Data & Research May 2, 2022

Measuring Shifts in Retirement Plan Appreciation

Survey data shows the COVID-19 pandemic has changed the way workers understand and appreciate both their health care benefits and their retirement planning opportunities in the workplace.

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TIAA released its 2022 Retirement Insights Survey last week, and among the findings are clear signs that employers need to remain focused on the fundamentals of quality retirement plan communications. 

While they say important gains have been made, employers remain concerned about employees not knowing enough about financial topics and not making the most of their company’s retirement plans. TIAA’s data shows 56% of employers cited this worry in 2020, and the number has since increased to 61%.

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Relatedly, the TIAA research shows only 44% of employees are currently receiving financial advice. Of this group, the majority—or 31% of the total respondent population—found an adviser on their own, compared with the 13% of the respondent population that were linked to their current adviser by their employer.

Those employees who are more likely to say they have manageable debt levels are overrepresented among participants who say they work with an adviser, own annuities and feel they understand their employer’s retirement plan well. According to TIAA, those who understand their plan well are also more likely to say retirement savings are a current goal.

When it comes to the lingering impacts of the COVID-19 pandemic, the TIAA data shows some clear effects. A nearly two-thirds majority say the pandemic has either significantly or marginally increased their overall level of stress. At the same time, 56% of employees surveyed say they now appreciate their company’s health insurance benefits either significantly or marginally more than they did prior to the pandemic’s onset. On the other hand, only 48% say the same about their employer’s retirement plan.

According to the survey, knowledge among both employers and employees regarding the requirements and opportunities stemming from the passage of the Setting Every Community Up for Retirement Enhancement Act in late 2019 has decreased over the past two years. In the latest survey, 38% of the total survey respondents say they are extremely or very knowledgeable about the SECURE Act, which is down from 50% in 2020. Fewer say they are extremely or very familiar with the legislation’s lifetime income disclosure requirements, and the same is true when it comes to the law’s provisions requiring greater portability of in-plan annuity products.

Much of the survey data speaks to the evolving levels of interest voiced by employers and employees about in-plan guaranteed lifetime income products. Among employees not interested in an in-plan GLI annuity, cost is the top reason cited. According to TIAA, employers recognize this dynamic, and they often see products’ complexity as a major challenge preventing broader adoption of GLI solutions. Generally speaking, employees see such products as being more pricey, more confusing and more restrictive than employers do—perceptions that highlight the opportunity for targeted education and communication efforts. TIAA says employers will need to emphasize the lower costs of these options in-plan versus outside of their plan to appeal to employees.

Employers can also consider including more targeted and nuanced information alongside mandatory income projections. According to the survey, almost two-thirds of employers think income disclosure will increase employees’ GLI interest. Case in point: over seven in 10 employees have received a retirement income projection and say it is helpful.

Compliance May 2, 2022

ERISA Suit Against UPS Refiled in District Court

Plaintiffs have refiled an ERISA lawsuit against UPS, more than a year and a half after their original complaint was dismissed for their failure to exhaust all administrative remedies prior to engaging in litigation.

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Participants and beneficiaries in the pension plan of the United Parcel Service of America have refiled an Employee Retirement Income Security Act lawsuit against the company in the U.S. District Court for the Northern District of Georgia.

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The new complaint represents the plaintiffs’ second try in arguing their case. It closely represents their original complaint, filed in early 2020, but features some important changes.

The plaintiffs suggest that UPS pension plan fiduciaries committed multiple ERISA breaches while calculating the value of joint and survivor annuity benefits to be paid out of the company’s pension plan relative to the value of the plan’s standard single life annuity option. Plaintiffs in such cases say the defendants have failed to pay JSA benefits in amounts that are “actuarially equivalent” to a standard SLA benefit. Such actuarial equivalence is required by ERISA.

The first ruling in the case, filed in late August 2020, sided firmly with the UPS defendants in rejecting the lawsuit. Despite the complexity of the issues at hand, the decision numbered just 20 pages, and it focused exclusively on the fact that the plaintiffs did not exhaust all the potential administrative remedies, which the court determined they must first explore before litigation would be appropriate.

While it advances the same core arguments as the original complaint, the new suit also addresses the question of administrative remedies. It states that the plaintiffs exhausted all administrative remedies under the plans by filing claims in accordance with the retirement and pension plan documents. It notes that administrative claims were submitted in September 2020—immediately after the first decision. According to the complaint, the claim and review process finished in February 2022, when the UPS retirement plan committee and board of trustees denied the appeals filed by plaintiffs, pursuant to the terms of the plans.

As articulated by the plaintiffs, the calculation of the payment amounts of a JSA benefit utilize certain actuarial assumptions that are applied to determine a “conversion factor” that is, in turn, used to determine the “present value” of the future annuity payments. These assumptions are based on a mortality table, which is used to predict how long the participant and beneficiary will live, and the current interest rate, which is used to discount the expected payments based on the expected future earnings on the principle.

In this case, the plaintiffs say their employer is knowingly using outdated mortality tables and inflated interest rate assumptions that lead to a conversion factor that undervalues the JSA benefit relative to the SLA. They say this is the case because mortality rates have generally improved over time, with advances in medicine and better collective lifestyle habits. Thus, people who retired recently are expected to live longer than those who retired in previous generations. By the same token, older mortality tables predict that people near—and past—retirement age will die at a faster rate than current mortality tables.

According to the lawsuit, the UPS defendants calculate the JSA conversion factor, and thus the value of the JSA offered to participants when they retire, using inappropriate mortality assumptions from the 1960s through the 1980s. The suit additionally claims the company uses outdated interest rate assumptions that further dampen the present value of the JSA benefit.

The full text of the new complaint is available here.

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