| Editor’s Note | Today, PLANSPONSOR is pleased to bring you a
special NewsDash sponsored by Morningstar’s Investment Management group focused
on improving retirement plan participant outcomes. | | Education & Advice | The Impact of Expert Guidance on Participant Behaviors | Determining how much to save for retirement and
how to invest those savings is a complex problem, and the growth of 401(k) and
similar defined contribution plans has shifted the responsibility to
individuals. But evidence suggests that, as a whole, people aren’t great savers
or investors. Does professional online retirement saving and investment advice
help individuals improve their chances for better retirement outcomes?Read more > | A new TIAA-CREF survey shows that 63% of women
who have received professional financial advice say they feel confident about
their personal retirement readiness. The annual Advice Matters Survey reveals
that while women continue to report lower rates of confidence in their
retirement readiness compared with men (56% vs. 63%), receiving financial
advice can help eliminate the gender gap. In addition to feeling more
confident, 81% of women who receive financial advice say they feel informed
about retirement planning and retirement savings, compared with 63% who have
not received advice.Read more > | Plan participants increasingly realize they are
responsible for generating their own retirement income, but many still pass
over investment advice offerings, a survey from Schwab Retirement Plan Services
finds. Nine in 10 participants surveyed indicated they are relying on
themselves for the money needed to live in retirement, and most use a 401(k) as
their primary or sole source of retirement savings. Despite this, respondents
say they are much more likely to have someone change the oil in their car (87%)
than have someone help them choose their 401(k) investments (24%).Read more > | | Special Offer from Morningstar | Download White Paper: How Can You Help Your Employees Retire?
Choosing the right investment solution can make all
the difference.
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| Cost of Retirement | Estimating the True Cost of Retirement | There are common assumptions that many software
tools and financial advisers use to develop an investor’s retirement savings
goal—a 70% or 80% replacement rate based on pre-retirement income, an income
need that rises with inflation, and a 30-year retirement time horizon. When
Morningstar’s Investment Management group looked at actual retiree spending
patterns and life expectancy, however, they found that these assumptions don’t
hold true for many people, and, on average, can significantly overestimate how
much people will actually need to fund their retirements.Read more > | There is a pretty long list of elements people
commonly forget to consider in their retirement savings effort, David
Blanchett, head of retirement research for Morningstar’s Investment Management
group, tells PLANSPONSOR. “First, I think there is still a serious
misunderstanding of life expectancy that exists today—especially how life
expectancy will change in the next 20 or 30 years, as that will impact even the
older generations of people in the 401(k) system right now,” he says.Read more > | Sharon Carson, a retirement strategist at
J.P. Morgan Asset Management, tells
PLANSPONSOR the financial advisory industry is starting to pay closer attention
to health care and other specific costs clients face in retirement. She says
it’s an encouraging trend in terms of improving participant retirement
outcomes, but more engagement and innovation is clearly required to ensure
retired plan participants will be able to pay for the health care they’ll
inevitably need.Read more > | The Employee Benefit Research Institute (EBRI)
tracked the latest available data, through 2011, and found that housing-related
costs topped the list as the largest spending category for those between 50 and
64 years old. Maintaining their home is the biggest expense for these Americans
and consistently takes up 40% to 45% of their household budget as they age,
even as the actual dollar amount spent on their home decreases over time.Read more > | | Plan Design Defaults | The Optimal Default for Defined Contribution Plans | The introduction of investment defaults
has likely led to significant improvements in performance for defined
contribution (DC) plan investors. Given the differences that exist across
providers, plan sponsors, and participants, though, it is unlikely there is a
single solution that will be best for every plan. Before participant
self-direction, DC assets were generally pooled with a single allocation. While target-date funds (TDFs) are the most popular default
in DC plans today, managed accounts will challenge their popularity in the
future, especially as the costs associated with implementing managed accounts
decline.Read more > | “There are two big ways plan sponsors are
helping participants diversity at present,” Joe Ready, director of
institutional retirement and trust at Wells Fargo, tells PLANSPONSOR. “The
first is to use a diversified investment, such as a target-date fund, as the
default investment [for the plan].” The rising diversification of participants
over the past few years has been primarily fueled by this tactic, as many
people are willing to go with whatever defaults are set up in a plan, he notes.Read more > | One-fifth of defined contribution (DC) plan
sponsors surveyed by AllianceBernstein lack a default investment
altogether—more so among the smallest plans (37%) than the largest (13%).
According to preliminary results from an upcoming survey report, another 30% of
plans still use a stable value or money market fund as their default investment.Read more > | Seven out of 10 (70%) companies offer automatic
enrollment features in their 401(k) plans, according to an Aon Hewitt pulse
survey covering the fourth quarter of 2014. The retirement and health solutions
company surveyed approximately 100, primarily large, companies with defined
contribution (DC) plans, finding 29% of employers auto-enroll their employees
in the company plan at a savings rate that is at or above the full company
match threshold. Another 27% auto-enroll their employees below the full match
rate, but automatically escalate contributions over time, enabling workers to
save enough to receive the full match.Read more > | Share the good news with a friend! Pass the Dash along – and tell your
friends/associates they can sign up for their own copy.Read more > | News from PLANSPONSOR.com
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