Data & Research December 18, 2018

Nearly Two-Thirds of Retirees Wish They Had Been More Knowledgeable About Saving and Investing

In addition, two-thirds of those surveyed by the Transamerica Center for Retirement Studies say their most recent employers did “nothing” to help pre-retirees transition into retirement.

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A survey of 2,043 retirees by the Transamerica Center for Retirement Studies (TCRS) shows two-thirds (66%) say their most recent employers did “nothing” to help pre-retirees transition into retirement, and 16% are “not sure” what their employers did.

Among the 18% of retirees whose employers helped pre-retirees, the most frequently cited offerings are financial counseling about retirement (6%), seminars and education about transitioning into retirement (5%), the ability to reduce work hours and shift from full- to part-time (5%), and accommodating flexible work schedules and arrangements (5%).

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When looking back on their retirement preparations, almost three in four retirees (73%) agree they wish they would have saved more and on a consistent basis. About two-thirds (67%) say they did as much as they could to prepare for retirement, but almost as many (64%) wish they had been more knowledgeable about retirement saving and investing. Three in ten used a financial adviser before retiring to help them manage their retirement savings or investments.

Many retirees also agree they waited too long to concern themselves with saving and investing for retirement (50%) and that debt interfered with their ability to save as much as they needed for a comfortable retirement (47%). 

The survey found 31% of retirees started saving before the age of 40, while 39% started saving in their forties or older. The median age retirees first started saving was 40. Three in ten indicate they did not save for retirement.

For the majority of their working careers, 68% of retirees participated in some form of employer-sponsored retirement benefits, including 49% who participated in a 401(k) or similar plan and 37% who participated in a defined benefit (DB) plan. Thirty-two percent of retirees worked for employers that did not offer any retirement benefits. The majority of retirees (61%) say they saved for retirement outside of work.

Fifty-four percent of retirees had a retirement strategy before they retired; however, only 10% had a written plan, while 44% had a plan but it was not written down. Forty-six percent did not have a retirement strategy.

The retirement experience

Fewer than half of retirees (46%) surveyed by the TCRS agree that they have built a large enough retirement nest egg, of whom only 16% “strongly agree.” Yet, 67% say they are confident that they will be able to maintain a comfortable lifestyle throughout retirement, with 18% being “very confident.”

Since entering retirement, 42% of retirees indicate that their personal financial situation has “stayed the same,” while approximately one in three (36%) indicate it has “declined.” Only 20% of retirees say that their personal financial situation has “improved.”

Since entering retirement, almost six in ten retirees (59%) spend less money each year, compared with when they were working. Thirty-one percent spend the same amount of money each year, and only 6% spend more money each year in retirement.

Retirees cite diverse sources of income, but Social Security is the primary source of income for most retirees. The survey found nearly all retirees (96%) receive income from Social Security. Sixty-six percent of retirees indicate that Social Security will be their primary source of income over the course of their retirement. Twenty-one percent cite retirement accounts and personal savings, including a 401(k) or similar accounts, IRAs (10%) and other savings and investments (11%). One in 10 retirees cite a DB plan as their primary source of income.

The survey confirms that retiring later is not the best retirement strategy, as it found more than half of retirees (56%) retired sooner than they had planned. Among those, more than half (54%) cite employment-related reasons, including job loss (24%), organizational changes at their place of employment (22%), unhappiness with their job (15%), and/or took a retirement incentive or buyout (11%). Forty-seven percent cite health and/or family-related reasons, including their own ill health (28%), family responsibilities (15%), and/or their spouse/partner retired. Only 11% of retirees retired sooner than planned because of financial ability, including they had saved enough and could afford to retire (10%) and/or they received a financial windfall (1%).

Among the small proportion (9%) of retirees who retired later than planned, 75% cite financial-related reasons, including needing the income (54%), they hadn’t saved enough for retirement (27%), general anxieties about their financial situation (23%), Social Security less than expected (18%), needing health benefits (12%), and/or recovering from a major financial setback (8%). Sixty-four percent of retirees who retired later than planned cite healthy aging-related reasons, including enjoying their work (43%), staying active (42%), and keeping their brain alert (27%). Ten percent indicate that their employer requested that they stay longer, and 5% indicate their spouse/partner retired sooner than planned.

TCRS’ survey report, “A Precarious Existence: How Today’s Retirees Are Financially Faring in Retirement,” includes many other findings about the retiree experience, as well as tips for pre-retirees and retirement policy recommendations.
Compliance December 18, 2018

9th Circuit Reverses Dismissal of Intel Alternative Investment Suit

The appellate panel concluded that disputes of material fact exist as to the timing of the plaintiff’s actual knowledge of the alleged fiduciary breach, precluding summary judgment for untimely filing; after a detailed discussion of ERISA requirements, the case is remanded for further district court proceedings.

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The 9th U.S. Circuit Court of Appeals has ruled in favor of plaintiffs in an Employee Retirement Income Security Act (ERISA) lawsuit that was previously dismissed as untimely by the U.S. District Court for the Northern District of California.

The revived lawsuit says Intel invested participant assets in custom-built target-date funds (TDFs) that have underperformed peer funds by approximately 400 basis points annually. The lawsuit claims automatic enrollment and a re-enrollment of existing participants resulted in more than two-thirds of participants being allocated to custom-built investments. The text of the complaint goes into great detail about why the plaintiffs believe hedge funds and private equity funds are inappropriate investments for ERISA retirement plans.

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Asked by plaintiffs to review the district court’s dismissal decision from April 2017, the appellate panel held that a two-step process should be followed in determining whether a claim of this nature should be barred as untimely by section 1113(2) of ERISA. First, the court isolates and defines the underlying violation on which the plaintiff’s claim is founded. Second, the court inquires whether the plaintiff had “actual knowledge” of the alleged breach or violation.

The appellate panel held that actual knowledge “does not mean that a plaintiff had knowledge that the underlying action violated ERISA, nor does it merely mean that a plaintiff had knowledge that the underlying action occurred.” Rather, the defendant “must show that the plaintiff was actually aware of the nature of the alleged breach more than three years before the plaintiff’s action was filed.”

In an ERISA section 1104 case of this nature, the appellate court explains, a plaintiff must have been aware that the defendant had acted and that those acts were imprudent. Disagreeing with the 6th Circuit, the 9th Circuit panel holds that the plaintiff “must have actual knowledge, rather than constructive knowledge.”

In applying this standard to the Intel case, the panel concluded that disputes of material fact as to the timing of plaintiff’s actual knowledge preclude summary judgment. It thus remanded the case to the district court for further proceedings.

The text of the appellate decision highlights how the district court converted the defense’s motion to dismiss into a motion for summary judgment and ordered discovery limited to statute of limitations issues. After discovery, the district court ruled that there was no dispute of material fact that the plaintiff had actual knowledge of the alternative investments more than three years before filing the action, and entered summary judgment in favor of Intel.

The lead plaintiff appealed, arguing that the district court applied the wrong standard of “actual knowledge” to his imprudent investing and derivative liability claims. The 9th Circuit agreed after reviewing the district court findings de novo. By way of background, the appellate decision notes that ERISA does not actually define “knowledge” or “actual knowledge.”

“But when Congress first enacted ERISA in 1974, section 1113 contained two kinds of knowledge requirements, actual knowledge and constructive knowledge,” the appellate decision states. “The actual knowledge provision was identical to current section 1113(2), but the constructive knowledge provision provided that an action could not be commenced more than three years after the earliest date ‘on which a report from which the plaintiff could reasonably be expected to have obtained knowledge of such breach or violation was filed with the secretary under this title.’”

As the appellate decision explains, Congress repealed the constructive knowledge provision in 1987, leaving only the actual knowledge requirement.

“Since that time, the Supreme Court has not provided an authoritative construction for section 1113(2),” the appellate decision says. “Our own interpretations have likewise not always been straightforward, leading to some confusion in our district courts over what ‘actual knowledge’ entails.”

The decision continues: “The lesson we draw from these cases is two-fold. First, ‘actual knowledge of the breach’ does not mean that a plaintiff has knowledge that the underlying action violated ERISA. Second, ‘actual knowledge of the breach’ does not merely mean that a plaintiff has knowledge that the underlying action occurred. ‘Actual knowledge’ must therefore mean something between bare knowledge of the underlying transaction, which would trigger the limitations period before a plaintiff was aware he or she had reason to sue, and actual legal knowledge, which only a lawyer would normally possess.”

This leads to the question of what this extra “something” must entail.

“In light of the statutory text and our case law, we conclude that the defendant must show that the plaintiff was actually aware of the nature of the alleged breach more than three years before the plaintiff’s action is filed,” the appellate decision concludes. “The exact knowledge required will thus vary depending on the plaintiff’s claim.”

The full text of the lawsuit is here.

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