Employee Benefit Views

According to ICI, DC plans don’t reduce retirement readiness. Really?!

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Posted December 19, 2012 by By Kelley M. Butler at 04:12PM. Comments (1)

 

I’m a big fan of “Saturday Night Live,” particularly its Weekend Update segment with Seth Meyers. Every now and then, Meyers is joined at the anchor desk by former Weekend Update co-anchor and “SNL” star, Amy Poehler. Together, they host a snark-fest of a segment called “Really?! With Seth & Amy.” If you’ve never seen it, check it out http://www.nbc.com/saturday-night-live/video/really-with-seth-and-amy/1173561/. It’s awesome. 
I channeled “Seth & Amy” when I read research from the Investment Company Institute http://ebn.benefitnews.com/news/report-dc-plans-dont-reduce-retirement-preparedness-2729802-1.html that — even while noting the drop in active DB plan participants from 27 million in 1989 to 17 million in 2010 — concludes that “the extent to which previous generations of retired households relied on income generated by private-sector DB plans is often exaggerated,” and that consequently, the move from a defined benefit world to a defined contribution world “is unlikely to reduce retirement preparedness.”
Really?! Really, ICI?! A 10 million participant drop in DB plans — and the decrease in generation-to-generation wealth transfer that’s plausibly aligned with it — is “exaggerated?”
And DC plans don’t reduce retirement readiness? Really?!
Okay, sure. I’ll grant you that today’s workers aren’t going to be eating cat food in retirement solely because many of them are enrolled in DC plans. I’ll further stipulate that the nation’s abysmal saving http://ebn.benefitnews.com/news/middle-income-americans-saving-little-for-retirement-says-limra-2729155-1.html /spending habits and the woeful lack of seriousness with which many Americans approach retirement planning greatly contribute to retirement readiness, or lack thereof.
But you know what else is a big factor? DC plans. 
I mean, really. DC plans are the primary retirement savings vehicle offered to today’s employees, and research shows 401(k) balances are at an all-time high http://ebn.benefitnews.com/news/fidelity-reports-highest-ever-401k-balances-2728960-1.html.
But at the exact same time, retirement confidence is at an all-time low http://www.ebri.org/pdf/surveys/rcs/2012/PR962_13Mar12_RCS.pdf — lower than during the height of the recession in 2009. Yes, really. 
Retirement confidence is so low in fact, that for many Americans, their new retirement planning strategy is to work until they keel over http://ebn.benefitnews.com/news/ebri-work-longer-retirement-recession-2720584-1.html — something a recent NBC News report called “a last resort, not a plan.” http://www.nbcnews.com/business/7-retirement-planning-myths-debunked-1C7480802 Does ICI really think people want to be working until they’re 80? And that they would, if they had a guaranteed pension waiting for them? Really?!
And really, ICI. There have been federal hearings http://www.dol.gov/ebsa/regs/cmt-targetdatefundshearing.html#.UNIgHeTO09U on whether certain types of DC plans were up to the task of helping Americans save adequately for retirement. No big deal? The value of DB plans is “exaggerated?” Really?! 
This isn’t to say I don’t understand the complicated history behind the defined benefit and defined contribution systems, in terms of workforce demographics/dynamics and employer fiscal challenges. I do. And I know this blog post is a reductionist approach to a complex set of employment circumstances. But you know what else is reductionist? ICI’s findings. Yes, really.
As always, share your thoughts in the comments. 

I’m a big fan of “Saturday Night Live,” particularly its Weekend Update segment with Seth Meyers. Every now and then, Meyers is joined at the anchor desk by former Weekend Update co-anchor and “SNL” star, Amy Poehler. Together, they host a snark-fest of a segment called “Really?! With Seth & Amy.” If you’ve never seen it, check it out. It’s awesome. 

I channeled “Seth & Amy” when I read research from the Investment Company Institute that — even while noting the drop in active DB plan participants from 27 million in 1989 to 17 million in 2010 — concludes that “the extent to which previous generations of retired households relied on income generated by private-sector DB plans is often exaggerated,” and that consequently, the move from a defined benefit world to a defined contribution world “is unlikely to reduce retirement preparedness.”

Really?! Really, ICI?! A 10 million participant drop in DB plans — and the decrease in generation-to-generation wealth transfer that’s plausibly aligned with it — is “exaggerated?”

And DC plans don’t reduce retirement readiness? Really?!

Okay, sure. I’ll grant you that today’s workers aren’t going to be eating cat food in retirement solely because many of them are enrolled in DC plans. I’ll further stipulate that the nation’s abysmal saving/overspending habits and the woeful lack of seriousness with which many Americans approach retirement planning greatly contribute to retirement readiness, or lack thereof.

But you know what else is a big factor? DC plans. 

I mean, really. DC plans are the primary retirement savings vehicle offered to today’s employees, and research shows 401(k) balances are at an all-time high.

But at the exact same time, retirement confidence is at an all-time low — lower than during the height of the recession in 2009. Yes, really. 

Retirement confidence is so low in fact, that for many Americans, their new retirement planning strategy is to work until they keel over — something a recent NBC News report called “a last resort, not a plan.” Does ICI really think people want to be working until they’re 80? And that they would, if they had a guaranteed pension waiting for them? Really?!

And really, ICI. There have been federal hearings on whether certain types of DC plans were up to the task of helping Americans save adequately for retirement. No big deal? The value of DB plans is “exaggerated?” Really?! 

This isn’t to say I don’t understand the complicated history behind the defined benefit and defined contribution systems, in terms of workforce demographics/dynamics and employer fiscal challenges. I do. And I know this blog post is a reductionist approach to a complex set of employment circumstances. But you know what else is reductionist? ICI’s findings. Yes, really.

As always, share your thoughts in the comments. 

 

1 Comment

Posted by: KIMBERLY S | December 20, 2012 3:32 PM

The piece that is often left out of the discussion (and the ICI study didn't spell it out either) is the large number of DB plan participants whose benefit was so low as to not do much to improve their standard of living. My father-in-law's union pension paid only $250 per month. The survivor benefit of my father's state government pension is about $200 per month. And yet both union and government plans are currently maligned as being too rich. REALLY?!

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