Tuesday, April 27, 2010
It is clear, over the last 3 decades employee retirement has changed significantly in America. Beginning in the 1980’s and 1990’s, employers implemented defined contribution plans in large numbers. In the 1990’s many of those same employers began to change or eliminate older, more traditional defined benefit plans. Much of this change came about due to changes in the nation’s tax code, workplace demographic, and industrial make-up as government encouraged defined contribution plan growth, more workers sought self-control over their retirement options, and as manufacturing industries gave way to informational industries. The upside to this change has lead to employee’s holding 4.1 trillion dollars as of 2009 in market based defined contribution plans under their own self-investment direction. The downside is that those same account balances are subject to the same risks as any other market based investment.
Are Americans preparing for retirement? There appears to be some confusion on the subject. In one report released by the Investment Company Institute and T. Rowe Price Group in conjunction with Employee Benefit Research Institute, American workers remain committed to preparing for retirement by continuing to contribute to their define contribution plans. The report covered some 24 million define contribution plan participants from January to December 2009. The report found that 3.4 percent of define contribution plan participants suspended their contributions during 2009. Furthermore, the report indicates that at the peak of the market downturn only 2 percent of participants changed their asset allocations and only 4 percent made any changes to their plans.
Investment Company Institute (http://www.ici.org/), T. Rowe Price Group (http://www.troweprice.com/), Employee Benefit Research Institute (http://www.ebri.org/research/dc_project/) Participant-Directed Retirement Plan Data Collection Project (1996-2008), (January-December 2009)
In a report sponsored by the Employee Benefit Research Institute and Mathew Greenwald & Associates, the assertions of the Investment Company Institute/T. Rowe Price Group report appear to be contradicted. The 2010 Retirement Confidence Survey reports that for all age categories, except age 55 and above, American workers are less likely to be saving for retirement in 2010 than in 2000. The 20th annual Retirement Confidence Survey compared retirement savings rates and other factors for workers between surveys conducted in 2000 and 2010. The results showed a decline in respondents who were saving for retirement except for workers 55 and above who reported a 15-percentage point increase from 2000 to 2010. The survey also queried respondents on their confidence in their ability to save for retirement and the stability of Social Security and Medicare. All surveyed age categories reported a decline in their confidence to meet their retirement needs.
The survey’s finding may be summarized as, retirement planning continues to erode from prior surveys, increasing numbers of workers have no retirement savings, many workers have little to no understanding of their retirement needs, more workers plan to work longer, and most have little confidence in private and public institutions’ abilities to help them meet their retirement needs.
Employee Benefit Research Institute (http://www.ebri.org/) and Mathew Greenwald & Associates (http://www.greenwaldresearch.com/). The 2010 Retirement Confidence Survey: Confidence Stabilizing, But Preparations Continue to Erode, Ruth Helman, Craig Copeland, and Jack VanDerhei, “The 2010 Retirement Confidence Survey: Confidence Stabilizing, But Preparations Continue to Erode,” EBRI Issue Brief, no. 340, March 2010. (http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=4488)
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