Data & Research December 13, 2006

Forced Retirement Another Factor in Retirement Planning

In addition to savings and investment considerations, a new survey suggests that part of a healthy retirement plan will include a consideration of early retirement because not all Americans will be able to work as long as they plan.
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According to a press release from Sun Life Financial, its survey found 22% of retirees were forced into retirement before they had planned, on average approximately eight years earlier than expected. In addition, the average respondent planned on accumulating approximately $1 million in retirement savings, but had accumulated only about half that amount when they were forced to retire. Fifty-five percent of survey respondents said they were ineligible for Social Security benefits at the time of involuntary retirement.

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Additionally, 69% of respondents said their retirement plans overall had been affected by involuntary retirement, requiring them to reduce expenses or change their lifestyles, the release said. Lifestyle and financial adjustments respondents said they made to address their unexpected retirement included:

  • reducing expenses (61%),

  • fewer vacations and social activities (47%),

  • collecting social security before they wanted to (43%), and

  • using money from a 401(k) or IRA (30%).

Health care expenses for themselves and/or their spouses was the most urgent financial obligation to be addressed beyond living expenses, cited by 53% of respondents age 65 and older.

Reasons for forced retirement most commonly cited by respondents included layoffs/downsizing (44%), personal illness (32%), and injury (14%). A higher percentage of women cited family obligations (10%) as a retirement cause compared to men (2%). Respondents age 65 and older were more likely to cite layoffs/downsizing (58%) as the primary reason for having to retire earlier than planned, while respondents under age 55 were more likely to name personal illness (46%) or injury (26%).

The survey was conducted online within the US from May 16 to May 30, 2006 among 701 adults (aged 18+) who had experienced involuntary retirement, were responsible for, or shared in, the household’s financial decisions, and were currently working with a financial adviser.

Compliance December 12, 2006

Prudential Agrees to Full Disclosure of Broker Compensation

Under an agreement with New York State Attorney General Eliot Spitzer, Prudential Insurance Company of America will eliminate the payment of contingent commissions to brokers on group insurance products, including life, disability and long-term care.
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The agreement comes as part of a settlement relating to allegations of deceptive and anti-competitive practices in the sale of group insurance products to US employers, according to a press release by Spitzer’s office. In addition, the insurer has agreed to provide full disclosure of broker compensation to employers who seek to purchase insurance for their employees through Prudential.

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Prudential will also provide restitution of $16.5 million to policyholders and pay civil penalties totaling $2.5 million.

The investigation of Prudential began soon after Spitzer started a broader probe of bid rigging in the insurance industry. According to the press release, the investigation revealed that from 1999 to 2005, Prudential paid approximately $60 million in overrides to brokers on approximately $18 billion in insurance premiums. Prudential also paid certain brokers case specific overrides or “single case overrides” in order to, among other things, close a deal or encourage future business and, on certain occasions, built the cost of these single case overrides into the premiums, Spitzer’s office said.

“Today’s settlement compensates nationwide employers seeking to provide group benefits for their employees” Spitzer said, in the press release. “This settlement also helps restore integrity to the insurance marketplace by mandating complete disclosure of payments to brokers.”

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