Data & Research September 20, 2016

Student Loan Debt Has Minimal Impact on Retirement Savings

The value of median retirement assets for participants with student debt at age 30 is $10,075 and the same for those without student loans is $10,680, according to a new report.
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Americans are looking at record-high student loan debt. According to a study by the Center for Retirement Research at Boston College, 70% of graduates have student loans averaging $30,000. In 1993, 47% of students graduated with loans averaging $10,000. This trend raises questions about how student loan debt is affecting retirement savings for employees and to what extend they may compensating by either cutting savings or consumption.

The CRR pursued some of these questions by focusing on 30-year-old working graduates in employer-sponsored retirement plans. However, the firm found that the estimated relationship between student loans and plan participation is small and “statistically insignificant.” The study also found that 55% of respondents with student loan debt are plan participants, while 42% of participants don’t have student loans.

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Furthermore, the research indicates that individuals with larger loan balances are more likely to accept employer-sponsored retirement plans.

The CRR says, “This lack of a relationship between student loans and retirement plan saving suggests that the detrimental effect of student debt manifests itself either through reduced consumption or other reductions in net worth, such as credit card debt.”

According to their research, participants with student loans have higher levels of debt from other sources. The CRR points out that 30-year-old graduates with loans have median debt levels of $7,500. For those without student loans, the level is $3,000.

The research also examines student-loan holders who aren’t graduates.

The CRR reports that among non-graduates who attended college, those with student loans had a median non-student debt of $4,500 at age 30, compared to $1,750 for non-graduates without student loans. The research also found that 40% of respondents who have student debt but no degree are retirement plan participants, while 31% of non-degree holding respondents with student debt are not.

The median level of retirement assets for respondents with student loans and no degree is $5,874. The median level of retirement assets for those who attended college but have no student loans or degrees at age 30 is $7,252.

“How Does Student Debt Affect Early-Career Retirement Saving” by the CRR uses the “National Longitudinal Survey of Youth 1997 Cohort,” a large sample of workers turning 30, which includes detailed controls including school quality, parental background, and the underlying ability of the college attendee. The CRR analysis focuses on participation in an employer-sponsored retirement plan and retirement assets as of age 30. It can be found online here. 

Compliance September 20, 2016

DOL Extends Comment Deadlines on Form 5500 Reform

Retirement industry experts have warned the proposed changes to the Form 5500 could be just as significant as the controversial fiduciary rule reform. 
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The U.S. Department of Labor (DOL) has announced a two-month extension of the comment period on the Form 5500 Modernization Proposals floated earlier this year.

By way of background, the DOL, the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) published a Notice of Proposed Revision of Annual Information Return/Reports in the Federal Register on July 21, 2016. The DOL also published a separate, but related Notice of Proposed Rulemaking on the same day.

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According to the regulators, the revisions and regulatory amendments were proposed as part of a project to improve and modernize Form 5500 annual return/reports filed by employee benefit plans. The revisions and regulatory amendments generally are being coordinated with a re-compete of the contract for the ERISA Filing Acceptance System II, the “wholly electronic system, commonly known as EFAST2, that is operated by a private-sector contractor for the processing of Form 5500/5500-SF return/reports.”

A range of stakeholder groups asked for an extension of time to submit comments given the scope and significance of the proposed forms revisions and regulatory amendments. As attendees of the PLANADVISER National Conference heard during the Washington Insights panel discussion, the proposed changes to the Form 5500 are expected to give an unprecedented amount of public access to searchable plan data. The current Form 5500 system data may be available to the public in a limited way, but under the proposed changes anyone would be able to access, mine and closely analyze raw retirement plan data covering everything from the investment expenses to recordkeeping fees, product holdings and more. In short, it’s the kind of information source that plaintiffs’ attorneys really would like to get their hands on, and crucially the Form 5500 data will generally be devoid of contextualizing information about the level and value of services performed for given amounts of fees. ERISA attorneys at the PLANADVISER conference warned this could easily lead to a rash of new litigation. 

According to DOL, IRS and PBGC, the new deadline for submitting comments has been extended from October 4, 2016, to the new date of December 5, 2016. The result will be a total of almost five months for interested persons to prepare and submit comments.

“This step is intended to facilitate robust and thoughtful public input on the proposals while respecting the need to keep the rulemaking aspects of the project moving forward and on pace with procurement and system development objectives to recompete the contract acquisition plan,” the regulators explain. 

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