Actionable Information Creates Higher Savings

Four years after the launch of its Lifetime Income Analysis experience, participants in Putnam Investments-administered 401(k) plans continue to take significant steps forward in increasing their level of retirement preparedness.

During 2013, Putnam found that of the participants who used the firm’s proprietary Lifetime Income Analysis Tool (see “Putnam Introduces Retirement Income Calculator”), 35% made deferral changes, and of those, 76% chose to increase their savings rate by an average of 25%.

“This data tells plan sponsors that deferral rates can be improved if we move beyond the traditional view of participant balances and investments, Edmund F. Murphy III, head of Defined Contribution at Putnam Investments, tells PLANSPONSOR.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The Boston-based Murphy says critical factors include putting retirement savings into the same monthly income context that people use to manage their financial life, making it easy to understand tradeoffs, and making it simple for participants to change their savings rates. “Context and simplicity will help drive additional savings,” he adds.

Results were noticeably more pronounced among plan participants who also used Putnam’s Health Cost Estimator, a feature of the Lifetime Income Analysis Tool, which provides an estimate of how much future income will be needed to cover health care costs in retirement. Those who used the Health Cost Estimator and made a deferral rate change, increased their 401(k) plan savings contributions from 7.7% to 9.9%—a 29% increase, and more than three percentage points over the industry average of 6.8%, as measured by the Plan Sponsor Council of America.

Murphy also notes that plan participants using the Putnam Lifetime Income experience to change their deferral rates, increased their savings by a much more significant magnitude—seven times more than participants who used other methods to change their contribution levels, such as by telephone.

The Putnam study analyzed the actions of more than 40,000 participants in Putnam retirement plans who used the Lifetime Income Analysis Tool during 2013, as well as more than 8,000 participants who accessed the Health Cost Estimator during the year.

Do Your Clients Have ‘Orphan’ Accounts?

A new analysis from the LIMRA Secure Retirement Institute shows many older workers have balances left in old employers’ retirement plans that may not be receiving adequate attention.

LIMRA, which provides financial industry research and consulting services, says in a recent blog post that it’s completed a study showing the majority of working Americans age 45 to 75 with more than $100,000 in household assets report having balances left in a former employers’ defined contribution (DC) retirement plan—creating a large number of “orphan” accounts that may not be receiving proper attention and maintenance.

More significant, LIMRA says, is the fact that about two-thirds of those ages 55 to 75 with these orphan accounts had DC plan balances of $100,000 or more. That’s potentially problematic because traditional glide path strategies urge workers in this age range to take action to ramp down equity exposures to protect from market declines that could diminish assets needed in the near future—something that presumably doesn’t happen in most orphan accounts.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

For plan sponsors and advisers, orphan accounts can add to the complexity of managing assets and may damage overall plan outcomes by failing to account for participants’ current age and financial situation in setting investment strategies, LIMRA explains.

The firm’s research shows men and women of all ages are equally likely to have a DC plan balance with a former employer (41% vs. 40%). The study finds Americans with household assets of at least $500,000 are more likely to have an orphan account (44%) than those with less than $500,000 (38%).   

Taking those facts into account, LIMRA urges advisers to develop a comprehensive written plan for managing all assets a worker has accumulated—including those dollars in retirement accounts at a former employer. Prior LIMRA research shows that pre-retirees and retirees are more confident in their retirement security when they have a written retirement plan in place and are more likely to take action on setting age-appropriate asset allocations.

In addition, LIMRA says advisers should help their clients account for all of their assets to ensure retirement portfolios are well-designed and invested based on a total picture of an individual’s financial needs and resources.

Further information on LIMRA is available here.

«