Data & Research June 4, 2024

Only 30% of Savers Know About Social Security Shortfall Projections

Once aware, 97% agree leaders should strengthen the system for current and future generations.

Reported by

According to a survey published by the Peter G. Peterson Foundation, only 30% of Americans know that the Social Security Old Age and Survivors Insurance Fund is projected to become insolvent in 2033.  

Once made aware of the cuts, 97% of those respondents agreed that leaders elected in November of this year should take action to help shore up the funds, a think tank focused on addressing fiscal challenges including the national debt. Social Security has already been a talking point for both presidential candidates, and was a subject of President Joe Biden’s State of the Union Address earlier this year.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

According to the Social Security Administration’s 2024 Trustee Report, the OASI Fund on its own is projected to have to cut benefits by 21% in 2033 when it exhausts its reserves. The combined asset reserves of the OASI and Disability Insurance Trust Funds are forecast to have enough revenue to pay all benefits and associated administrative costs until 2035, one year more than projected last year for the combined funds. The fund has been running a deficit since 2010 and spending down the reserves of past surpluses to make up the difference.

The online survey involved 1,000 participants, polled on May 21 and 22, or about two weeks after the 2024 Trustee Report was published.

This 21% cut would be automatic once the fund has used up those reserves. Given that most Americans are unaware of this contingency, they are left unable to prepare since one cannot plan for a possibility they are unfamiliar with.

Whatever one’s risk tolerance, modeling Social Security cuts is widely recommended by financial planners to a wide range of clients, according to Robert Pagliarini, an ambassador with the CFP Board and the president of Pacifica Wealth.

Younger workers would be the most affected by Social Security cuts, since those cuts will likely only increase over time as life expectancy increases, Pagliarini notes. However, younger workers also have more time to take corrective action.

Many financial planners recommend that their clients account for the possibility of Social Security cuts using various models to forecast different outcomes. Such models can include small tweaks, such as increasing  a client’s retirement age. They can also include a situation in which no reforms are made and Social Security is cut by 21% or more.

But corrective action requires awareness of the problem in the first place.

Compliance June 4, 2024

Lawsuit Against TIAA Over Managed Account Service Moves Forward

TIAA’s request was denied to dismiss a lawsuit brought against the insurance company for allegedly pushing for participants to use managed accounts in U.S. District Court for the Southern District of New York.

Reported by

TIAA’s request to dimiss an amended lawsuit filed against it regarding a managed account service for participants was denied by a federal district judge in New York, with an order for the firm to provide an answer by June 21.

Plan participants John Carfora, Sandra Putnam and Joan Gonzales filed the initial complaint against TIAA in the U.S. Southern District Court of New York on October 2021 with lead attorney Schlichter Bogard & Denton LLP. The plaintiffs alleged that TIAA breached its fiduciary duties to participants under the Employee Retirement Income Security Act for allegedly cross-selling the firm’s adviser managed account service known as Portfolio Advisor, which comes at a higher cost than remaining in plan.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The plaintiffs were part of separate university defined contribution plans serviced by TIAA—though the plan sponsors were cited as breaching their fiduciary duty, none are named as defendants in the lawsuit.

The suit, John Carfora et al v. Teachers Annuity Association of America and TIAA-CREF Individual & Institutional Services LLC, was initially dismissed in September 2022, after which plaintiffs’ attorneys filed an amended complaint.

On Friday, U.S. District Court Judge Katherine Polk Failla ruled in favor of  each of the arguments presented by the plaintiffs, noting that the suit shows “in great detail the systematic efforts on TIAA’s part to drive members from their ERISA plans and into TIAA-sponsored offerings, with little upside to those participants.”  

 “The named plaintiffs each represent that they were subject to aggressive cross-selling and rolled over their funds from their ERISA plans to Portfolio Advisor as a result,” the judge wrote.

Plaintiffs alleged that through its campaign, TIAA placed participants into individually model portfolios that often-included TIAA-affiliated funds, which added fees that they would typically not pay by keeping assets in the employer sponsored plan.

Judge Polk Failla also found that plaintiffs sufficiently alleged TIAA advisers cold-called participants in TIAA-administered plans under the guide of offering free financial planning services, but with the undisclosed intent moving participants to the managed account offerings. 

“For example, Carfora specifically alleges that he was subject to emphatic cross-selling by a TIAA representative, who disavowed any conflict of interest in connection with her recommendation that Carfora execute a rollover to Portfolio Advisor from the Loyola Marymount University Defined Contribution Retirement Plan, and failed to inform Carfora that the fees and expenses of moving assets to Portfolio Advisor were higher than remaining in his employer-sponsored plan,” Polk Failla wrote.

In its motion to dismiss the suit filed in November, TIAA argued that the plaintiffs failed to sufficiently plead that the plan sponsors breached any fiduciary duties in connection with their retention of TIAA as a third-party service provider. The firm also argued that the suit failed to allege facts sufficient to support any finding TIAA was a knowing participant in the breach.

TIAA is represented by attorneys with law firm Wilmer Cutler Pickering Hale & Dorr LLP.

Representatives of TIAA declined comment. Neither attorneys with law firm Wilmer Cutler Pickering Hale & Dorr LLP nor attorneys for Carfora responded to requests for comment.

Carfora, Putnam and Gonzales brought the lawsuit individually and as representatives of a class of similarly situated individuals but have not asked the court to certify the class or to appoint class counsel.   

 

«