Client Service November 21, 2016

Millennials Grasp Importance of Retirement Savings

More Millennials than Boomers think it should be a requirement.
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Millennials, more so than other generations, grasp the importance of retirement savings, a survey by Natixis Global Asset Management found.

Sixty-nine percent of Millennials, compared to 55% of Baby Boomers, think workers should be required to save for retirement. Eighty-two percent of Millennials, versus 77% of Generation X, think employers should be required to offer retirement plans. Seventy-six percent of Millennials, compared to 66% of Boomers, think companies should offer matching funds, and 84% of Millennials want investment options that reflect their personal values.

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Millennials began saving for retirement, on average, at age 23, while Gen Xers didn’t start until age 27 and Boomers at 31. While 81% of Boomers are counting on Social Security, only 55% of Millennials think it will still be in existence by the time they retire.

Sixty percent of the 951 workers that Natixis surveyed said they have figured out how much they will need in retirement. Boomers think they will need an average of $934,677 and are 34% on the way there ($317,790). Gen Xers say they will need $810,387 and have 24% of their target saved ($194,492), and Millennials have a target of $869,662 but have only 8% of this saved ($69,573).

Forty-one percent of workers save less than 5% of their salaries, and 28% have taken out a withdrawal from their retirement savings. Among Millennials, withdrawals jump to 43%.

“Younger workers in particular are grappling with a different set of retirement challenges, compared to previous generations,” says Ed Farrington, executive vice president for retirement strategies at Natixis. “Their retirement savings strategies are encumbered by a number of factors such as student loan debt, a lack of company pensions and a sense of doubt that Social Security will be a source of income in retirement. Employers would do well to focus on designing comprehensive plans that offer greater incentives and a better range of investment choice that especially appeal to this large portion of the workforce.”

NEXT: How many aren’t participating?

The survey found that 31% are not participating in their employer’s retirement plan. The No. 1 reason they give as to why is that their employer is not offering enough of a match, or no match at all (48%). Thirty-five percent said it is due to rising health care costs, and 20% said it is because they are saving for their child’s education. Thirty-three percent of Millennials said student loan debt is an impediment.

Among the 69% who are participating in their retirement plan, 63% say it is because of the company match, 56% cite the tax incentives, and 52% point to the automatic deductions from their paycheck. Sixty-nine percent say they would contribute more if their employer boosted their match.

Workers who have received financial advice have, on average, 10% more saved than those who did not. Seventeen percent said they would save more if they had access to financial advice. However, only 30% of the workers surveyed said their employer offers financial advice.

Eighty-seven percent said they would save more if they were permitted to participate in their company’s retirement plan from the first day they started working there. Twenty-three percent said they would be incentivized to save more if their plan automatically escalated their contributions.

Forty-five percent said they did not know how much they will need for retirement. Natixis says that financial education is obviously needed, as only 55% correctly answered a question about compounding interest.

CoreData conducted the survey for Natixis in August and September.

Compliance November 18, 2016

Texas Court Holds Hearing on Chamber Lawsuit

Arguments focused on the First Amendment.

 

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The U.S. District Court for the Northern District of Texas, in Dallas, held a hearing Thursday on the lawsuit that the U.S. Chamber of Commerce and eight other groups filed against the Department of Labor’s (DOL’s) new fiduciary rule. The first 45 minutes concentrated on the Chamber of Commerce’s argument that the new rule will make it difficult for advisers to provide holistic advice to investors, says Erin Sweeney, counsel at Miller and Chevalier, who attended the hearing.

In the following 35 minutes, Chief District Judge Barbara Lynn asked a series of questions about whether the DOL is interfering with advisers’ First Amendment right to free speech, Sweeney says. “The argument is that the DOL is impermissibly regulating speech,” Sweeney notes. “The DOL argued that they couldn’t possibly regulate speech, that they are only regulating the conduct of misleading advice. The judge pushed back on that and said that the DOL rule does more than regulate misleading speech; it punishes it.”

The final 30 minutes of the hearing were spent discussing fixed income annuities, Sweeney says. Judge Lynn said she did not want to upset the decision of U.S. District Judge Randolph Moss in a related lawsuit that that National Association for Fixed Annuities (NAFA) brought against the DOL’s new fiduciary rule to block it. On Friday, November 4, Judge Moss issued a 92-page ruling denying NAFA’s request for a preliminary injunction to stay the rule. NAFA has said it will appeal that decision in the U.S. Court of Appeals for the D.C. Circuit. “Judge Lynn was very concerned about not taking Judge Moss head on,” Sweeney says.

However, she did appear to side with the Chamber of Commerce’s argument that the DOL conducted no studies on the impact of the new rule with respect to annuities and conflicted advice, only with respect to mutual funds, Sweeney says. “The DOL kept saying that its mutual fund studies are analogous [to studies on annuities] but Judge Lynn kept asking the DOL where its studies on annuities are.”

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Judge Lynn concluded the hearing by saying that she expects to reach a decision in the next 30 days, Sweeney says. The judge said that while she is troubled by the DOL’s failure to research the new rule and its impact on annuities, she is unsure whether she can alter the new rule in any way other than vacating it entirely, Sweeney says. She also noted that if the lawsuit were appealed to the Supreme Court, it would first have to be heard before the Fifth Circuit court, and that there wasn’t likely enough time to accomplish this before the April 2017 implementation.

Other plaintiffs in the Chamber lawsuit include the Financial Services Institute, Financial Services Roundtable, Greater Irving-Las Colinas’ Chamber of Commerce, Insured Retirement Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, Security Industry and Financial Markets Association and the Texas Association of Business.

Throughout the text of the lawsuit, plaintiffs suggest that the recommendations covered by the DOL rule “include many that have never been understood to entail fiduciary duties, such as whether to purchase an investment product, or offering a simple comparison between a firm’s own proprietary products. Indeed, the rule makes it impossible to sell most individual retirement investment products without being deemed a fiduciary.”

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