Issue 26, SPRing 2019 - Retirement Savings Trends - Westminster Consulting
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i ssu e 2 6 , S PRi n g 20 19
Confero Magazine
R e t i r e ment Savings Trend s
A quarterly publication of Westminster Consulting, LLC
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Now
Editor’s Letter
It’s Free
Welcom e to th e Sprin g 2019 Issue of Con fero
Spring is here, and that is a time for new beginnings.
The weather is changing, and so is the world of
retirement. In fact, the retirement world is always
in flux, and that is why our goal with this issue is to
update you the plan sponsor, on retirement savings
trends and what is impacting those trends.
In this issue, we address some of the most important
and current topics — everything from health care costs
in retirement to how young adults are attempting to
save for retirement. We know that through this issue
of the magazine you will pick up on trends that you
can bring back to your own companies and improve
the current plan.
Ma x Ke s s e l ri n g
visit westminster-consulting.com/publications/confero to view the online version.
Subscribe to Confero by sending your email address to info@conferomag.com.
2 SPring 2019 Confero 1
conten t
10
01 Editor’s Letter
By Max Kesselring
04 Contributors
08 The Roland Roundup
By Roland Salmi
10 The Growing Dilemma of Debt
and Financial (In)Security in
the United States
By Michael DiCenso
14 Retirement Market Update
By Prudential Retirement 24 A New Way to Plan for health care
costs in retirement
28 Do young adults with student
debt save less for Retirement?
34 Diversity and Inclusion
in Retirement
By Jean Young By Charles Privitera
By Matthew S. Rutledge, Geoffrey T.
Sanzenbacher, and Francis M. Vitagliano
2 SPring 2019 Confero 3
o u r c o n tri b u t o rs
P u bl isher
Westminster Consulting, LLC
Charles Privitera Jr. Michael DiCenso
Geoffrey T. Sanzenbacher Newport Group E d itor -iN-C hief
SHRM-SCP, AIF® Center for Retirement
Max Kesselring
Westminster Consulting, LLC Research at Boston College
Michael DiCenso leads Newport
Group’s combined sales organization
Charles is a Geoffrey T. Sanzenbacher
senior consultant is the associate director
in the further development of business
strategies and goals. E d itor ial Staf f
at Westminster of research at the Center
Consulting. He Sheila Livadas
for Retirement Research A nationally recognized speaker and
will have client at Boston College. He knowledge expert, Michael has nearly Roland Salmi
relationship conducts research 30 years of experience in the industry
responsibilities on health insurance with a proven history of success in
primarily in the Metro coverage, job mobility,
New York and Mid-Atlantic regions. He assists the shift from defined benefit to defined contribution sales, marketing and product development. Most recently, he provided S taf f C ontr ibutor s
pensions, and the pension participation decision and vision, strategy, practice management, product development, sales
his clients with the design, implementation, and Charles Privitera Jr.
has an interest in how these issues relate to low- and distribution strategy, and merger and acquisition consulting to
investment monitoring of their retirement plans.
income workers. Before joining the Center, he earned recordkeepers, TPAs, advisors, RIA’s and private equity firms.
Roland Salmi
Prior to joining Westminster, Charles was a part a doctorate in economics from Boston College in the
fields of labor economics, applied econometrics, and Prior to that, Michael was president of Gallagher Fiduciary Advisors
of the Gallagher retirement plan consulting team.
applied microeconomics. He worked for several years and a national practice leader for the company’s retirement
He has over 20 years of financial experience
that has encompassed all areas of the employee after finishing his Ph.D. as an economic consultant at service division. He also served as executive vice president of sales,
marketing, relationship management and product development for
F eatur ed
benefits industry. The last 10 years have been Analysis Group in Boston. He also currently teaches
specifically focused on investment consulting, intermediate microeconomics and the economics of RSM McGladrey. Contr ibutor s
fiduciary liability consulting, and plan design inequality at Boston College.
consulting for midmarket defined contribution Geoffrey T. Sanzenbacher
plans.
Matthew S. Rutledge
Charles earned his bachelor’s degree in
Matthew S. Rutledge
management science/economics from the Center for Retirement Michael DiCenso
State University of New York at Cortland and Research at Boston College Jean Young Jean Young
the London Metropolitan University. He has also
received the industry designation of Senior Matthew S. Rutledge is Vanguard Retirement Group Prudential Retirement
Certified Professional from the Society for Human an associate professor
Resource Management (SHRM-SCP). of the practice of Jean Young is a senior
economics at Boston research analyst with the
Charles resides in New Jersey with his wife, College. He is also a Vanguard Center for Investor
For a copy of the magazine, please email
Kathy, and their son. In his free time Charles research fellow at the
info@westminster-consulting.com or call
enjoys spending time with his family, training, Research. Her research 800-237-0076.
Center for Retirement topics include the design
hiking and volunteering. He spends much of Research at Boston
his time at the Boys and Girls club of Harlem, College. He conducts of employer-sponsored The information contained in this magazine
and is a board member of the National Future research on labor market outcomes for older workers, retirement programs and the is for general information purposes only.
Insurance Leaders Program, which is dedicated Social Security claiming behavior, disability insurance psychological and behavioral
The information is provided by Westminster
Consulting, LLC (WC) and, while every
to promoting diversity and inclusion in the application, pension coverage, retirement saving, effort is made to provide information
insurance industry. retirement expectations, employer demand for aspects of participant decision-making. She is also the that is both current and correct, WC
makes no representations or warranties
older workers, unemployment insurance, and health lead author for Vanguard’s annual publication “How of any kind, express or implied, about
insurance coverage. He has also worked for the America Saves.” Before her current position, Ms. Young the completeness, accuracy, reliability,
suitability, or availability with respect to
Economic Research Initiative on the Uninsured and was a client relationship manager in Vanguard’s defined the magazine or the information, products,
the Federal Reserve Bank of Boston. Before joining contribution recordkeeping business. Ms. Young earned a
services, or related graphics contained
within the magazine for any purpose. Any
Boston College, he earned a doctorate in economics
from the University of Michigan in the fields of health B.A. in business administration from Franklin & Marshall reliance you place on such information is
therefore strictly at your own risk.
economics, labor economics, and public finance. College and an M.S. in taxation from Widener University.
In no event will WC be liable for any loss
She is a certified public accountant. or damage, including, without limitation,
indirect or consequential loss or damage,
or any loss or damage whatsoever arising
from loss of data or profits arising out of, or
in connection with, the use of this magazine.
4 SPring 2019 Confero 5
Note: The articles included in this publication are general information and are not intended as legal advice, nor
should6 you
SPring 2019them as such. You should not act upon this information without seeking professional consent.
consider Confero 7
The
Roland
The Roland Roundup is a compilation of
court cases that have recentl y been in
the news. Each case focuses on a violation
of ERISA guidelines. The outcomes of
these cases may have a lasting impact
the Georgetown plan’s substantial bargaining power
to benefit participants and beneficiaries, defendants
failed to adequately evaluate and monitor the plans’
expenses and caused the plans to pay unreasonable
and excessive fees. Among other lines of argument,
Anthem continued offer the 4 bps version. The parties
in the lawsuit have reached a settlement agreement,
the resolution details will be revealed when it receives
class approval. (Settled.)
the plaintiffs claimed defendants failed to negotiate a Moore, Rebecca. “Parties in Anthem ERISA Fee Litigation
Roundup. on the fiduciary environment. “separate, reasonable and fixed fee for recordkeeping
with a single administrative provider to the plans.”
Instead, the Georgetown defendants “continuously
retained three different service providers – TIAA,
Propose Settlement.” PLANADVISER, Strategic Insight, 22
Feb. 2019, www.planadviser.com/parties-anthem-erisa-fee-
litigation-propose-settlement/.
Vanguard and Fidelity.” Ruling in favor of the university’s
December 12, 2018 complaint goes on to state, “Year motion to dismiss these claims, District Court Judge
after year, Transamerica selected Rosemary Collyer published a colorfully worded opinion February 22, 2019
Schultz et al. v. Edward Jones and retained poor-performing that chides the plaintiffs for failing to acknowledge
Wong v. Fidelity
et al. proprietary investment portfolios for basic facts about the way annuities work and their
A participant in the T-Mobile USA, Inc. 401(k) Retirement
The parties in an ERISA lawsuit the plan when superior investment well-established role in 403(b) plans. According to the
Savings Plan and Trust has sued FMR (Fidelity) and
alleging self-dealing by Edward options were readily available.” judge, no party disputes that annuities constitute long-
several of its affiliates claiming the firm engaged in
Jones in its own 401(k) plan have Specifically, Transamerica is accused term investments for anticipated long-term benefits.
prohibited transactions by charging a “secret” fee for
reached a proposed settlement. of “imprudently retaining” the Judge Collyer added, that for a plaintiff to have
mutual funds and engaging is self-dealing. According to
Beyond self-dealing, the defendants following portfolios: Transamerica standing to sue about their defined contribution plan,
the complaint, Fidelity began requiring asset managers
are also accused of causing the plan International Equity Portfolio, he or she must show fiduciary breaches that impair
and investment instruments that are offered to the
to pay excessive recordkeeping Transamerica Small Core Portfolio, his or her individual account’s value. Judge Collyer’s
plans through the “Fidelity Funds Network” to make
and plan administration fees to the Transamerica Large Value Portfolio, last closing point that it is “notable” that plaintiffs
“secret” payments or “kickbacks” in return for providing
recordkeeper, Mercer HR Services, Transamerica Large Growth do not allege that the currently available investment
the mutual funds with access to its retirement plan
which is not a defendant in the case. Portfolio, Transamerica High Yield resources would remain available at their preferred
customers. The lawsuit alleges that these payments
Edward Jones had originally moved Bond Portfolio, and Transamerica Mid price of $35/year. (Dismissed.)
Rolan d Sa l mi to dismiss all claims. The court Value Portfolio. The complaint goes
clearly constitute indirect compensation that Fidelity
is required to disclose to retirement plans under ERISA
Westminster Consulting, LLC has twice denied the brokerage on to say, “The underperformance of Manganaro, John. “Judge Rules to Dismiss Georgetown Section 408(b)(2), but Fidelity does not disclose them.
company’s motions to dismiss. After these portfolios, relative to several University 403(b) ERISA Lawsuit.” PLANSPONSOR, Strategic
The kickbacks are internally described by Fidelity
Roland is an Associate Analyst at Insight, 9 Jan. 2019, www.plansponsor.com/judge-rules-dismiss-
a set of complex motions and rulings, meaningful benchmarks, was neither as ‘infrastructure payments’ and reimbursement
Westminster Consulting, where he modest nor temporary.” The plaintiffs georgetown-university-403b-erisa-lawsuit/.
the parties have now opted to settle for expenses incurred in providing services for, to,
executes performance analysis, client put emphasis on the long period
the matter rather than proceed to the or on behalf of the mutual funds, and deceptively
projects and investment support full trial. Edward Jones has agreed of underperformance of several of
for senior consultants. He brings
February 22, 2019 characterized as such to retirement plans and their
to pay $3,175,000 into an account these funds in the one-, five-, and participants. The plaintiff argues that the services
research knowledge, industry trends that will subsequently be wired into 10-year periods. plaintiffs say that Bell v. Anthem provided by Fidelity that may incidentally benefit
and a commitment to client success class members’ retirement accounts. Transamerica therefore neglected The complaint alleges that plan fiduciaries allowed
mutual funds are actually services that Fidelity has
to the Westminster team. (Resolved.) its duty to monitor the plan’s unreasonable expenses to be charged to participants
historically provided to its retirement plan customers
investments and remove imprudent for administration of the plan, and that they selected
as a necessary part of its business in return for fees
ones. (Pending resolution.) and retained high-cost and poor performing
Prior to joining Westminster Manganaro, John. “$3M Settlement directly collected by it from such customers, and these
Reached in Edward Jones Self-Dealing investments compared to available alternatives. The
Consulting, Roland worked as a fees generally do not change as a result of Fidelity’s
Lawsuit.” PLANSPONSOR, Strategic Manganaro, John. “Transamerica Faces complaint suggests the Anthem plan, “as one of the
financial advisor at Morgan Stanley receipt of the kickbacks from the mutual funds and
Insight, 12 Dec. 2018, www.plansponsor. Familiar Allegations in Self-Dealing country’s largest 401(k) plans … with over $5.1 billion in
Wealth Management and as a staff are not reduced in a manner that corresponds with the
com/3m-settlement-reached-edward- ERISA Complaint.” PLANADVISER, total assets and over 59,000 participants with account
jones-self-dealing-lawsuit/.
amount of the kickback payments received. “Fidelity’s
accountant at St. Bonaventure Strategic Insight, 15 Jan. 2019, www. balances,” should have gotten as good or better a deal
pl anadviser.com/trans am erica-faces-
receipt of the kickback payments at issue violate
University. He received an Associate than anyone in the institutional investing markets, but
familiar-allegations-self-dealing-erisa- ERISA’s prohibited transaction and fiduciary duty rules
of Science degree in business it failed to do so in a variety of ways, leading to about
January 2, 2019 complaint/.
$18 million in unnecessary fees/losses for participants.
and should not be countenanced since the receipt of
administration and a Bachelor of such payments places Fidelity in a conflicted position in
Science degree in psychology from Rhodes et al. v. Transamerica Surprisingly, most of the “imprudent” funds cited by
which the interests of its retirement plan customers can
January 9, 2019 name are provided by Vanguard, widely known for
Elmira College. He then received corporation et al. transparency and affordability, and are actually quite
be and are sacrificed in the interest of Fidelity earning
his MBA from St. Bonaventure Similar to a lawsuit the firm settled a Wilcox et al. v. Georgetown cheap from an industry-wide perspective – below 25
greater profits through the receipt of such payments,”
University. Roland has earned his few years ago, a newly filed district the lawsuit contends. (Pending Resolution.)
court complaint says Transamerica University et al..
bps in annual fees. One fund cited has just a 4 bps
Series 7 and 66 licenses. annual fee but according to the complaint an otherwise
“saddled its defined contribution The judge in the case has ruled to Moore, Rebecca. “Fidelity Charged With ‘Secret’ Payment
dismiss the Georgetown University identical 2 bps version could have been obtained by an
plan participants with substandard investor with the size and sophistication of the Anthem Scheme in Violation of ERISA.” PLANSPONSOR, Strategic
investment portfolios that were 403(b) ERISA lawsuit. Plaintiffs Insight, 22 Feb. 2019, www.plansponsor.com/fidelity-charged-
suggested that instead of leveraging plan. Therefore, an alleged breach occurred when
managed by an affiliate.” The new secret-payment-scheme-violation-erisa/.
88 SPring
WINTER 2019
2019 Confero 9
The Growing Dilemma of
Debt and Financial
(in)Security in the United States
By Michael DiCenso
Personal financial stress in the United States
continues to create concern and awareness of
economic instability.
• Household debt-to-income ratios and financial
statistics show 40% of Americans’ net worth at
only $10,000 (GOBankingRates; March 12, 2018)
• Retirement plans are not offered to more than
55 million employees, according to a 2014 study
from Employee Benefits Research Institute
• Bankrate found that in 2018 a whopping 65% of
Americans are not prepared for retirement, with
no savings or arrangement with a plan
• A 2017 report on automation by the McKinsey
Institute estimated that 25% of potential jobs
today will be outsourced to technology and/or
robotics over the next few years
• Individuals budgeting paycheck to paycheck
in the US reached 78% in 2017 according to
CareerBuilder.
The growing concerns in economic stress trends may
not have yet been fully recognized. This issue of the
escalating household debt in the United States is
detrimental. As of December 31, 2018, U.S. Household
debt climbed to a staggering and record setting $13.1
trillion dollars according to the Federal Reserve. This
is almost $1 trillion more than the total US household
debt in 2007, prior to the financial crisis, according to
the Federal Reserve Bank of New York.
Gross domestic product (GDP) is the monetary value
of all the finished goods and services produced within
a country’s borders in a specific time period. The
average American household carries $137,063 in debt,
according to the Federal Reserve’s 2017 numbers.
10 SPring 2019 Confero 11
What makes up the debt and how does it differ As of February 2019 the unemployment rate sits at The average college debt among student loan
from the past? According to the Federal Reserve: 3.7% according to the Bureau of Labor Statistics - borrowers in America was $32,731 in a 2016/2017
• Student loans: $1.56 trillion
its lowest mark in nearly half a century, economic
growth, and relatively low interest rates along
report by the Federal Reserve:
“ Financial security and
• Auto notes: $1.65 trillion with low oil cost typically impact financial stability. • This is an increase of approximately 20% over
• Mortgages $9.14 trillion What will happen when we see a rise in interest four years freedom of debt can help
• Revolving accounts or credit cards: $1 trillion rates and oil prices? • 44.7 million Americans hold student loan debt
• Revolving debt default, account application Student Loans: $1.56 Trillion
• Most borrowers have between $25,000 and
$50,000 outstanding student loan debt
provide reduced stress and a
rejections, and involuntary account closures • More than 600,000 borrowers in the country
have inclined creating negative financial Student loan debt continues to rise. It’s costing are over $200,000 in student debt better quality of life.”
credibility and overall unaffordability. more to attend college, and taking longer for • 100 borrowers in the country have more than
• The government states these developments
are “potentially concerning,” given the
students to earn their degrees. In addition, the
cost of living goes up each year. •
$1 million in student loan debt
5.1 million borrowers’ student loans are in
- Michael DiCenso
strength of the economy and comparatively default equating to $101.4 billion
low interest rates. Americans receive And that plays a role, too. Student loans are • 11.5% of student loans are 90 days or more
margin in excess of income, creating not just for college anymore. These funds are delinquent or are in default
overwhelming debt liabilities. What sometimes used towards lifestyle expenses, • Average monthly student loan payment
created these issues of concern with allowing job freedom, intended to provide for (among those not in deferment): $393
revolving debt accounts? The Federal educational time and focus, and more. Priority Where Advisors Can Help
government concluded alarming trends per and choices for these students can mean Student loan issues create questions around
results in “Credit Access Survey,” possibly that welfare funds are often abused, creating educational worth and affordability. Many Financial advising could lead employees to a future
creating credit lenders’ caution with risk overwhelming student debt and damaged employers are assisting repayment by offering of financial security and freedom of debt. Developing
management. Credit rejection rates for financial creditability. Damaged financial plans that provide up to half payment matching. and executing financial plans and budget, credit
revolving credit-card applicants came in at creditability affects personal interest rates, In fact, one company has received a private counseling, wealth management, investments and
20.8% in the October 2018 survey, up from therefore costing more to finance and limiting letter ruling from the IRS allowing a matching retirement strategy are areas where advising and
14.4% a year ago, while the rejection rate opportunity for asset and financial growth. program like a 401(k) to help individuals pay assistance can help financial organizations. Financial
for credit-limit increases ticked up to 31.7%, their student loans. security and freedom of debt can help provide
compared with 24.9% a year ago. reduced stress and better quality of life. Employers
Auto Loans: $1.65 Trillion will experience greater work productivity and job
appreciation with an overall positive environment.
Personal vehicles are depreciating luxuries.
Owning a personal vehicle is a privilege yet Michael DiCenso is an Executive Vice President of
considered a necessity due to life obligations Newport Group, Inc. responsible for leading the sales
and entertainment. Americans tend to exceed organization in the further development of business
their vehicle budget with unpractical purposes. strategies and goals.
Defaulted auto loans often cannot be recovered
by the vehicles market value. As reported by the The views expressed herein are those of the author
Federal Reserve Bank of New York in February and may not necessarily reflect the views of Newport
2019, delinquent auto loans hit an all-time high Group, Inc. or its affiliates.
where 7 million Americans are at least 90 days
past due. This supersedes default statistics over This material is for informational purposes only and
any historical economic crisis. all opinions are subject to change without notice. The
comments and opinions contained herein are based
Mortgages: $9.14 Trillion on or derived from publicly available information
from sources that we believe to be reliable. We do
According to CoreLogic in its 2018 Loan not guarantee their accuracy.
Performance Insights report, mortgage
delinquencies stand at 4.4% which is the lowest Neither the information provided nor any opinion
rate in 10 years. September 2018 saw a rise in expressed constitutes a solicitation for the purchase
delinquencies bringing awareness to the possible or sale of any security. Newport Group does not
trend. Market developments and patterns will be guarantee favorable outcomes.
evident in future statistics.
12 SPring 2019 Confero 13
Retirement Market Update
By Prudential Retirement
Research Briefing by Analytics & Research, Global Communications
STUDIES/SURVEYS
Single Women Face Biggest Research Briefing
Retirement by Analytics
Shortfall: EBRI& Research,
Global Communications
Widows and single women are more likely to face income
shortfalls in retirement, according to a new study by the
STUDIES/SBenefit
Employee URVEYS Research Institute (EBRI). The study
Single Women
concluded Face
that Biggestare
women Retirement
likelier Shortfall: EBRI than men,
to live longer
e develop
Widows and costly chronic
single medical
women are conditions
more likely and spend
to face income time
shortfalls in
at outside theaccording
retirement, workplaceto a caring
new studyforbychildren and other
the Employee Benefitfamily
Research
3% of members, ThinkThe
Institute (EBRI). Advisor reported.that
study concluded Forwomen
married households
are likelier to live longer
where thedevelop
than men, woman dieschronic
costly first, the retirement
medical conditionssaving shortfall
and spend time
ows outside the workplace
for the widower wascaring for children
$18,476, comparedand other
withfamily members, Think
$22,783
BRI) Advisor
for reported. where
households For married
the households
man dies where the woman
first, EBRI found.diesThefirst, the
retirement
gender saving shortfall
disparity for the widower
was starker for singlewasmen
$18,476, compared with
and women:
$22,783 vs.
$72,883 for $37,690.
households where the man dies first, EBRI found. The gender
disparity was starker for single men and women: $72,883 vs. $37,690.
ngs Retirement Deficits By (Pre-Retirement) Wage Quartiles
n with Means of Retirement Savings Shortfalls for Gen Xers by age-specific pre-retirement
plan, income quartile, marital status and gender (includes bifurcation for sequence of death
for married)
with
t
was
465
rtile.
Married, female dies first $67,829 $48,105 $27,868 $8,522
Married, male dies first $86,479 $55,887 $30,109 $11,354
Single female $110,412 $72,673 $46,208 $28,951
Single male $80,676 $46,615 $31,027 $16,487
Source: EBRI Retirement Security Projection Model, Version 3449.
Other Survey Findings:
Among households with a projected retirement-income shortfall, the
14 SPring 2019shortfall was $76,896 for widows and $82,937 for widowers.
average Confero 15
“48% of single women at the lowest income quartile had at least a $100,000 deficit; Other Survey Findings:
• Among households with a projected retirement- “63% of Millennial respondents
33% of single men and 42% of widows faced a similar situation.” (EBRI)
income shortfall, the average shortfall was found the term “plan participant”
$76,896 for widows and $82,937 for widowers. to be unclear, compared with 44%
“Lack of eligibility for participation in a DC plans significantly increased savings • Single women in the lowest pre-retirement of total respondents.” (Empower
shortfalls. For single women with no future eligibility in a DC plan, the average shortfall wage quartile had an average savings deficit
Institute Survey)
was $97,325, compared with an average $24,486 for those with 21 to 30 years of of $110,412, compared to women in the highest
future eligibility.” (EBRI) quartile of $28,951.
• The median retirement savings deficit for single
women was $19,900 and 10% face a deficit of
For single men in the lowest wage quartile, the shortfall was $29,736, compared to atleast $222,592. “Nearly three in five plan sponsors
$12,465 for those in the highest quartile. (EBRI) • 48% of single women at the lowest income (57%) offer employees the
quartile had atleast a $100,000 deficit, 33% opportunity to draw down their
of single men and 42% of widows faced a
similar situation.
funds in installments, up from 37% in
2013, according to a report by Alight
Solutions.” (Alight Solutions Report)
Participants Often Confused About Financial
Terms: Survey
Many employees misunderstand terms commonly
used by the financial planning industry, a study by
the Empower Institute concluded. For example, 66% “Workers deferred an average of
of respondents don’t understand what “rebalancing 7.1% of their pay to their 401(k)
investments” means and the meaning of “asset plans in 2017, up from 6.2% in 2010.”
allocation” eluded 69% of respondents, PlanSponsor
reported. “Such multiple meanings can cause (PSCA Survey)
confusion and create barriers to confident decision-
making,” the report said. Millennials in particular
found financial terms difficult to understand. Even
the term “defined contribution retirement plan”
was unclear to 76% of respondents overall and 88%
of Millennials. The survey also found participants
perceive retirement plan communications as
wordy and long, complex and confusing, generic,
overwhelming and wasteful. They expressed a
desire for communications that were concise,
efficient, simple and easy to understand, relatable,
personalized and engaging or attention-grabbing.
When asked how they prefer to receive messages
about their retirement plan, 51% favored personal
email, followed by a website visit (44%). Least-
preferred communication methods included post
cards, social media-page visits, text messages – each
of which were preferred by about 2% of respondents.
Defined Contribution Plans
Auto Drawdown Increasingly Popular 401(k) Option
Auto drawdown may soon become as popular a
feature of many 401(k) plans as auto enrollment
and auto escalation are today, Pensions &
Investments recently reported. Of the 43% not
offering automatic payments, 32% said they may
offer the capability in 2019. Participants who do not
need or want annuities still need mechanisms to
16 SPring 2019 Confero 17withdraw funds other than in a lump sum or profit-sharing plans and 253 employers that RETIREMENT MARKET “12.3% of DC plans indicated they
rollover to an individual retirement account, sponsor both types of plans.
plan sponsors say. Mortgage Guaranty provide an annuity as a form of
Largest Retirement Funds Top $11 Trillion: P&I distribution. 3.8% said they use an
Insurance Corp. added installment payments Most DC Plan Sponsors Shunning Annuities
as a distribution option to its $280 million Total assets of the 1,000 largest U.S. retirement plans annuity placement service, and
401(k) plan in 2015. Retirees can choose to Half of defined contribution (DC) FEBRUARYplans2019 offered– Page 3 3.8% offer an in-plan guaranteed
reached $11 trillion as of Sept. 30, a 6.4% increase from
receive payments either monthly or quarterly, some sort of retirement income solution to a year earlier, and a 31.8% increase from five years prior, income for life product.” (Callan
according to Brenda Grabowski, total employees last year, according to Callan’s Pensions & Investments’ (P&I) annual survey found. Defined
rewards manager in MGIC’s human resources the percentage 2019ofDefined
workers with 401(k) accounts. “The increases in
Contribution Trends Survey. The Survey)
retirement contributions from both plan participants and plan sponsors benefit (DB) plans within the P&I 1,000 universe represented
department. In addition, in 2017 the company survey of 106 plan sponsors also found that $6.91 trillion in assets, while defined contribution (DC) plans
confirm the positive impact of company-sponsored retirement savings
gave participants the ability to selectively the most common solutions were providing
plans,” PSCA executive director Jack Towarnicky said. Among plans that accounted for nearly $4.1 trillion in assets as of Sept. 30.
decide from which investment funds the automatically access
enroll to a defined
employees benefit
in 401(k)s, 60% (DB)had aplan (27.4%)
default contribution Among the 200 largest retirement systems, asset growth
drawdowns should come and in which or offering a managed account
rate that was higher than 3% in 2017. Only 30% had rates that high in service among DC plans, which oversaw $2.47 trillion in assets,
“Regular due diligence remained
order, an arrangement that industry experts 2007, according (14.2%), PlanSponsor
to PSCA. reported.
The survey includes Despite
responses froma345 2014 401(k) once again outpaced that of DB plans, with $5.46 trillion the most common reason for
describe as cutting edge. Without drawdown plans, seven Treasury
profit-sharingDepartment
plans and 253 ruling
employersmaking it easier
that sponsor both in assets, the survey found. Of note, assets of DB plans in conducting an investment
options, participants are more likely to move types of plans. to do so, only 1.9% of respondents reported
their savings to an IRA, a choice that many offering qualified longevity annuity contracts
the top 200 grew 4.4% compared to the previous year and structure evaluation. The next
22.4% compared to five years earlier. Assets in the top 200 two most common reasons were
experts say isn’t always in the best interest ofMost DC Plan SponsorsorShunning
(QLACs) longevity Annuities
insurance. Asked why DC plans grew 10.7% from a year earlier and 53.5% from five
participants. “12.3% of DC plans indicated Half of defined theycontribution
do not offer (DC) anplans annuity-type
offered some sort product in
of retirement years earlier. The asset growth differences can be attributed
to identify overlaps and gaps in
they provide an annuity as a income their
solution DC
to plans,
employees plan
last sponsors
year, according reported
to Callan’s being
2019
to a number of factors, including DC plans “benefiting from the fund lineup (44.2%) and to
401(k) Average Savings
form Rate Hits
of distribution. 3.8%12.2%
said In Defined Contribution
uncomfortable Trends Survey. The survey
or unclear about of 106 plan sponsors also
fiduciary market gains and new contributions,” said Jay Love, an add additional diversification
2017: PSCA they use an annuity placement found that implications.
the most common solutions
Plan sponsorswere providing
also report access that
to a defined
an
benefit (DB) plan (27.4%) orproduct
annuity-type offering a is managed
unnecessary account service
or not (14.2%),
a
Atlanta-based partner and U.S. director of strategic research opportunities (18.2%).” (Callan
service, and 3.8% offer an in- at investment consultant Mercer. “(Among) the top 1,000 DB
The average 401(k) savings rate was 12.2% in PlanSponsor reported.and
priority Despite
that a 2014
there Treasury
is a lackDepartment
of ruling making
participant Survey)
plan guaranteed income for life plans, I would imagine that half of them are probably frozen
2017, an increase from(Callan
product.” the average
Survey)
of 9.7% in it easier toneed do so, only 1.9% of respondents reported offering qualified
or demand – notwithstanding that and another 20% to 30% are closed,” he said.
longevity annuity contracts (QLACs) or longevity insurance. Asked why they
2010, according to the Plan Sponsor Council studies show that participants would prefer
do not offer an annuity-type product in their DC plans, plan sponsors
of America’s (PSCA) 61st Annual Survey of retirement-income certainty. Other reasons “DC plans among the 200 largest,
Profit Sharing “Regular
and 401(k) Plans. Workers
reported being uncomfortable or unclear about fiduciary implications. Plan
forreport
not offering an annuity-type product or not a RETIREMENT PLANNING
due diligence remained
deferred an average of 7.1% of their pay to
sponsors also that an annuity-type product is unnecessary passive indexed equity assets
the most common reason for priority and that there is a lack of participant need or demand –in
cited by respondents include difficulties
their 401(k) plans in 2017, up from 6.2% in notwithstanding communicating
that studies show to that
participants
participants and wouldconcern
prefer retirement
Gen Xers Less Confident About Retirement Than Boomers increased by 14.5% in the 12 months
conducting an investment ended Sept. 30, to $538.8B, while
2010, Ignites.com reported. Meanwhile, the over insurer
-income certainty. risk. for not offering an annuity-type product
Other reasons
structure evaluation. The next Three-quarters of Baby Boomers think they will have enough
average employer contribution grew from cited by respondents include difficulties in communicating to participants
money to live comfortably during retirement, but only 35%
passive indexed bond assets
two most
3.5% to 5.1% during thecommon
same reasons
period.were and concern over insurer risk.
to average
identify overlaps andrates
gaps in of Gen Xers are equally optimistic, according to a new remained unchanged over the
The increase in savings
the fundto
is likely attributable lineup (44.2%)
higher and to
default Does Your Plan Offer The Following Investment Types Within survey from Retirement Living. The report, “Retirement year, at $50.2B….DC plan clients
add additional
contribution rates diversification
set by employers who The Fund Lineup?* Preparedness Study 2019: Baby Boomers vs. Generation X,” in particular have recognized
automatically opportunities
enroll their(18.2%).”
employees,(Callan found that while Boomers rely primarily on pensions and "that you don't want to be so
2017 2018 401(k) plans, Gen Xers are more likely to rely on 401(k)s and
Survey)
the report states. Further, many plan dogmatic (when considering)
sponsors have reduced the eligibility IRAs, Plan Advisor reported. Both generations rely or expect
to rely on Social Security. Seventy-three percent of Boomers active vs. passive" approaches in
requirements for employee participation,
helping to increase the percentage rely on Social Security for 25% to 100% of their monthly your portfolio, said Josh Cohen,
of workers with 401(k) accounts. “The income; 85% of Gen X’ers expect to do the same. Chicago-based head of institutional
increases in retirement contributions Other Survey Findings: defined contribution at PGIM Inc.
• 50% of Boomers and Gen Xers have saved or are on
from both plan participants and plan
track to save $700,000 or less. Boomers think that is
‘We think there is a case for active
sponsors confirm the positive impact and passive,’ depending on the
of company-sponsored retirement adequate, while Gen Xers do not.
savings plans,” PSCA executive director • Asked what they would have done differently with asset class.” (P&I Survey).
Jack Towarnicky said. Among plans regards to savings, Boomers responded: Investing
that automatically enroll employees in 8.5%
differently or playing the stock market better, reducing
401(k)s, 60% had a default contribution 3.1% spending and living on a budget, and investing more in a
rate that was higher than 3% in 2017. Roth IRA rather than a traditional IRA. “65% of Boomers saving for
Additional categories (2018 data); Pooled insurance accounts (3.1%); Standalone ETFs (1.6%); Other (1.6%) • Of the 14% of pre-retirees not saving wfor retirement,
Only 30% had rates that high in 2007, retirement are male and 35% are
according to PSCA. The survey includes
*Multiple responses were allowed. Some respondents offer multiple asset classes in each vehicle type; e.g., reasons cited for not saving included stagnant wages,
both stable value and another asset class are offered as a collective trust and/or separate account.
student loan debt and the cost of living. female. Among Gen X, this is evenly
responses from 345 401(k) plans, seven
Source: Callan 2019 Defined Contribution Trends Survey. split.” (Retirement Living Study)
For financial professional use only. Not for use with the public.
18 SPring 2019 Copyright 2014 Prudential Financial, Inc. and its related entities. All rights reserved. Used under license.
Confero 19“RESA would make PUBLIC POLICY
it easier for smaller Retirement Reform Bill (RESA) Reintroduced In House
employers to join open
multiple employer The Retirement Enhancement and Savings Act (RESA)
plans.” (Pension & has been reintroduced in the House by Reps. Ron Kind,
Investment Reported) D-Wis., and Mike Kelly, R-Pa., Pensions & Investments
reported. Kind and Kelly initially introduced the 2018
version of RESA, which, despite garnering bipartisan
support, was not passed. Among other provisions, the
“Expect the ma jority bill would make it easier for smaller employers to join
of states will delay any open multiple employer plans, ease non-discrimination
action until the SEC’s rules for frozen defined benefit plans and add a safe
harbor for selecting lifetime income providers in
final rule is released.”
defined contribution plans. “As a nation, we have a
(George Michael problem when it comes to retirement savings,” Kind
Gerstein, Stradley said. “We need to take commonsense steps to ensure
Ronon, Stevens & Young) our businesses are offering their employees flexible
retirement plans that set our workers up for success
in their golden years.” Wayne Chopus, president and
CEO of the Insured Retirement Institute, said that
RESA contains several measures to help Americans by
expanding opportunities to save for retirement. “RI is
thankful to Reps. Kind and Kelly for their leadership
and commitment in pursuing legislation that will
help more Americans achieve a financially secure
retirement,” Chopus said. “We believe the enactment
of RESA will provide Americans with commonsense
measures to help them address the challenges and
overcome the obstacles they face as they plan and
save for their retirement.”
States Advance Fiduciary Rules As SEC Mulls National
Standard
New York, Nevada, Maryland and New Jersey are
among states moving toward a fiduciary standard
for advisers of all stripes, Investment News reported.
While state activity ramps up, the Securities and
Exchange Commission is considering its own reform
proposal. Industry opponents of state-level fiduciary
laws assert say the SEC should set policy. “We
always have preferred a national level of standard of
conduct for predictability and uniformity,” said Andrew
Remo, director of legislative affairs at the American
Retirement Association. Various state laws “would make
the situation for companies that operate in different
states complex and costly.” “The vast ma jority of
states will probably wait” to see the SEC’s final rule
before taking substantial action, said George Michael
Gerstein, counsel at Stradley Ronon Stevens & Young.
Many observers expected the SEC to release a final
rule by this summer, but that timeline may be delayed
thanks to the partial government shutdown that halted
most SEC activity. The longer it takes, states could
grow impatient.
20 SPring 2019 Confero 21Actions recently taken by states include:
• Nevada introduced draft regulations requiring brokers to meet a
fiduciary standard of care at all times if they manage a client’s assets
or create periodic financial plans.
• A New York legislator reintroduced his Investment Transparency Act,
which requires brokers and other non-fiduciary financial advisers to
tell clients that they can recommend high-feeFEBRUARY 2019
products – Page
even 6
if they’re
not in the clients’ best interests.
• Maryland’s Financial Consumer Protection Commission released a
report urging state lawmakers to raise investment-advice standards.
INFOGRAPHIC
For The Wealthy, Work Is The New Retirement
Here’s why affluent, educated Americans are choosing work over retirement.
Affluent, educated Americans are choosing work over retirement
Higher-income jobs are less wearing on … so the more educated you are, the
workers … longer you tend to work
Average susceptibility of US occupations to age-related decline US men’s labor force participation rate
80
64 65 63 68
62
41
41 42
25 30
(lowest) (highest)
Mean annual wage quintile Age
2012 high school grads 2012 bachelor’s degree
Source: US Bureau of Labor Statistics; US Census Bureau; Federal Reserve Bank of Chicago; Center for
Retirement Research; Boston College; Bain Macro Trends Group analysis, 2017.
The trend toward longer, healthier lives benefits higher-income individuals
disproportionately.
The trend toward longer, Higher-income
healthier workers are morehigher-income
lives benefits likely to be in individuals
disproportionately. Higher-income workers are more likely totobe
occupations in which physical decline is less of an impediment working
in occupations in
into one’s late 60s or 70s. Those in the bottom three
which physical decline is less of an impediment to working into one’sincome quintiles facelate 60s or
a 64% chance of suffering an age-related decline in ability to work,
70s. Those in the bottom three income quintiles face a 64% chance of suffering an for
example, decline
age-related while those in the top
in ability quintilefor
to work, of example,
income face only those
while a 25%in the top quintile of
chance. As a result, the highly educated tend to work longer.
income face only a 25% chance. As a result, the highly educated tend to work longer.
22 SPring 2019 Confero 23A new way to plan for Health
care costs in retirement
By Jean Young
W
orkers approaching retirement have
become increasingly concerned about
the effect that health care costs may
have on their postretirement financial
security. A new Vanguard research paper, Planning
for Health Care Costs in Retirement pdf , lays out a
new model developed in partnership with Mercer
Health and Benefits to forecast the range of U.S.
retiree health care costs.
Although health care costs—a crucial component
of retirement readiness—keep rising, there are
important steps people can take to prepare for the
challenge, and the Vanguard-Mercer model offers
critical guidance for individuals, advisors, and plan
sponsors alike.
“Most Americans understand that annual health care
costs have been growing faster than inflation, as
workers are experiencing rising premiums and out-of-
pocket costs within their current employer benefits,”
said Jean Young, a senior research associate with the
Vanguard Center for Investor Research and one of
the paper’s authors.
24 SPring 2019 Confero 25Many people also realize they are likely to consume more health care services each year
as they age, Ms. Young said. Thirty-eight percent of baby boomers surveyed listed health
care costs as their top fear about retirement, ahead of running out of money. • Long-term care. Long-term care
costs represent a separate planning
challenge. They should be explicitly
addressed as part of the retirement
Health care costs are baby boomers' most important retirement concern. planning process. Individuals
need to understand that there is
a low but real probability they
will experience high long-term
care costs.
An understanding of personal
health care cost factors provides
a baseline for people to predict
incremental anticipated costs
in retirement.
“We believe that planning
for health care costs
in retirement should
be personalized to an
Vanguard recommends, based on the analysis prepared with Mercer, several important changes to the individual’s attributes,”
way health care costs are typically discussed and modeled: said Jacklin Youssef, a
Vanguard senior wealth
• Health care cost factors. Understanding how an individual’s annual health care costs will change planner and also an author
at retirement requires understanding the impact of key personal attributes, including health status, of the paper. “Costs may
coverage choices, geography, income, and loss of employer subsidies. Routine health care costs increase at retirement
include insurance premiums and out-of-pocket expenses associated with paid long-term care. because of the possible
• Replacement ratios. Replacement ratios—the percentage of pre-tax income at retirement that loss of employer health Health care spending rises as people
individuals will need to maintain their current lifestyle—are commonly used to provide estimates insurance premium age, but overall spending declines.
of retirement spending needs, which in turn are used to estimate required saving rates. For some subsidies. Health care
costs are also influenced
workers, accounting for changes in health care costs will result
by a range of factors over
in higher replacement ratios than many traditional defaults,
which retirees have varying
especially if their employer offers generous health care
degrees of control, such
benefits.
as plan choice, geography,
• Annual cost framing. Health care costs in
income, retirement age, and health
retirement should not be estimated as a lump
status.”
sum. Instead, individuals should focus on
annual costs, especially the incremental
Stephen Weber, a research
“Unless they have an employer-sponsored retiree health care plan,
annual changes they will experience analyst in Vanguard’s U.S. workers with generous employer health care benefits, those at higher
at retirement and at Medicare Wealth Planning Research risk of chronic conditions, or those planning to retire early might need to
enrollment. Group and another author target higher replacement rates,” Mr. Weber said.
of the paper, noted that
• Substitution effects. some individuals should Long-term care costs may actually be the biggest concern for most
Health care costs save at higher rates retirement planning scenarios, because the consumption of long-term care
are likely to increase during their working varies significantly.
during retirement because years to account
of both increased health for potential future “Half of individuals will incur no costs, and a quarter will consume less than
care consumption and faster- incremental health $100,000,” Ms. Young said. “However, 15% will consume more than $250,000.
than-inflation growth. Planning care spending. Individuals should plan for these potential costs. Factors such as individual health,
frameworks need to balance this
family history, and presence of support networks will inform each person’s desired
growth against substitution effects that
long-term care need.”
occur when retirees spend less on other
types of expenses as they age.
© The Vanguard Group, Inc., used with permission.
26 SPring 2019 Confero 27D o Y o u n g A d u lt s
with
Student Debt
Save Less for Retirement?
By Matthew S. Rutledge, Geoffrey T.
Sanzenbacher, and Francis M. Vitagliano
Introduction
The rapid rise in student loan debt has received much
attention from policymakers and the media. Student debt
nearly tripled in real terms between 2005 and 2017, and
both the share of college graduates with loans and their
average outstanding loan balances soared.1 Student debt,
of course, has clear benefits: It helps individuals pay for a
college education, putting those who finish their degree
on track to earn more over their careers. But student loan
payments leave young adults entering the workforce with
less money available to save. Even if the payments are
manageable, the lingering presence of a student loan
may loom large over other financial decisions, including
retirement saving. This brief, based on a recent study,
examines the relationship between student loans and
retirement saving using data from the National Longitudinal
Survey of Youth 1997 Cohort (NLSY97).2
The discussion proceeds as follows. The first section
briefly reviews prior studies on how student loans affect
financial well-being. The second section describes the
28 SPring 2019 Confero 29data and methodology for the analysis. The third differences in 401(k) participation and assets
section presents the results on participation in at age 30 based on student debt outstanding
401(k) plans and asset accumulation separately for at age 25.8 The NLSY97 also includes detailed
those who finish college and those who attend but personal characteristics, which can be used
do not graduate. The final section concludes that to account for differences between those with
the picture is a bit mixed. On the participation side, and without student debt.
student debt appears to have little effect on either
group. On the accumulation side, similarly, debt does The analysis considers the effects of both the
not have a significant impact on the non-graduate presence of a student loan and its balance.
group. However, student debt does appear to affect Economic theory and common sense would
the graduate group – those with debt have much predict that the size of the loan payment would
lower 401(k) assets by age 30 than those without impact the amount of retirement saving. In
debt. This result holds whether the loans are large or reality, however, a young worker with a student
small, suggesting that the presence of the loan may loan may focus solely on paying off that loan
be more important than the size of the payments. before shifting to a longer-term objective like
retirement saving. This notion is similar to the
Student Loans and Financial Well-Being mental accounting framework, in which people
think of their financial obligations as putting
The existing research makes two points clear: 1) money in separate “buckets” with different
college graduates fare better financially than those priority levels.9 In this case, just having a loan
who attend college but do not graduate;3 and 2) could affect the retirement saving decision,
graduates without student debt tend to have better regardless of the loan size.
financial outcomes than those with student debt.
“A young worker with a student loan may focus solely
on paying off that loan before shifting to a longer-term
objective like retirement savings.”
For example, those with debt tend to have lower The brief presents estimates on 401(k)
net worth and financial wealth.4 In addition, larger participation and asset balances at age 30,
amounts of student debt are also associated with based on regressions that control for factors
greater credit constraint, an increased likelihood that may differ between those with and without
of falling behind on debt payments, and a greater loans. The basic equation is:
risk of bankruptcy.5 Some studies indicate that
student loans also make it harder for young people 401(k) outcome at age 30 = f (having a student
to buy a home.6 loan at 25, student loan balance at 25,
earnings, personal and college characteristics)
Only a couple of studies have analyzed whether
student debt affects the retirement saving of the The regression controls for the individual’s
borrowers, and these studies use hypothetical earnings at age 30 to account for their ability
borrowers over a full career rather than examining to pay down loans and save for retirement,
actual borrowers.7 This study provides results from as well as for differences in demographics,
the NLSY97, a dataset with more direct information family structure, and auto-enrollment in
on borrowing by young workers for their education. retirement plans in their employer’s industry.
The regression analysis also includes controls
Data and Methodology unavailable in most other data sources,
including measures of college quality, parents’
The NLSY97 collects information about the transition education and income when the respondent
from childhood to adulthood for young Americans. was age 18, and the respondent’s score on an
The NLSY97 collects information about assets and aptitude test.
debts only at ages 25 and 30, so our study examines
30 SPring 2019 Confero 31Controlling for the characteristics of young workers to be a constraint on their 401(k) saving. The drawback
with and without loans is important because, as Table to such behavior, of course, is that some individuals end Figure 1. Retirement Plan Participation Rate at Age 30 Figure 2. Retirement Plan Assets at Age 30 by Percentile
1 shows, these groups differ considerably. For example, up saving less for retirement than they could afford to by Percentile of Student Debt of Student Debt
within the college graduate group, those with student early in their career, giving up the opportunity for a
100% $25
debt tend to earn less, have a higher probability of lifetime of investment earnings on the foregone savings.
Non-graduates
being black, and have parents with less education and A related concern is that some participants also may not Non-graduates
lower earnings. So, one might expect these individuals contribute enough to receive the full employer match, Graduates
$20 Graduates
who tend to have lower socioeconomic status to have leaving money on the table. 75% $18.2
less in retirement savings regardless of whether they 61% 62% 62% 61%
Conclusion $15
Thousands
have any student debt.
50% 42% 46%
Student Loans and 401(k)s The rise in student loan debt has become a growing 40%
$10 $9.0 $9.1 $9.3
33%
policy concern. This brief explores whether that
The regression results show that 401(k) participation growth has impacted retirement savings. The results 25% $5.4 $5.1
does not vary much between young workers with and are a bit mixed, and depend on whether one looks at $5 $3.6
without student loans, nor by the size of the loans (see participation or asset accumulation and whether one $2.2
Figure 1). In fact, for non-graduates, those with loans considers graduates or non-graduates. While student $0
0%
appear to be slightly more likely to participate in a loans appear to have no effect on participation and 25th ($6,744) 50th ($16,230) 75th ($28,116)
25th ($6,744) 50th ($16,230) 75th ($28,116)
retirement plan, but this difference is not statistically no significant effect on the asset accumulation of non-
No debt Percentile of debt No debt Percentile of debt
significant. In the case of student loan size, participation graduates, graduates with student loans accumulate 50
rates among graduates with low, medium, and high loan percent less retirement wealth by age 30. Interestingly, Note: Estimates are based on regressions of retirement Note: Estimates are based on regressions of retirement
balances are nearly identical. graduates’ retirement plan assets are not sensitive plan participation on student loan variables and personal plan participation on student loan variables and
to the size of their student loans, suggesting that the and school characteristics. personal and school characteristics.
While retirement plan participation does not appear simple presence of a loan looms large in their financial Source: Authors’ estimates from NLSY97 (1997-2013). Source: Authors’ estimates from NLSY97 (1997-2013).
to be hampered by student loans, the findings suggest decision-making. Future research should examine * When using these data, please cite the Center for * When using these data, please cite the Center for
that retirement wealth accumulation may be affected whether this counterintuitive result holds when other Retirement Research at Boston College. Retirement Research at Boston College.
for the graduate group. Figure 2 shows 401(k) asset data sources are used.
levels at age 30 by individuals’ student loan status and
whether they graduated. Non-graduates have much This article was adapted from Rutledge, Sanzenbacher,
less in retirement assets at age 30 than graduates; and Vitagliano (2018). The corresponding author is
but neither the presence of a loan nor the outstanding Geoffrey T. Sanzenbacher, who is the associate director
balance have a significant effect on those assets. For of research at the Center for Retirement Research at
graduates, however, assets are about 50 percent lower Boston College. Geoffrey can be reached at geoffrey.
for those with student loans compared to those with sanzenbacher@bc.edu and 617-552-6783.
no loans. The difference is both large and statistically
significant. These results suggest that among college
graduates, the presence of a student loan does impact
retirement saving.
Interestingly, college graduates with small loans have
no more in retirement assets than those with large loans.
This result suggests that young graduates consider the
simple existence of a student loan – rather than its size –
-Matthew S. Rutledge is an associate professor of the practice of economics at Boston College and a research fellow of the Center for Retirement Research at Boston College (CRR).
Geoffrey T. Sanzenbacher is associate director of research at the CRR. Francis M. Vitagliano is a former CRR research consultant.
1
For nationwide student debt totals, see Federal Reserve Bank of New York (2017). The Institute for College Access and Success (2014) reports that, in 1993, 47 percent of graduates had
student loans averaging about $10,000 (in 2013 dollars). By 2012, 71 percent of graduates had loans, and the average amount tripled to about $30,000.
2
Rutledge, Sanzenbacher, and Vitagliano (2016).
3
Avery and Turner (2012).
4
Fry (2014) and Cooper and Wang (2014).
5
Gicheva and Thompson (2015).
6
See Chiteji (2007); Brown and Caldwell (2013); Cooper and Wang (2014); Gicheva and Thompson (2015); and Houle and Berger (2015).
7
Hiltonsmith (2013) and Munnell, Hou, and Webb (2016). Another study – Elliott, Grinstein-Weiss, and Nam (2013) – did look at actual, rather than hypothetical, behavior but its
sample consisted of households of all ages with education-related debt, which includes parents who borrowed for their children’s education.
8
401(k) is used as a shorthand for all defined contribution plans.
9
Thaler (1999).
32 SPring 2019 Confero 33You can also read
