Data & Research April 24, 2007

Many Adults Believe They Will be Unable to Retire

Nearly one in five adults expects to work until they die, and perhaps with good reason, based on their savings rates.

Reported by

A survey by Bankrate Inc. reported that some 21% of those between 35 and 64 say they’ll be working forever, while only 9% of 25-to-35-year-olds expect to work permanently and 19% of the youngest age group, 18 to 24 year olds, sees work as a forever arrangement.

Younger individuals were more likely to plan on an early exit; when asked “What is your target date for retiring?” 27% of all respondents planned on quitting in their 50s, while 38% of those between 18 and 34 said the same.

Savings Rates

Meanwhile, 28% of those surveyed save less than 5% of their gross annual pay, including 16% of Americans who are not saving away anything.

Nearly half (46%) of workers between the ages of 25 and 34 save more than 11% of their salaries, with 15% of this group setting aside more than 15%. Among the youngest individuals (18 to 24 years old), 4% hit the high mark by saving 15% and a respectable 12% stashes 11% to 15% of pay.

Roughly three in ten of those earning $20,000 to $29,900 say they save 11% or more of their income annually. An additional 27% of that group saves 5% to 10% of pay. Nineteen percent of those earning less than 30,000 save nothing.

They might not be saving enough but, even so, optimism about life in retirement remains high among many respondents. Six out of 10 Americans “never worry” or worry “not very much” about outliving their retirement savings.

The national random-digit-dialed phone study of 687 adults 18 or older was conducted for Bankrate by GfK Roper Public Affairs & Media. The surveys were conducted from March 29 through April 1, 2007.

Data & Research April 22, 2007

403(b) Market Braced for Change

With final regulations rumored to be just weeks away, a new survey of the 403(b) market finds an industry seemingly poised to exploit those changes.

Reported by

Nevin E. Adams

The 2006 NTSAA (National Tax Sheltered Accounts Association) & Cerulli Associates 403(b) Vendor Survey notes a couple of key movements: a continuing trend toward open architecture (“more investment choices from a variety of well-respected asset managers”) and a trend toward single/limited vendor selection.

According to the survey, plan sponsors are limiting the number of vendors in order to ease their administrative burden; monitor participation rates, contributions, and withdrawals; and lower participant fees. In fact, it is widely anticipated that the pending final regulations (see “IRS Delays Implementing 403(b) Regs to 2008’) will result in 403(b) administrative responsibilities more in line with those common to 401(k) sponsors – and that, in turn, has been seen by many as the precursor to a serious consolidation of providers, certainly at the individual plan level (see also “Survey: 403(b) Sponsors Will Seek Outside Advice for New Regs’, “Sponsors Report Mixed Feelings About 403(b) Changes”).

Two Big Impacts

Vendors included in the NTSAA/Cerulli study said that the two greatest impacts of the pending 403(b) regulations are an increase in administrative issues that they will have to address, and vendor consolidation, with each cited by 57% of respondents. According to the report, many indicated that those increased administrative requirements will result in some providers making the decision to exit the market.

However, the report’s authors note that it is likely that most plan sponsors – particularly those in the non-ERISA market – will continue to offer access to between three and six vendors because they won’t want to appear to endorse any particular products. That array could still offer some significant variety, since the report says the vendors will likely include a “low-cost mutual fund vendor, a high-service variable annuity vendor, and mutual funds with imbedded advice.’

Among those changes, vendor respondents to the NTSAA/Cerulli study opined that the two most impactful to plan sponsors and participants would be the elimination of 90-24 transfers⁽¹⁾ and the requirement of a written plan document requirement (57% each). Other areas identified as potential high impact were:

29% – clarification of a distributable event
14% – nondiscrimination rules
14% – universal availability requirement
14% – mandatory that funds (contributions) are deposited by the 15^th day of the next month (though 71% said this would have little or no impact)

Education Efforts

As for preparing for those final regulations, most 403(b) vendors were concentrating their efforts on educating employers and employees about the effect. Nearly all (93%) were enhancing their marketing and education efforts to ensure employers understand the new requirements, and 71% are beefing up their client education services so that participants understand the benefits of these programs (29% have added staff to educate or service employers/participants in this regard).

Half of surveyed vendors have made platform enhancements to accommodate the new regulations or to streamline the process for employers/participants, and roughly 29% have added new investment managers to provide a more complete open architecture environment. About one in eight (14%) have increased the number of advisers/home office personnel that talk face-to-face with employers about pending changes, according to the report.

Half of vendors responding to the survey were from insurance companies, 21% from asset management/mutual fund companies, and 29% were from “other” firms.

For more information or to order your copy of The NTSAA & Cerulli Associates 403(b) Vendor Survey, please call the NTSAA office at 314.692.9861.

⁽¹⁾A 90-24 transfer is a trustee-to-trustee transfer. The IRS permits these transfers on a penalty-free individual basis from a current 403(b) vendor to another vendor, if the employer’s plan and existing vendor permit transfers.