Data & Research February 28, 2017

Many Households Have Wrong Perception of Retirement Preparedness

Research found more were 'too worried' about their retirement preparedness than 'not worried enough.'
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Nineteen percent of households who are at risk for being financially unprepared in retirement feel they are not at risk, while 24% of households who are not at risk, feel they are at risk, according to research from the Center for Retirement Research at Boston College.

The researchers compared individual self-assessments of retirement preparedness with the Center’s National Retirement Risk Index (NRRI), which is based on the Federal Reserve’s triennial Survey of Consumer Finances.

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The variables explaining what causes a household to be either “too worried” or “not worried enough” include: risk aversion, home ownership, type of retirement plan, education, household type, and income and age group, according to an Issue Brief written by the researchers. They explain that the likelihood of being in the “too worried” group stems mainly from not fully recognizing the value of potential income from owning a home, being covered by a defined benefit plan, and being eligible for a 50% spousal benefit from Social Security.  “A little education about the value of various sources of retirement income could reduce the size of the ‘too worried’ group,” the researchers suggest.

The Issue Brief points out that the real danger in terms of misperceptions is being in the “not worried enough” group. The key drivers of being “not worried enough” are having a defined contribution plan and being in the high-income group. Households with a 401(k) may suffer from “wealth illusion,” not recognizing how little income can be derived from their defined contribution balances.  In addition, high-income households may not recognize how much wealth accumulation is required to maintain their standard of living. “The 19% of households that do not recognize that they are at risk are unlikely to undertake remedial action,” the researchers says. “Perhaps better educational efforts could help here too, such as focusing more on the amount of retirement income that a given 401(k) balance could produce rather than the total account balance.”

Not all households are wrong about their preparedness for retirement. The Issue Brief notes that in the aggregate, households’ self-assessments closely mirror the results produced by the NRRI, suggesting that inadequate retirement preparedness is a widespread problem. Even on a household-by-household basis, nearly 60% of households’ self-assessments agree with their NRRI predictions.

The Issue Brief may be downloaded from here.

Products February 28, 2017

Institute Educates Plan Advisers About Litigation and Governance

MainStay’s Retirement Institute provides resources for advisers to use as they help their plan sponsor clients and prospects navigate the governance landscape.
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MainStay Investments has launched MainStay’s Retirement Institute, created to assist plan advisers and plan sponsors as they navigate today’s evolving governance landscape.

As part of MainStay’s Retirement Institute efforts, the team has partnered with Employee Retirement Income Security Act (ERISA) experts at Groom Law Group to understand trends in ERISA litigation. The team has also engaged with Don Trone, author, founder of 3Ethos and leading authority on governance, to leverage the concept of behavioral and inspirational governance (BIG) to help the defined contribution community understand leadership practices.

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Current programs available through MainStay’s Retirement Institute include:

  • Fiduciary Physics 101: Best Practices & How to Avoid Unintended Consequences – Applying Newton’s 3rd Law to Fiduciary Best Practices – This continuing education (CE)-approved presentation responds to the increasing pressure on investment committees by offering an overview of core elements that comprise ethical and prudent plan governance.
  • Recent Trends in ERISA Litigation – This program, developed in partnership with Groom Law Group, aims at helping large plan advisers and other fiduciaries understand the changing legal landscape, avoid pitfalls, learn best practices and take prudent next steps.
  • Fiduciary Liability Insurance (FLI) – This initiative includes an FLI-focused presentation, whitepaper and checklist that offer discussion points for advisers to use with plan sponsors as they consider FLI as part of a comprehensive risk management program.
  • Fiduciary Governance Training – This educational content was created for advisers pursuing the Certified 401(k) Professional, C(k)P, designation awarded by The Retirement Advisor University (TRAU) in collaboration with the UCLA Anderson School of Management Executive Education. Plan sponsors can also access this information through The Plan Sponsor University (TPSU), an affiliate of TRAU.

Spearheading these efforts is Jonathan Blaze, national sales director for retirement plans at MainStay, who frequently speaks about fiduciary best practices. According to Blaze, “Money managers have an important part to play in helping make reliable, practical information available to the retirement plan community to assist in creating a culture of inspired governance. With our Retirement Institute, MainStay has made a commitment to continually provide timely and relevant insights to the plan sponsor and defined contribution investment only (DCIO) communities. We aim to provide actionable resources for advisers to use as they assist their plan sponsor clients and prospects to help them navigate the governance landscape.”

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