Data & Research January 21, 2014

Affluent Confident on Retirement Preparation

Affluent investors are relatively confident about their preparation and expectations for retirement.
Reported by

Six in 10 polled for the fourth quarter 2013 John Hancock Investor Sentiment Survey say they expect their quality of living in retirement to be better than their own parents, and close to one-third think it will be about the same. Fewer than one in 10 (9%) say they expect it to be worse.

The quarterly poll of affluent investors found more than four in ten investors would not change anything about their retirement preparation. Nearly 30% wish they had saved more from the beginning, and 13% wish they had started planning earlier.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Half of survey respondents say their personal vision of retirement is best described by “being able to spend time as [they] choose.” Spending time with family and friends and spending time relaxing were the next best descriptions (35%). One in five indicate continuing to do work that they enjoy best describes their personal vision of retirement.

Of the 44% of investors who say they plan to work in retirement, 36% report they will likely work at a part-time job different from the one they held, while 28% expect to continue their existing job on a part-time basis. Sixteen percent plan to do charitable or volunteer work.

When asked to list the reasons they plan to work in retirement, nearly three-quarters say it would help them to stay healthier mentally and physically.  Feeling productive was another major reason (70%), as was "wanting to stay/feel connected with others," at 69%. More than half state they would be "bored without work." Forty percent want to keep contributing to their family's financial security.

Of those who plan to work in retirement, most are unsure how many years they would work.  But 17% plan to work five years or fewer, while 14% expect to work six to 10 years.

Investors did express some worries about life in retirement. One-third are concerned about entering retirement with debt. One-quarter are worried they will have to financially support their adult children and  are at least somewhat concerned about the possibility of having to support an elderly parent. Twenty percent worry about being able to leave an inheritance.

Though confident about their own quality of life in retirement, one-third of investors polled believe their children's quality of life in retirement will be worse, with about 40% thinking it will be about the same, and three in ten expecting their children's retirements will be better.

A total of 1,031 investors were surveyed from November 11 to November 22, 2013.  To qualify, respondents were required to participate at least to some extent in their household's financial decision-making process, have a household income of at least $75,000, and assets of $100,000 or more.

Compliance January 21, 2014

Appeals Court Upholds Anti-Cutback Decision

A federal appeals court upheld a ruling that an employer did not violate anti-cutback rules when paying lump sums from a terminated pension plan.
Reported by

The decision comes out of the U.S. Court of Appeals for the District of Columbia Circuit, which took the case on appeal from a lower court. 

That lower court, the U.S. District Court for the District of Columbia, ruled in Denise M. Clark v. Feder Semo and Bard, P.C., et al (No. 1:07-cv-00470) that the law firm Feder Semo & Bard P.C. did not violate the Employee Retirement Income Security Act (ERISA) when it terminated its pension plan and paid former law partner Denise M. Clark a lump-sum distribution that was approximately half the value of her straight life annuity (see “Court Rules Law Firm Did Not Violate ERISA Anti-Cutback Rule”).

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

In her suit, Clark contended that Feder Semo improperly grouped her for purposes of her account credit, thereby understating her retirement benefits. She also claimed that Feder Semo violated ERISA's anti-cutback rule when it proportionately reduced the aggregate amount distributed to plan participants to match the plan's assets.

Among other claims, Clark also argued that the retirement plan's fiduciaries failed to use a reasonable actuarial assumption for interest that caused the plan to be underfunded. And, she contended that the retirement plan's fiduciaries failed to comply with the distribution discrimination restrictions in Treas. Reg. 1.401(a)(4)-5, with the effect of reducing the benefits received by most plan participants. 

The ruling from the appeals court affirms the district court’s decision that there is no cause for action under ERISA for a breach of Section 401(a)(4), but it also notes that neither the district court nor any of the decisions its cites addressed the particular statutory argument advanced by Clark. 

That argument centers on Treas. Reg. 401(a)(4), which provides that retirement plans may lose their tax-favored status if “the contributions or benefits provided under the plan…discriminate in favor of highly compensated employees.” The appeals court argues that, while Clark showed certain distributions made from terminated plan assets may have been discriminatory, she did not seek to disqualify the plan. Instead she seeks relief under ERISA, which the courts found to be inappropriate.

Clark argued in her original suit that express authorization for her claim is found in 29 U.S.C. § 1344, a provision of ERISA that sets forth general rules governing the allocation of the assets of a retirement plan upon termination. She points to portion of § 1344 that authorizes the Secretary of the Treasury to step in and override an application of those general rules that would violate § 401(a)(4). According to Clark, this authority for the Secretary to intervene into the workings of a plan also imposes upon a fiduciary the duty to avoid the discriminatory distributions barred by § 401(a)(4).

The line of argument caused the appeals court to “become cautious, because the Supreme Court has repeatedly warned courts against permitting such suits to proceed under ERISA based on novel causes of action not expressly authorized by the text of the statute.” According to the appeals court’s decision, Clark never explains how authority for the Secretary to intervene becomes the source of a duty for a plan fiduciary, implying it was appropriate for the district court to reject the argument.

The second question on which the appeals court offered additional consideration centered on whether the plan administrators breached their fiduciary duties when relying on the advice of the plan’s lawyer, Wiliam Anspach, to place Clark in a group receiving benefits based on the firm’s annual contribution to the retirement plan of 10% of their salary.

Clark argued that Feder Semo breached its fiduciary duty by relying on the advice, which she said was based on a mistake of fact that the firm would have discovered had it undertaken an independent investigation. The appeals court ruled that the district court properly concluded that relying on the advice of counsel was justified under the circumstances, but provided additional statutory justification.

In short, the appeals court concluded that ERISA’s adoption of the common law’s standard of fiduciary trust in § 1104(a)(1)(b) permits prudent fiduciaries making important decisions to rely on the advice of counsel in appropriate circumstances.

So while there was, in fact, a year in which Clark had been placed in and then subsequently removed from a group that was slated to receive additional contributions (and therefore additional benefits), it was still prudent for the plan to place Clark in a different benefits group based on the counsel’s advice. 

The full text of the decision is available here.

«