Data & Research October 7, 2009

'Retirement Plan' Is to Work Longer

Most Americans plan to work as long as they can, and are investing their retirement money without the help of a financial adviser, a Bankrate survey found.

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The study is the latest indication that the nation’s economic downturn is affecting the retirement landscape. The survey found that 75% of those polled plan to work as long as they can after retirement age, and nearly a third of those said they will have to keep punching a time clock because they will need the money. Four in 10 respondents said the bad economy has forced them to postpone retirement.

When it comes to the size of their retirement nest egg, the survey found 55% of retirees polled wish they had salted away more money; 38% said they were confident they would have enough.

While the turmoil in the economy might be keeping a lot of people behind a desk longer than they had planned, the Bankrate poll found only 14% reshuffled their portfolios to take a more conservative investment approach with their retirement assets. Meanwhile, 53% of respondents left their asset allocation alone.

Respondents didn’t have much of an organized plan for their retirement investments, as almost 40% said they are investing for retirement on their own with, 16% using an asset allocation plan, 15% picking mutual funds based upon performance, and 8% with a target-date fund. Twenty-seven percent use a financial adviser for decisions while, 18% don’t invest in a retirement plan, and 9% don’t utilize any organized strategies.

“This poll offers an interesting insight into Americans’ views of employment and retirement,” said Julie Bandy, editor-in-chief at Bankrate.com. “Seventy-five percent of today’s generation plan to work as long as possible, a far cry from that of previous generations. Falling home values and losses in retirement accounts are forcing many Americans to re-evaluate their retirement needs.”

Commissioned by Bankrate.com, Princeton Survey Research Associates International conducted a phone survey of 1,003 adults 18 or older, including 509 who are currently employed.

Compliance October 7, 2009

Flight from Equities in Cash Balance Plan no ERISA Miscue

An employer’s move to reduce its equity holdings and increase fixed-income investments in its cash balance pension plan did not represent an illegal benefits reduction, a federal judge has ruled.

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U.S. District Judge J.P. Stadtmeuller of the U.S. District Court for the Eastern District of Wisconsin asserted that the decision by S.C. Johnson & Sons did not violate the anti-cutback rule in the Employee Retirement Income Security Act (ERISA). Stadtmeuller said the employer’s pension plan changes did not result in a “reduction of accrued benefits” that would trigger the ERISA provision prohibiting sponsors from changing their plan in a way that generates lesser benefits for participants.

The court pointed out that the law could not tie sponsors to a specific investment strategy to avoid an anti-cutback rule violation because that would keep them from being able to respond to changes in the economy and the markets.

“These managers would be unable to exercise their fiduciary duties and respond to changing market conditions; conditions which may, at times, call for a more conservative approach to the allocation of assets in order to preserve the financial integrity of the plan,” the court contended.

The court said the plans’ investment strategy change was to reduce their investment in equities and invest more in fixed-income funds. “A particular percentage of assets invested in equities versus fixed income is not a protected benefit and a change to these investment percentages does not support a §204(g) [anti-cutback rule] claim,” Stadtmeuller wrote.

In addition, the court pointed out that Treasury Regulation Section 1.411(d)-4 specifically states that the right to a particular form of investment is not subject to the protections of the anti-cutback rule.

The participants’ suit alleged the more conservative investment approach resulted in lower rates of return, which, in turn, lowered “interest credits” deposited in their notional accounts. The court said the claim was related to the performance of the plans’ trust investments, given that the plans stated that participants’ accounts would be credited at a rate of either 4% or 75% “of the rate of return” generated by the plans’ trust.

The case is Thompson v. Retirement Plan for Employees of S.C. Johnson & Sons Inc., E.D. Wis., No. 07-CV-1047.

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