Data & Research May 31, 2024

Gen Z Savers Starting Strong, But Risk Being Overly Optimistic

Although Gen Zers are showing a strong start to retirement savings, they still may be too aggressive in their financial planning, according to a new report by Goldman Sachs.

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While Generation Z is off to a strong start saving for retirement, their planning assumptions may be overly optimistic even as their engagement with workplace retirement plans is not robust enough, according to a new report and analysis by Goldman Sachs.

Overall, Gen Z noted median retirement savings at around $29,001, which is relatively high when taking into account their age and place in the career ladder, reveals Goldman Sachs Asset Management’s Retirement Survey & Insights Report 2023.

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Meanwhile, Gen Z is one of the generations most confident in their retirement goals, with 68% saying their savings are on-track or ahead of schedule. Another 68% reported they will be able to meet their ultimate retirement savings goals, according to the survey that broke out retirement readiness by generation and across various financial areas.

Planning Ahead

Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management, says Gen Z’s optimism is partly due to them being early in their retirement savings journey. He noted that while Gen Z are just starting their career, they are also generally saving earlier than prior generations and haven’t experienced many of the financial challenges that can derail retirement savings. 

“By getting an early start, they are building positive momentum,” he says. “The goal is to maintain this momentum and save consistently throughout their career.  A key challenge for many is that competing life events can take priority.”

The study indicates that 60% of Gen Z respondents already have a personalized plan for retirement, which is the second highest among all the generations, behind Millennials. Gen Z is also most likely to have a financial plan for other large goals, says Ceder, highlighting how younger generations are taking proactive steps to manage their finances.

According to Ceder, members of Gen Z are engaged with their finances more broadly and take proactive steps to manage their retirement goals, but they are less engaged in their workplace retirement savings when compared with older generations. He says this is evidenced by their level of engagement with their retirement savings accounts in the last 12 months, which in many cases are impacted by automatic enrollment features. 

“While retirement is understandably not front of mind for those entering the work, their financial goals are,” he says. “Therefore, engaging Gen Zers to build better financial habits and resiliency, such as budgeting and emergency savings, and addressing their immediate financial challenges, such as student loan debt and home buying, are key ways to address the top-of-mind financial challenges while also setting up their long-term financial goals for success.”

Planning Assumptions

Gen Z is aiming to retire much sooner than previous generations, based on the survey. Among respondents, 44% of them plan to retire before they turn 60, with only 14% planning to retire between 65 and 69. The report stated this trend could mean that some Gen Z members might need to support themselves financially for up to 40 years of retirement due to longer life expectancy.

Furthermore, of all age groups, Gen Z individuals are the most inclined to anticipate saving less than 70% of their pre-retirement income. Additionally, 45% of Gen Z respondents foresee relying on personal savings for less than 40% of their retirement income.

“Given the declining access to pensions and Social Security reform, younger generations may expect to fund a larger portion of their retirement income from personal savings,” the study stated. “Gen Zers should be mindful that if they underprepare early in their career, it may be too difficult to catch up later in their career.”

The findings are based on a July 2023 survey conducted by Goldman Sachs Asset Management and Qualtrics Experience Management of 5,261 U.S. individuals. The survey includes 3,673 working people (age 21 to 75) and 1,588 retirees (age 50-75).

Compliance May 30, 2024

ERIC Lays Out Its IRS, Treasury Priority Areas

A letter from the ERISA Industry Committee lays out recommendations for its 2024-2025 Priority Guidance Plan for regulators including retirement and health care benefits.

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The ERISA Industry Committee, a national trade group representing corporate benefit leaders, has weighed in on key priority areas for coming years, including initiatives from the SECURE 2.0 Act of 2022 in retirement savings, such as student loan matching contributions and clarity on automatic enrollment mandates.

James Gelfand, president and CEO of ERIC, on Thursday released a letter on behalf of large employer member companies regarding Notice 2024-28 that guides priorities for the U.S. Department of the Treasury and Internal Revenue Service. The letter included agenda items focused on clarification and guidance on benefit health issues, such as health savings accounts and high-deductible health plans and retirement and compensation benefit issues.

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“In the case of each of these recommendations, and pursuant to Notice 2024-28, ERIC believes that the guidance requested above would resolve issues affecting broad classes of taxpayers, including employee benefit plans, plan sponsors, and plan participants,” Gelfand stated in the letter. “The recommended guidance would address several unanswered questions and also reduce burdens.”

The focus areas and recommendations pertaining to retirement savings include:

Matching Contributions for Student Loan Payments and Other Contributions

Section 110 of the SECURE 2.0 Act allows employers to match employee student loan payments, which ERIC would like to encourage companies to offer. To that end, it calls on the Treasury and IRS to clarify “reasonable procedures” for employees to claim the match and address the certification of loan payments to prevent fraud. Additionally, it called on regulators to consider extending matching contributions to other tax-preferred accounts like Section 529 plans or HSAs.

Catch-up Contributions

Beginning on January 1, 2026, individuals earning over $145,000 annually can only make catch-up contributions on a Roth basis as per SECURE 2.0. ERIC noted that it had submitted detailed comments in October 2023 ahead of the initial earlier deadline of 2024, which sought clarification on various aspects including the flexibility of plan sponsors regarding catch-up contributions. They also inquired about the voluntary nature of SECURE 2.0 catch-up limit increases for plans. ERIC is seeking additional guidance on non-discrimination rules, treatment of new hires, and the “mechanics of participant deferrals.”

Clarify the Automatic Enrollment Mandate Exemption for Existing Plans

SECURE 2.0 mandates certain employer plans adopt automatic enrollment from 2025, exempting existing “grandfathered” plans, ERIC notes. IRS Notice 2024-2 clarified that a plan is established upon initial adoption of terms. However, ERIC is seeking further clarification to confirm that plan changes, except for mergers or spinoffs, don’t trigger the mandate. Additionally, in multiple employer plans, ERIC believes the IRS should specify that a pre-enactment plan merged into a post-enactment multi-employer plan retains its pre-enactment status.

Optional Roth Match

SECURE 2.0 allows employers to enable employees to request Roth-based matching contributions. Notice 2024-2 clarified that offering Roth features doesn’t mandate all Roth contribution types. However, for plans with Roth matching or nonelective contributions, ERIC calls on the IRS to confirm the feasibility of “partial Roth” elections. It also calls on them to allow Roth treatment as the default for matching and nonelective contributions, regardless of vesting status. ERIC believes limiting Roth options to fully vested participants contradicts the statute’s nonforfeitable requirement for Roth contributions, without indicating such limitations in statutory language, and calls for clarity.

The letter goes on to seek clarity in several other benefit areas, limiting unneeded notice and disclosures to participants, clarifying long-term part-time eligibility rule changes, and increasing flexibility around employees using high-deductible health plans and health savings accounts.

The letter is available here.

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