Data & Research July 10, 2024

Gen X, With Retirement “Around the Corner,” Not Confident in Income Replacement

Three distinct reports agree Gen X needs financial guidance via the workplace—with participants valuing transparency and honest dealing.

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“The grunge generation is going gray,” declares a new survey focused on Generation X that is backed by other recent reports on the generation born roughly from 1965 through 1980.

Members of Gen X are both most in need of strong retirement planning among the generations and the least confident in their financial futures, particularly when it comes to income replacement, according to the findings from three surveys conducted by financial services firm.

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In a report dedicated to Gen X, Corebridge Financial Inc. found that only 32% of its members are confident they can manage their retirement savings to provide enough income for as long as they live. Meanwhile, 72% cite “running out of money” as their greatest fear—outpacing fear of death at 28%.

“Retirement is just around the corner for this generation, so it’s top of mind, and many of them have a very pragmatic mindset about it,” says Terri Fiedler, president of retirement services for Corebridge.

Fiedler notes a theme in the research, which included 614 Gen Xers out of 2,284 working age people, of Gen Xers feeling less confident than other generations about their retirement. She attributes that to their time of life more than “thinking any differently” than other ages, but she also sees it as an opportunity for financial professionals.

“With Generation X, it can take more effort to gain their loyalty, but once you gain it, they are fiercely loyal and can be a long-time client,” she says.

In a separate retirement report released by BlackRock Inc. on Wednesday, the asset manager reported that 60% of Gen Xers feel on track for retirement, and 63% are worried about outliving their savings.

Here again, the majority (61%) of Gen X respondents said it was difficult to know how their retirement savings would translate into monthly retirement income, and 53% said they were not sure how to calculate how much spending they will do in retirement.

Prime Earners

In yet another survey, released Tuesday by Northwestern Mutual Life Insurance Co., the insurer touted the advantages of working with a financial professional to be more prepared for retirement: The survey of 4,588 U.S. adults found that 64% of Americans who work with an adviser feel financially secure, compared with 29% of those who manage their finances on their own.

Mark Mascarenhas, a private wealth adviser at Northwestern Mutual’s Haven Wealth Advisors, agrees that Gen X is set up to work with advisers, as they are in their “prime earning” years and have “more complex” financial situations, but they may also need a specific approach from advisers.

“We find that this generation, in particular, appreciates transparency and clear advice from our team, which has led to overall satisfaction and loyalty,” he says.

Mascarenhas also notes that Gen Xers, along with the older Baby Boomer generation, may be less familiar with financial tools and resources that can help them manage their finances.

“We believe the Gen X and Baby Boomer generations have engaged financial advisers later in life because technological innovation and global stock market transparency was not as publicized in the mainstream media as it is today,” he says. “The Millennial generation also has access to plentiful online resources and media that make it more top of mind for those individuals.”

Workplace Entry

In a summary of BlackRock’s survey, which went out to 2,616 workplace and independent savers, the firm noted that the majority (70%) of Gen Xers who use a financial adviser found them through the workplace.

Corebridge’s Fiedler also believes the workplace remains a leading spot to get Gen Xers’ attention for financial advisement. The firm breaks down the generation’s current savings situation, from workplace to individual retirement accounts to nothing, as such:

  • 65% of Gen Xers say they have a workplace retirement plan (401(k), 403(b), etc.);
  • 43% have an individual retirement account;
  • 28% have assets in a brokerage account;
  • 27% have a pension;
  • 10% have no retirement saving vehicles; and
  • 9% have an annuity.

Fiedler notes, in particular, the larger percentage of Gen Xers with a 401(k) to supplement Social Security in retirement, compared with just 27% who have a pension. Those workplace plans are, then, the best venue to reach participants with both financial education and advisement options.

“There are things that plan sponsors can do to help tailor the messages to the Gen X employee,” she says. “Knowing that retirement is around the corner, they can send messages about catch-up contributions, increasing their contribution rate, etc.”

Fiedler cites Cerulli Associates research noting that Gen X had some $14.2 trillion in investable assets as of 2022, and its members are also likely to be the largest inheritors of the $84.4 trillion wealth transfer expected from 2021 through 2045.

“There’s a real big need and incentive to want to work with Gen X,” she says.

Such guidance may be sought by Gen Xers who are afraid they will have to work much longer than anticipated. Corebridge’s survey also found that about half (51%) of Gen X respondents are worried about being able to retire when they want.

All of the firms who issued the surveys provide some combination of retirement-, investment-, financial wellness- and asset management-related services.

Correction: Fixes statistics that mixed up Gen Y findings with Gen X findings from the BlackRock research.

Compliance July 10, 2024

NPPG Touts SEC Registration for Administering PEPs

Pooled plan provider NPPG advocates for registration if there is 3(38) investment selection responsibility, but a PEP expert argues it is not required.

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As pooled employer plans gather an increasing share of the retirement plan marketplace, an industry player is advocating for an additional layer of regulatory compliance: registering as an investment adviser with the Securities and Exchange Commission.

NPPG Plan Professionals LLC, a pooled plan provider currently overseeing 20 PEPs, announced Tuesday it registered last year as an investment adviser with the SEC specifically because it either operates as or selects the 3(38) investment fiduciary activities for the PEPs it oversees. SEC registration comes in addition to the firm registering a Form PR with the Department of Labor, the official requirement to run a PEP.

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NPPG Founder and CEO Michael Salerno says the firm registered with the SEC in April 2023 to ensure compliance as an investment fiduciary either selecting the 3(38) provider for the PEPs it oversees or serving as that 3(38). Meanwhile, the firm wrote to the regulator inquiring if it could be exempt from registration; the reply came back a few weeks ago, according to Salerno, with a “No, we are not granting your dispensation, you must register.”

While Salerno admits “no one wants to register with the SEC,” he sees the logic of it and is promoting it as one of the benefits of working with NPPG. The announcement of the firm’s registration touts its dual registration by noting that “adopting employers can look up the registration status of their PPP using the SEC’s Investment Adviser search or by using FINRA’s Broker Check.”

“We are stepping into the shoes of a plan sponsor,” he says. “We sponsor the plan, we select the vendor. One of the vendors we select is a 3(38) fiduciary, we enter into a contract with that vendor, and that 3(38) is going to perform its investment management function.”

Filing Guidance

According to the DOL’s final PEP guidance, PPPs must register with the DOL by submitting Form PR before offering PEPs. Once the PEP is set up, the plan must file as a Form 5500, similar to any 401(k).

“We have seen no guidance, nor any hint of guidance, requiring pooled plan providers, who are not acting as either investment advisor 3(21) or investment manager 3(38), to register with the SEC,” says Robb Smith, president of RS Fiduciary Solutions and one of the founders of PEP-Hub, which provides PEP training and. “Of course, if the P3 is acting as either the 3(21) or 3(38), then further registration is required, as is the case with single-employer plans and investment advice or management.”

PPPs, Smith notes, are not required to directly hire an investment adviser or investment manager.

“In several instances that we are aware of, the P3 requires the adopting employer to contract directly with the 3(21) or 3(38),” he says. In such cases, the PPP agrees to administer the adviser service, as well as monitor its activities.

Some of the confusion regarding a potential SEC registration requirement, Smith believes, may occur because many believe the PPP is “the” named fiduciary to a PEP—the sole fiduciary. However, the DOL regulation states that the PPP is “a” 402(a) named fiduciary, not “the” named fiduciary, making it only one of multiple fiduciaries. The Setting Every Community Up for Retirement Enhancement of 2019, which heralded in PEPs, also specifies that each of the PEP’s adopting employers are “limited scope” plan sponsors to the pooled plan.

“This is critical, as the P3 and adopting employers are co-fiduciaries, meaning they both share in the ongoing compliance monitoring duties,” Smith says. “However, the act is specific that the employer/sponsor has ultimate responsibility for the investments attributable to their participant’s plan assets. As the PEP’s limited-scope plan sponsors, the adopting employers must develop stringent monitoring protocols to ensure that the plan management and investments are solely in the best interests of participants.”

PEPs were created in 2019 as a way to allow companies of all sizes to be part of a larger defined contribution plan while reducing both fiduciary liability and administrative costs. Smith, who tracks PPP registration, says there are about 150 registered according to his most recent count; meanwhile, there are about 450 PEPs registered with the DOL.  

Selling Card

NPPG CEO Salerno notes that some PPPs may have the plan sponsor sign a contract with the 3(38) vendor directly. NPPG currently has a letter to the SEC asking if that setup would provide dispensation to PPPs to not register—Salerno says the firm will make the SEC’s response public.

Overall, he believes the business case for registering makes NPPG’s offerings more attractive.

“When a PPP is not registered, it begs the question as to whether the PPP is actually assessing the associated liability or passing it on to the participating employer with the PEP,” he says. “People are coming to offload their responsibility. How can we take half of it away but not the other half? We can’t split the baby.”

The discussion of registration will continue as PEPs continue to grow.

The largest PEP providers by assets at the end of 2023 were Voya Financial at $2 billion, Principal Financial Group at $1.7 billion and Transamerica Corp. at $1.6 billion, as drawn from the group of providers participating in the 2024 PLANSPONSOR DC Benchmarking Survey. PLANSPONSOR is a sister publication of PLANADVISER.

When looking at the number of adopting employers in PEPs, Transamerica led the survey with 1,046 participants in its PEPs. Ameritas was second at 733 employers, and Ascensus came in third at 714.

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