Demographics Prompting Focus on Retirement Income

Changing workforce demographics are driving retirement plan policy and law, says Fred Reish, chair of the financial services ERISA team at Drinker, Biddle & Reath LLP.

Speaking to attendees at the 44th Annual Retirement & Benefits Management Seminar, hosted by the Darla Moore School of Business at the University of South Carolina and co-sponsored by PLANSPONSOR, Reish noted there is a focus on retirement income within the Department of Labor’s (DOL) regulatory agenda. For example, the new fiduciary investment adviser proposed rule from the DOL—he says the rulemaking is less about 401(k)s or other retirement plans and more about the 65-year-old who retires today and lives to 85. What are they going to do when not protected by the Employee Retirement Income Security Act (ERISA) bubble? Are they going to have any money left at age 85?

The Employee Benefit Research Institute (EBRI) recently issued a report about a survey in which it found for those who died at age 85 or above, 20.6% had no non-housing assets and 12.2% had no assets. Among singles who died at or above age 85, 24.6% had no non-housing assets left and 16.7% had no assets left. Those who died at earlier ages were generally worse off financially.

“Changing demographics are changing the focus on sustainability of retirement income,” Reish told seminar attendees.

The DOL is also working on a requirement that retirement benefits statements participants receive include a projection of how much monthly income their balance will purchase in retirement. Reish cited a September 2014 Towers Watson survey which found more than half of participants didn’t know how much they need to have a comfortable retirement or how much they can expect from their retirement plan.

He noted that some fear showing participants this information will discourage them, and they may give up. But, last year’s EBRI Retirement Confidence Survey (RCS) showed participants were not surprised by monthly income projections.

Reish said quarterly statements are the only ERISA mandated reporting that participants may actually read. The DOL is proposing to include a projection of the annuitized monthly value of current account balances for the participant and surviving spouse, and the same values projected forward to retirement—something Reish believes is a good idea to show. He said once the mandate is final, the retirement industry will step in with benchmarks (how much will participants need), gap analyses (how off-track are participants) and advice on deferrals. “While the government is the genesis of change, private companies will make sure it works,” Reish stated.

The DOL is also working on regulations to help plan fiduciaries with the selection of annuity providers because it wants to make sure plan sponsors are comfortable offering annuities to participants. According to Reish, the safe harbor the agency is working on is primarily focused on the plan sponsor determining whether the annuity provider is able to make good on promised future payments under annuity contracts.

Reish thinks retirement education will be the next big movement in the industry—not just retirement plan information or savings and investment education. The changing workforce demographics will lead the industry to focus on educating participants 50 and older about all retirement income options.