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  

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

Texas Public Policy Foundation Misconstrues Poll Results; Proposes Skewed Alternative

Our last blog discussed our release of an informative poll about Texans’ views on public employee pensions – and their own 401(k)s. After the news was released we saw only one organization attempt to negate or dismiss our poll findings.
Jordan Brownwood with the Texas Public Policy Foundation wrote a dismissive article, “Inconclusive TEXPERS poll confirms…nothing,” that was long on implied pejorative and short on facts.

For instance, Brownwood said “Without guaranteed pension benefits, TEXPERS would be forced to cede significant power to private investors and the individuals they currently represent.” It’s really difficult to deconstruct that sentence and respond to it appropriately because it displays a very fundamental ignorance of what TEXPERS is and who we represent. Our website is www.TEXPERS.org, for Mr. Brownwood’s future reference.

Nonetheless, if we’re interpreting his statement correctly, Mr. Brownwood should know that none of our members (the pension systems themselves) have members (policemen, firefighters, and municipal workers) who are currently asking for 401(k)s. If they were asking for it – because of the poor performance of their plan administrator or the possibility that the benefits wouldn’t be there when they retire – then we would respond to our members’ requests for private investments. That’s just not the case. Plans are performing well and most cities and their pension systems have good plans for fulfilling their actuarial obligations. If there’s another interpretation to Mr. Brownwood’s assertion, we’d be happy to address it.

And then Mr. Brownwood  wants his readers to rethink our wording of questions. He says:

The first question in the poll asks respondents if public employees should give up their current defined benefit pensions for a 401(k) plan.

That’s not what we asked and that’s not what we said in the press release.

The exact question was “Public employees who receive defined benefit pensions should be forced to change to 401(k) type plans like most employees in the private sector.” Our question was about the assertion of legislative force by elected officials to change the current pension option for public employees. Like we said in the release, 43% of the public disagreed with that statement while only 28% agreed.  Another 11% weren’t sure. It’s clear that forcing public employees into 401(k)s is not an action that would be well-received by the general public – even those who themselves own and use 401(k)s!

Then, in the same paragraph as his statement above, Mr. Brownwood says that:

Since a majority of Texans agreed that public employees have the right to continue with their contractually-obligated pensions (which few are suggesting), TEXPERS makes the assumption that Texans are opposed to pension reform. How different do you think the responses would have been if worded something like: “Using a portion of your personal income, would you be willing to promise every public employee in Texas a retirement package worth over $1 million?” I doubt very many respondents would have agreed, yet it is one way (albeit a very different way) of asking the question.

His question’s setup, “Using a portion of your personal income,” is the way that he wants you to think about the taxes required to pay for employee benefits. In my view that’s a pretty aggressive attempt on his part to skew poll results to fit a “what’s yours is yours-what’s mine is mine” political point of view. Skewing results by inserting political viewpoints is not something we tried to do with our poll.
 
And in the second part of his sample question, Mr. Brownwood engaged in hyperbole and scare tactics. There is no proposal by TEXPERS or any of its members to promise every public employee in Texas retirement packages over $1 million. That’s ludicrous. Again, Mr. Brownwood shows his inclination to skew questions with non-facts that align to his political views.

The reality is that after 15-20 years of service, with their and their employers’ matching funds, most public employees retire with $200-300,000 in their accounts and receive on average $2-3,000 per month, if that. And since most don’t pay into Social Security over their working lives as public employees, that’s all they receive in their “Golden Years.” Not so ‘golden’ if you ask me.
 
We enjoy vigorous discussion of these types of issues, but we would also like everyone to play on a fair and level playing field. Mr. Brownwood does not appear to want that. – Max Patterson

TEXPERS Poll Questions Underlying Assumptions in Public Discourse

Last week TEXPERS released the results of a public opinion poll we commissioned in March seeking Texans’ views on public employee pensions.
The results were very informative to discussions of public attitudes toward the men and women who provide services to the general public as firemen, police and municipal employees, like sanitation workers, librarians, etc. In fact, we know of no other poll that seeks to understand this dynamic in Texas. We will be writing about the poll results a great deal in the future as we think they provide a lot of insights into people’s attitudes toward their own retirements as well as their attitudes toward the retirement plans for public employees.

But for this blog post, the headline is really the most important point:  “TEXPERS Poll Confirms Texans’ Positive View of Public Employee Retirement Plans.” Our hunch that most Texans’ view the current systems as working in the public interest was validated by this poll of 503 Texans, across the state, both retired and working. And these Texans weren’t just anybody. They were registered voters with 401(k) plans themselves.

So why did we select this group of Texans to the exclusion of all other viewpoints?

A number of reasons really, but the core reason is our sense that there seems to be a general assumption by many – especially some newly elected politicians – that 401(k)s are the end-all, be-all retirement vehicle for all people. Don’t you get that sense as well? Don’t you feel that most people just unquestioningly accept that 401(k)s are the only best option available to them? And then they just assume that 401(k)s should be the only option public employees should have?

Our view is that we need to question those assumptions. Before we change a system that is working well for public interests, we need to consider what the alternative would be. And our poll, by interviewing only 401(k) holders, sought to find out whether the people most familiar with 401(k)s think that those plans are all that they are cracked up to be. If 401(k)s were really doing their jobs as well as their proponents suggest, wouldn’t all respondents or at least large majorities support that perceived popularity?

That certainly wasn’t the case in our poll. That’s why it’s interesting and deserves further discussion. We’ll do so frequently in this blog. – Max Patterson