Employees Increasingly Concerned about Retirement Preparedness
A report from Financial Finesse detailing employee
communications received online and to its call center shows increased concern
about retirement preparedness.
Adjusted for seasonal tax questions,
73% of financial questions from employees in the first quarter were focused on
taking control of finances to increase success. In addition, 30% of financial
questions related to retirement planning, up from 26% in the same quarter a
year ago.
Only 14% of employees reported feeling
confident they were on track to retire with 80% of their income (or their goal)
in retirement—a slight drop from 15% in the first quarter of 2011. Only 33% of
employees in the first quarter were confident their investments were allocated
appropriately—down from 34% in the same quarter a year ago.
Liz Davidson, chief executive and
founder of Financial Finesse, said that although employees are far from where
they need to be, they are showing positive growth by realizing they are behind
as they continue to emphasize proactive financial issues. She says Financial
Finesse is impressed by a strengthening trend of lower-income employees
reaching out for help and engaging with financial wellness programs, something
that they often eschewed in the past, believing financial planning was for the
wealthy and had nothing to offer employees with limited assets.
The Employee Retirement Income
Security Act (ERISA) Industry Committee submitted three comment letters with
recommendations addressing the longevity annuity contract regulations, the
partial annuity regulations and the revenue ruling on rollovers from defined
contribution (DC) plans to defined benefit (DB) plans. (See “U.S. Treasury Proposal to Reduce Regulatory Burdens
for Retirees.”)
While ERIC supports efforts to
modify existing minimum required distribution rules to better accommodate
deferred annuities, it urged the Treasury and the Internal Revenue Service
(IRS) to revise the proposed penalty for setting aside more than the maximum
amount in a qualified longevity annuity contract
(QLAC).
“This all-or-nothing approach is
unduly draconian … If this happens, there is no reason to treat the amount
set aside up to the limit differently than if excess amounts had not been set
aside,” Ugoretz and Ricard said in the letter. Moreover, they contend that the
risk of such harsh consequences will make plan sponsors and participants
hesitant to offer or purchase QLACs.
Accordingly, ERIC urges that the
final regulation should state that if the amount set aside for a QLAC exceeds
the maximum permitted by the regulation, then minimum required distribution
calculations should take into account only the value attributable to excess premiums.
(Cont...)
ERIC also recommends extending QLAC
relief to DB plans. The proposed regulation states that the proposal does not
apply to DB plans, which “offer annuities which provide longevity
protection.” ERIC’s letter explains, however, that while DB plans offer
annuities, existing minimum required distribution rules interfere with the
ability to offer deferred annuities.
Allowing QLACs under DC plans and
IRAs but not DB plans will encourage many participants to request lump-sum
distributions and roll them over to a DC plan or an IRA, where they can buy a
QLAC, the letter explains. Furthermore, ERIC contends that forcing participants
to go this route will result in many participants buying annuities that are
less attractive than what could be provided under a DB plan, thus undercutting
the efforts described in Revenue Ruling 2012-4.
The letter also urges the agencies
to revise the existing regulations to allow participants who are receiving annuity
payments to accelerate payment of their benefits. “Like the availability of a
split-payment option or a deferred annuity, flexibility to request accelerated
payments under an annuity will make annuities less risky and more attractive,”
ERIC contends.
The comment letter on longevity
annuity regulations is here.
(Cont...)
Partial Annuity Regulations
ERIC supports the proposal to
clarify that the Internal Revenue Code section 417(e) actuarial assumptions
would apply only to the part of the benefit that is paid in a lump sum, but
also recommends that the final regulations should allow plan sponsors to rely
on the proposed rule both prospectively and for the past. Many plans
already offer split payment options and apply section 417(e) assumptions only
for the lump-sum portion of the benefit, and a regulation endorsing this
approach should not put early adopters at risk, according to
ERIC.
In addition, ERIC urges the agencies
to ensure that the bifurcation rules are intuitive and consistent with the
statute, and recommends that the same bifurcation rule should apply for
purposes of determining whether an optional form is redundant under Treasury
regulations.
The
comment letter on partial annuity regulations is here.
(Cont...)
Revenue Ruling 2012-4 on DC-DB
Rollovers
ERIC supports the Treasury’s and
IRS’s efforts to promote DC-DB rollovers, but urges that Revenue Ruling 2012-4
be withdrawn and replaced with proposed regulations open for comments and input
from stakeholders.
ERIC’s most significant concern is
the premise that an amount voluntarily rolled over from a DC plan should be
treated as a mandatory employee contribution to the DB plan. The letter
argues that treating rollover contributions like mandatory contributions is
inconsistent with the fact that rollover contributions are entirely voluntary,
and that this will have troubling consequences for existing floor-offset
arrangements and other plans that already allow DC-DB rollovers.
The comment letter on DC to DB
rollovers is at here.