Legislation before the U.S. House of Representatives would
extend a provision in prior pension reform allowing over-funded pensions to use
their excesses to fund retiree health and life insurance benefits.
The Moving Ahead for Progress in the 21st Century Act (MAP-21), passed in July 2012, included a
provision extending the ability of employers to transfer excess pension assets
to fund retiree health benefits and expanding the provision to allow transfers
for retiree life insurance. H.R. 3038, the “Highway and
Transportation Funding Act of 2015,” would extend the time period for using
these excess assets from 2021 to 2025 to pay for retiree medical accounts and
retiree life insurance.
The ERISA Industry Committee (ERIC) issued a statement
urging the House of Representatives to pass the legislation this week. ERIC
said that, for companies with over-funded pension plans, the ability to use
these excess assets to pay for important retiree benefits is crucial to funding
these significant benefits. The retiree life insurance benefit is
particularly important for surviving spouses of workers who have retired from a
company.
ERIC President and CEO Annette Guarisco Fildes said:
“Companies see this provision as critical to enabling them to offer vital
health and life insurance benefits to their retirees and surviving spouses. We
urge the House to pass the highway bill with this important protection for
employee benefits.”
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The Principal Financial Well Being Index for June 2015 finds 19% of working Americans feel “spending too much” has been their biggest financial mistake up to this point.
Another 17% feel “taking on too much credit card debt” has been their biggest financial mistake, while 10% say they do not know what their biggest financial mistake has been. Interestingly, just 11% say falling behind on retirement savings has been their worst financial mistake, despite the fact that it’s likely harder to catch up on years of lost savings than it is to craft and stick to a budget, or even to pay down reasonable amounts of credit card debt.
Paying down debt is the top money management priority for about a third (34%) of employees. Employees who do not use a financial professional (39%) are more likely to say paying down debt is a top priority compared to those who use a financial professional (20%). About a quarter (24%) say saving for retirement is their top money management priority—a number that jumps significantly among the employees who use a financial professional (40%) and falls significantly among those who do not (19%).
The numbers belie some serious cognitive disconnections between retirement and the other financial challenges faced by the typical American and highlight the critical role an adviser can play in constellating a web of financial difficulties into an actionable plan forward. And the support of advisers is clearly needed: The wide range of financial and personal factors that go into a successful retirement savings effort mean far more than 11% of people are behind on the retirement savings effort. Indeed, three in five (59%) say they are “concerned about their long-term financial future.”
NEXT: Confident or confused?
Some positive trends emerge in the data. About half (52%) of employees say they have closely monitored their spending levels in the past year as a way to give themselves a financial checkup. Other findings show there was a 10 percentage point increase since early 2014, from 48% to 58%, in the number of people who are proactively monitoring their spending levels as a means of improving financial well being.
The data shows only about two in five (39%) people “feel stressed about their current financial situation,” down significantly from the 47% testifying as much in late 2014. Employees who use a financial professional (52%) are more likely to say they are happy with their current financial situation than employees who do not use a financial professional (31%).
Overall, Baby Boomers (31%) are less stressed about their current financial situation compared with Millennials (47%) and Generation X (41%). Over half of all employees (58%) say they “usually feel in control of their personal financial situation.” There's no surprise that employees who use a financial professional are much more likely to feel in control of their personal financial situation (71%) than employees who do not (54%).
And it’s not just financial factors impacting peoples’ outlooks: The majority of employees believe it is either extremely important (36%) or very important (33%) for them to remain physically healthy in order to avoid major health expenditures later in life. The vast majority of employees (87%) agree to some extent that being physically healthy is an investment in their financial future.
NEXT: When confidence hurts
Writing about the research results on the Principal blog, Jerry Ripperger, vice president of consulting for the Principal Financial Group, agrees the numbers reveal troubling confusion and overconfidence—especially on the physical health side of the data.
“Employees are more positive about their health status than other research would support,” he notes. “For example, according to the National Institute of Health, more than two in three adults are overweight or obese. Similarly, more than 60% of Americans do not have enough funds set aside to deal with even a minor calamity.”
His prescription is much the same for both problems: “Many people either do not have a primary care relationship or fail to seek primary care. Avoiding preventive care also avoids early detection and intervention of disease. Similarly, many people go it alone and do not engage a financial adviser to help them with their long-term planning. As with preventive health care, working with a financial professional can help identify issues and create a plan to avoid them.”
It doesn’t help that few investors grasp the long-term savings potential of health savings accounts (HSAs), but Ripperger remains confident that more Americans are preparing themselves for a sound financial future.
“Set goals,” he urges. “It’s hard to know if you got to your destination if you don’t know where it is. That is certainly true with your health. The same is true of your financial health. Setting goals with the help of your adviser can provide direction and a framework for moving forward.”