Data & Research February 8, 2021

Addressing Millennials’ Debt vs. Saving Dilemma

A number of Millennials are misinformed about when to save and invest for retirement, and they need plan sponsor help with student loan debt.

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In 2016, the Center for Retirement Research (CRR) at Boston College reported that the Millennial generation was behind Generation X and Baby Boomers in retirement preparedness. The researchers attributed this to labor market conditions when Millennials exited college and to student loan debt.

However, a LendingTree survey of 1,550 consumers conducted January 8 through January 11 suggests there are other factors at play in keeping Millennials behind their older counterparts. More than one-quarter of Americans ages 40 and younger indicated there’s no reason for them to be saving for retirement.

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The firm points out that the earlier a person starts saving for retirement, the more money they’ll have at the time of retirement because of compounding interest.

In addition, the LendingTree survey found 47% of Millennials believe they shouldn’t invest until they’ve paid off all their debt. Doing the math, it can seem that this is a true statement. But, LendingTree notes, it depends on the type of investing a person is doing and the type of debt they have.

“Low-interest, long-term debt like mortgage debt isn’t particularly burdensome on your finances, so you can feel safe investing as long as you have an emergency fund in place,” LendingTree says. “And low-risk investing, like putting money into your retirement account, is something you can do even if you do have a bit of credit card debt.”

But student loan debt is holding Millennials back. New data for 2019 from the CRR shows that Millennials are catching up in the labor market and have similar retirement savings compared to members of Generation X and Baby Boomers. Still, the researchers say, Millennials’ huge student debt burden leaves them well behind their older counterparts in wealth accumulation.

“This slower wealth buildup is of particular concern as Millennials will need more than prior cohorts due to longer lifespans and less support from Social Security,” the researchers say.

In a report about how student loan debt increased households’ risk for having inadequate income in retirement, researchers at the CRR suggested that college costs should be included in broader policy discussions about how to improve lifelong financial security. While nothing has yet been done about college costs, recent legislation provides that plan sponsors are allowed to make tax-free contributions of up to $5,250 per employee annually through 2025 toward eligible education expenses, including tuition or student loan assistance, without raising an employee’s gross taxable income.

Compliance February 8, 2021

DOL Notifies Court It No Longer Supports Lawsuit Against CalSavers

A court filing cites the change in administration as the reason for backing out of the suit.

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Attorneys have notified the 9th U.S. Circuit Court of Appeals that, “after the change in administration,” the Department of Labor (DOL) no longer wishes to participate as an amicus curiae in the case arguing that California’s state-run automatic individual retirement account (IRA) program is pre-empted by the Employee Retirement Income Security Act (ERISA).

The complaint was originally filed in 2018 by the Howard Jarvis Taxpayers Association and alleged the act that created the California Secure Choice program, now known as CalSavers, “violates the Supremacy Clause of the United States Constitution because it is expressly pre-empted by the Employee Retirement Income Security Act of 1974.” The case was dismissed last March with the court finding no impermissible reference to or connection with ERISA plans in the statute.

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The Howard Jarvis Taxpayers Association filed an appeal of the case, and, in June, the DOL under former President Donald Trump filed a brief of amicus curiae in support of the association, requesting a reversal of the District Court’s findings. The DOL argued at that time that the law establishing CalSavers is pre-empted under the legal doctrine that state law relates to an ERISA plan if it has a connection with or reference to such plans. The agency said this is because it both governs a central matter of plan administration and interferes with nationally uniform plan administration—by subjecting multi-state employers to a patchwork of state laws that directly regulate how employers must structure their program or plan in providing retirement benefits.

The new administration says in its filing that the DOL not only no longer wants to participate in the case but that it “does not support either side.”

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