More than six in 10 Millennials believe the American Dream is still alive today.
They
even agree with Gen Xers and Baby Boomers, calling out being happy
(70%), owning a home (60%), being debt-free (55%), and retiring
comfortably (51%) as the top four ingredients of their American Dream,
according to the Bank of the West 2017 Millennial Study.
However,
Millennials’ savings habits do not align with their goals for the
future. They prioritize one day owning a home and saving for
retirement—and yet in practice, more Millennials are saving to travel
than for either of these two goals.
Millennials are more likely
than older generations to say that budgeting tips and free financial
education would most help them to reach their American Dream.
One
behavior that could hold Millennials back is a preference to save cash
for a rainy day rather than invest for the future. Having come of age
during the volatility of the Great Recession, Millennials gravitate
toward low-risk strategies, with most (76%) saving in cash or checking
and saving accounts. Only 17 percent say they were investing on their
own and less than one in 10 (7%) were leveraging the help of an adviser
or robo-adviser.
Data was collected in an online survey by Maru|Matchbox on behalf of
Bank of the West from January 17 to 23, 2017. The sample was based among
1,010 members of its proprietary Springboard America panel consisting
of 80% Millennials (ages 21 to 34), 10% Generation X (ages 35 to 51),
and 10% Baby Boomers (ages 52 to 70).
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The
Society of Actuaries has analyzed the Internal Revenue Service’s proposed increases to the mortality tables that would apply to single employer pension plans in 2018, and has found that
they will increase Pension Benefit Guaranteed Corporation (PBGC) premiums by
12%, from $8.6 billion to $9.6 billion.
They
would also result in a 2.9% increase in the aggregate funding target liabilities, raising them by $65 billion, and decrease the aggregate funded status, from 97%
to 96%. The aggregate funded percent would fall by a smaller percentage than
the funding target would rise because many plans have enough surplus to cover
the increase in their funding target, although their surplus would shrink.
Plans that have a deficit on the current mortality basis would see an increased
deficit, and it could be significant. And some plans with a small surplus would
find themselves with a funding deficit. The authors estimate that the aggregate
unfunded funding target (deficit) would increase 35%, from $63 billion to $85
billion, and the aggregate surplus would fall 14%, from $314 billion to $271
billion.
This
study presents estimates of aggregate liabilities for minimum funding purposes
(funding target) and funded status based on the following key assumptions:
Actual
contributions continue to follow recent patterns relative to plan funding
levels as determined for both funding regulations and PBGC premiums;
Treasury
High Quality Market (HQM) corporate bond yield curve spot interest rates remain
constant after 2016; and
Asset
returns after 2016 equal 6% annually.
Based
on analysis of solely traditional pension plans, one might expect a slightly
higher increase of 3% to 5% of aggregate funding target liabilities, depending
on the discount rate and age and gender mix of a plan population. However, the
mortality change does not affect cash balance liabilities to the same extent as
traditional pension plans.
While
cash balance liabilities make up a meaningful portion of the aggregate funding target,
the precise portion is difficult to determine. Form 5500 and its Schedules do
not provide for reporting the portion of liabilities that stems from cash balance
benefit designs. In addition, some plans have both traditional and cash balance
or other hybrid designs. After analysis and consultation with actuaries working
with large single employer pension plans, the authors estimate that roughly 10%
of the aggregate funding target stems from cash balance designs.
NEXT: Cost of current year accruals and minimum
required contributions
The
proposed mortality change generates a smaller increase in the cost of current
year benefit accruals (normal cost) than in the funding target. While the
estimated funding target increase for 2018 is about 2.9%, the estimated
increase in normal cost is only about 1.6%, from $49.6 billion to $50.4
billion.
The
percentage increase is lower for the normal cost than the funding target for
several reasons. Mortality assumption changes affect cash balance plan
liabilities much less than traditional plan designs. Further, the proposed
static projection method generates a lesser increase in the normal cost than in
the funding target. The proposed method is intended to approximate generational
projection. The authors find that the static approach generally accomplishes
the goal for the funding target. But for the normal cost, the static approach
falls slightly short of results based on generational projection, primarily
because the approximation is less effective at ages below 40. Results for ages
below 40 influence the normal cost to a much greater degree than the funding target,
because the normal cost reflects results for only actively employed
participants while the funding target reflects results for all participants.
Minimum
required contributions will have to rise by 11%, from $7.1 billion to $7.9
billion, according to the Society of Actuaries. However, many plan sponsors
have been contributing considerably more than the minimum amount required, it
notes. Assuming that plan sponsors continue to follow similar contribution
patterns as in recent years, the authors estimate that aggregate contributions
for 2018 would rise about 4% because of the mortality update, from an estimated
$94 billion to approximately $98 billion.