Thursday, July 28, 2011

Deloitte Study: Employers Skeptical about Retirement Security for Private Sector Employees

Previous entries to this blog have cited studies by Deloitte, an international consultancy, on retirement security and 401(k) plans. In recent months they’ve published the results of their 2010 studies and there is a lot to be learned. We’ll dedicate several new blog entries to their findings and offer our thoughts on their relevance to Texas public employees’ retirement security. 

The Deloitte “Annual 401(k) Survey of Retirement Readiness” builds on several years of study for Deloitte’s research group. The details of their summary finding are telling:
Only 15% of surveyed employers believe most employees are or will be prepared for retirement, leaving an astounding 85% that believe some or very few will be prepared for retirement (Exhibit 7.7).

A mere 25% of surveyed plan sponsors offer managed accounts (Exhibit 7.8).
For those that do not offer this service, potential fiduciary responsibility was listed as the top reason (60%) for not offering managed accounts (Exhibit 7.10).
Where to begin?

Top line, this seems to confirm our poll results, where the holders of 401(k) retirement plans aren’t convinced about their ability to retire on time, or as they’d previously planned. In this case, employers don’t seem convinced that their employees will be prepared for retirement. We would have liked to have seen a break-out on this question, where we learned the views of those 25% with “managed accounts” (which we assume to be defined benefit plans). Did those employers feel their employees would be prepared? We will work to find out.

Interestingly, managed accounts are seen by companies to be prohibitive because of their liabilities for ‘fiduciary responsibility.’ This is another topic we will have to take up in the future. – Max Patterson  

Monday, July 25, 2011

Houston Chronicle Publishes TEXPERS’ Research: 80% of Texas Fortune 500 Offer Defined Benefit Plans

In late June, right before the Fourth of July weekend, the Houston Chronicle published our op-ed on defined benefit plans in the private sector. Here’s what we said:
We confined our research to the 35 publicly traded companies on the Fortune 500 list in Houston and Dallas. Some of the notables include ConocoPhillips, Texas Instruments, Southwest Airlines, Continental Airlines and CenterPoint Energy. Out of those 35 companies, 28 still have traditional defined-benefit plans for their employees in one way or another as stated in their most recent 10-K filings. In effect, 80 percent of Fortune 500 companies located in Texas' two biggest cities retain defined-benefit-style plans.

It’s an interesting finding and worthy of note because all too many people think defined benefit plans don’t exist in the private sector. Not true. They do exist, but their administrative and fiduciary costs are prohibitive for most companies to implement for all their employees. A Deloitte study of corporate employers confirms as much, and we’ll be talking more about that in future blogs.
After reviewing the data, our non-confirmed hunch is that defined benefit plans in the private sector exist mostly for upper echelon employees, not the rank and file. Again, we have no evidence of this – it’s just a hunch. But because administrative costs are so high, it makes sense for corporations to limit the expense to key employees and officers who are part of an increasingly exclusive club, no doubt. We will continue our research and learn more about these plans in the private sector. – Max Patterson