In the Media

U.S. Workers’ Confidence in Retirement Grows

January 2012




(PLANSPONSOR.com) – U.S. employees’ confidence in their ability to retire comfortably rebounded last year from post-recessions lows. 

According to the Towers Watson Retirement Attitudes Survey, despite growing satisfaction with their financial situation and fewer employees reporting significant declines in retirement savings, many employees remain concerned and are taking steps to get their financial houses in order.

The Towers Watson survey found that the percentage of workers who said they were very or somewhat confident about having enough resources to live comfortably 15 years into retirement increased from 62% in 2010 to 68% last year. Workers, however, are less confident about living comfortably throughout retirement. Less than half (47%) of respondents said they were very or somewhat confident they will have enough resources to last 25 years into retirement. This compares with 40% who said they were very or somewhat confident in 2010.

The survey also found that fewer employees are experiencing significant declines in their pension and retirement savings – 47% in 2011 versus 55% in 2010 and 60% in 2009. Additionally, employee satisfaction with their household finances continued to improve, jumping from 33% in 2010 to 41% in 2011. Despite this upturn, three in five workers (59%) remain generally unsatisfied with their financial situation.

“As the economy shows periods of stable ground, employees are slowly beginning to be more optimistic about retirement,” said Kevin Wagner, a senior retirement consultant at Towers Watson. “However, the financial crisis was jolting to American workers. As a result, many employees are more financially conservative today and have a renewed interest in improving their financial decisions and planning and saving for retirement.” 

The survey also noted after two years of cutting back on daily spending, paying off debt and saving more for retirement, some respondents plan to take additional measures this year to get their financial houses in order. These steps include further cost cutting and a sharpened focus on retirement security.
 

According to the survey, the percentage of workers with defined benefit (DB) pension plans who are satisfied with their household finances jumped sharply in the past two years, from 29% to 49%. DB participants are more than twice as likely to feel “very confident” about the first 15 years of retirement and 2.5 times as likely to contemplate a 25-year retirement with confidence compared with workers with only a 401(k) plan. 

A larger percentage of younger workers (under age 40) were also satisfied with their household finances last year (47%) compared with 2009 (28%). However, nearly two in three (66%) of young workers said they will need to save much more in the future to achieve a comfortable level of retirement income. Moreover, the percentage of young workers who carefully reviewed their retirement plans increased by more than 40% between 2010 and 2011.

“While the depressed economy may have triggered some of these prudent behaviors, increased attention to retirement planning, especially for younger workers, can be a helpful step for employees to save for a secure retirement,” said Bill Daniels, a senior retirement consultant at Towers Watson. “This is an opportunity for employees to make positive strides for their future. It can also be an opportunity for employers to take advantage of emerging education and planning technologies to drive up appreciation of benefits programs.”

Other survey findings include:

•   Nearly four in 10 respondents (39%) plan to delay retirement, with older employees (46%) and those in poor health (42%) most likely to retire later. The majority of workers delaying retirement (60%) expect to work at least an additional three years.
  
  
  
• Nearly three-fourths of respondents (74%) use their employer or plan administrator’s website for educational material to help prepare for retirement. Almost two in three (65%) use online retirement tools and educational material mailed to their home.
  

The Towers Watson Retirement Attitudes Survey was conducted in June/July 2011 and includes responses from 9,218 full-time U.S. employees at non-government organizations with 1,000 or more employees. For more information, visit  http://www.towerswatson.com/united-states/newsletters/insider/6214.

Pensions Preferred Retirement Plan

October 2011

(NIRS) Washington, D.C.— A new study of the retirement plan choice in the public sector finds that defined benefit (DB) pensions are strongly preferred over 401(k)-type defined contribution (DC) individual accounts. The study analyzes seven state retirement systems that offer a choice between DB and DC plans to find that the DB uptake rate ranges from 98 to 75 percent. The percentage of new employees choosing DC plans ranges from 2 to 25 percent for the plans studied.

In recent years, a few states have offered public employees a choice between primary DB and DC plans. The new study, Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers, analyzes the choices made by employees and finds that:

• When given the choice between a primary DB or DC plan, public employees overwhelmingly choose the DB pension plan.
• DB pensions are more cost efficient than DC accounts due to higher investment returns and longevity risk pooling.
• DC accounts lack supplemental benefits such as death and disability protection. These can still be provided, but require extra contributions outside the DC plan which are therefore not deposited into the members’ accounts.
• When states look at shifting from a DB pension to DC accounts, such a shift does not close funding shortfalls and can increase retirement costs.  

Pensioners Provide Income to Small Towns: NIRS

July 2011 (Reuters) - Struggling towns and small communities in the United States are finding economic security in their ranks of pensioners, a retirement expert told a Senate committee.





"Pension payments are particularly vital to small communities and economies across the country where there is a lack of diverse local industries or where other steady sources of income may not be readily found," said Diane Oakley, executive director of the National Institute of Retirement Security, at a hearing about the state of pensions.

In recent years the private sector has moved toward retirement plans that combine employer and employee investments in individual accounts.

The public sector has stuck to pension plans that send retirees a defined amount each month generated by employee and taxpayer contributions as well as investment earnings.

Preliminary data collected by Oakley's group suggest that in 2009 public pensions and the remaining private sector plans supported more than $121.5 billion in annual federal, state and local tax revenue. In 2006, state and local pension benefits alone brought in more than $57 billion, she said.

Because pension payments are fixed, retirees who receive them do not tend to change their spending habits in the face of financial crises or stock market instability, Oakley said.

She pointed to rural Costilla County in Colorado. In 2009, $2.1 million in pension benefit payments made up 35 percent of the earned income of the county, she said.

Her group estimates that each dollar of the $151.6 billion sent to public pensioners in 2006 supported $2.36 in economic activity.