expert financial advice, and effectively engage this group in a way that makes them take action.”

Fewer than one in six of employees say they use a financial adviser, compared with more than half of DIFM employees. Even more worrisome, less than half of DIYers believe it is important to find a trusted financial source for financial advice. According to the study, younger employees, particularly Millennials, are less likely to consult a professional financial adviser.

Those who prefer to manage their own finances are not putting more effort into researching such matters. DIYers are not substantially more likely to read newspapers or magazines than their DIFM counterparts (39% vs. 41%), and are only somewhat more likely to conduct an online search (46% vs. 41%) or visit a company’s website or social media site (9% vs. 17%).

For the study, both employees and employers were surveyed online during September 2013 by market research firm Greenwald & Associates on behalf of Guardian. The study report is here.

Compliance May 8, 2014

Delta Air Lines Wins Stock Drop Suit Appeal

The 11th U.S. Circuit Court of Appeals used its own case history to dismiss a lawsuit brought by participants in a Delta Air Lines employee stock ownership plan (ESOP).
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The appellate court said the highly deferential “abuse of discretion” standard, as set forth in Lanfear v. Home Depot (see “ERISA Imposes No Duty to Disclose Certain Information”), applied to the allegations set forth in the complaint (Smith v. Delta Air Lines) against Delta. The court conceded that during the period in question Delta undeniably faced business challenges (see “Delta Asks to Void ‘Worthless’ Employee Stock Options”), but the plan required defendants to offer participants investments in Delta stock and the defendants had abided by those provisions.

According to the court opinion, lead plaintiff Dennis Smith contended that with the benefit of hindsight, defendants should have known Delta’s turnaround efforts would fail. But the court disagreed, saying that was not at all obvious at the time, as underscored by market movements during the class period. “Because a reasonable fiduciary could have concluded that investments in Delta stock during the class period remained appropriate, Smith’s prudence claim fails,” the court wrote.

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The Lanfear standard applies to fiduciaries of ESOP plans as well as other Employee Retirement Income Security Act (ERISA) plans that “encourage or require investment in employer stock.” The 11th Circuit agreed with Delta that, at the very least, the plan’s many provisions addressing investments in Delta stock made clear that the defendants were “encouraged” to offer employer stock as an investment option for participants. “That is all that is required to bring this case within the scope of Lanfear,” the court said in its opinion.

The opinion in Smith v. Delta Air Lines is here.

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