Data & Research April 15, 2014

Researchers Suggest Boosting Retirement Plan Access

The most effective way to increase participation in retirement plans is to provide all workers with access to one and automatically enroll them, a research report suggests.
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A new issue brief, “Why Don’t Lower-Income Individuals Have Pensions?,” released by the Center for Retirement Research at Boston College, says about half of U.S. private sector employees do not participate in a retirement plan at their current job, and those not participating are more likely to have lower incomes.

The brief indicates the low participation rates of lower-income employees are driven primarily by weak labor force attachment and working for a firm without a pension. Only about half of lower-income individuals are working and, among those who are working, only about 60% work for firms that offer a pension. Eligibility and take-up rates among the lower income also help to explain their low participation.

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Data for lower-income individuals ages 50 to 58 from 1992 to 2010 who were under 300% of the poverty line shows 42%, on average, were working, 44% of those worked for an employer that offered a 401(k), 84% were eligible to participate, and 78% of those eligible voluntarily participated in the plan. This results in a 401(k) participation rate of 12% for all individuals.

The researchers suggest policy reform requiring all employers to offer an automatic IRA program to their workers, similar to the proposed myRA program (see “myRA Program Details and Intent”). If such a policy was in place, the offer, eligibility and participation rates for those working are assumed to rise to 100%. The participation rate for all lower-income individuals would be, at most, 42%.

The authors also recommend policy pairing automatic IRAs with automatic-escalation of savings rates to help ensure participants are putting enough aside for retirement. However, they caution that even with universal pension coverage in the workplace, there would still be a fraction of lower-income individuals without coverage due to their low employment rates, thus prompting the need for measures to increase employment.

A copy of the issue brief can be downloaded here.

Compliance April 15, 2014

ING to Settle Revenue-Sharing Suit

Without admitting any wrongdoing, ING Life Insurance and Annuity Co. has agreed to settle a lawsuit claiming it violated prohibited transaction rules of the Employee Retirement Income Security Act (ERISA) by taking revenue-sharing payments.
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Under the settlement agreement, ING will deposit $14.95 million into a common fund to provide compensation relief to the class of plaintiffs. The class includes administrators of ERISA retirement plans with which ING has maintained a contractual relationship based on a group annuity contract or group funding agreement and for which, since February 23, 2005, ING has received revenue-sharing payments.

The settlement also requires ING to make a number of changes to its business practices, including additional disclosures to plan sponsors of fund additions, removals and substitutions, and disclosures of fund-related fees and expenses. The settlement requires ING to eliminate language in disclosures that “Revenue-sharing payments neither directly nor indirectly increase mutual fund expenses” and replace it with language that “Revenue-sharing payments may have a direct impact or indirect impact on mutual fund expenses …” The settlement calls for future retirement plan clients to be offered the specific opportunity to pay all fees to ING directly by choosing a plan menu for which the firm does not accept any revenue-sharing payments from mutual fund companies.

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In February 2011, Healthcare Strategies filed the lawsuit, saying ING had entered into revenue-sharing agreements with various mutual funds, affiliates of mutual funds, mutual fund advisers and others in which it received kickbacks for its own benefit (see “ING Facing Revenue Sharing Suit”). In its complaint, Healthcare Strategies claimed the revenue-sharing payments had the effect of increasing the expense ratios of mutual funds offered in its 401(k) plan and all other plans similarly situated. According to the suit, while ING described the payments as service fees, “the amount of the revenue-sharing payments [bore] absolutely no relationship to the cost or value of any such services.”

Details of the settlement agreement are here.

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