Retirees Say Income
Replacement Needed Not As High As Pre-Retirees Think
Lee Barney
| PlanSponsor | June 25, 2018
Half of retirees say they spend less in retirement
than they did in their working years.
Retirees are considerably less
concerned than pre-retirees about their money lasting throughout
retirement, according to a survey by Massachusetts Mutual Life
Insurance Co.
Ninety-one percent of retirees are
confident their savings will last throughout their lifetime,
compared to only 56% of pre-retirees. While 28% of pre-retirees
worry they will not have enough money to enjoy themselves in
retirement, this is only true for 7% of retirees. In fact,
retirees’ biggest concern, cited by 29%, is health care costs.
Seventy-eight percent of
pre-retirees worry they will not have enough income in
retirement, compared to 51% of retirees. Other concerns of
pre-retirees compared to retirees: changes in Social Security
benefits (81% versus 69%) and low interest rates hurting income
(69% versus 57%).
Sixty percent of pre-retirees
believe they will need at least two-thirds or more of their
pre-retirement income to live comfortably in retirement, but only
44% of retirees say this is actually true. Thirty-three percent
of pre-retirees think they will need 75% or more of
pre-retirement income, but 33% of retirees say they need less
than 50%.
“While
many retirees can manage their expenses to lower income levels in
retirement, the rising cost of care may steadily reduce their
lifestyles as they age,” says Tom Foster, head of retirement
plans practice management at MassMutual. “It’s far better to err
on the side of having more rather than less income than you
anticipate needing, especially as costs for care continue to
escalate.” Click
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MetLife Accused of
Failing to Pay Retirees Covered by Pension Risk Transfers
John
Manganaro | PlanSponsor | June 25, 2018
The company is facing lawsuits by a retirement plan
participant whose assets were transferred to MetLife as well as
by Massachusetts Secretary of the Commonwealth William Galvin.
A would-be class representative
whose benefit liability was transferred to MetLife in a pension
risk transfer (PRT) deal has filed an expansive lawsuit,
challenging the company’s practices across its PRT and group
annuity contract services business.
Filed in the U.S. District Court
for the Southern District of New York, the complaint names as
defendants MetLife, Inc.; the Metropolitan Life Insurance
Company; and Brighthouse Financial, Inc. Summarizing the
complaint, the lead plaintiff says he is suing these companies
“for conversion and unjust enrichment relating to the taking of
retirement annuity benefits from retirees.” The plaintiff also
seeks “an accounting from MetLife for the amounts taken,
interest, and disgorgement of unlawful profits.”
According to the text of the
complaint, this action “seeks to hold MetLife accountable for the
company’s conversion of more than $500 million in retirement
benefits, interest, and unlawful profits over the last 25 years -
depriving retirees of important income in their golden years.”
The complaint further suggests “MetLife’s systematic conversion
of retirement annuity benefits betrayed thousands of annuitants
and their beneficiaries.”
“MetLife systematically took
ownership over the beneficiaries’ annuity assets, ultimately
releasing more than $500 million in reserves that belonged to the
beneficiaries, treating the funds as if they belonged to
MetLife,” the complaint states. “The scope and scale of MetLife’s
betrayal of trust is particularly egregious in light of its
failure to pay death benefits in connection with the company’s
life insurance business that resulted in the company paying $500
million in overdue death benefits - and being required to look
for similar problems in its annuity business.”
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Rising Costs
John Keefe | PlanSponsor |
April/May 2018
PBGC premiums are high, but there
are ways to control them.
Insurance: In theory, it is an
arrangement that brings together large groups of people to share
common risks, where each pays a charge that is small relative to
the potential exposure. In practice, though, costs can get out of
proportion - as they have in the case of the premiums charged to
corporate defined benefit (DB) plans for Pension Benefit Guaranty
Corporation (PBGC) insurance coverage to make good on pension
plan defaults.
To be fair, PBGC’s fund covering
single-employer plans built up a sizeable deficit after the
financial crisis, and the increases in premiums, mandated by
Congress, have gone a long way to shore it up. But some
practitioners see the price of coverage getting out of hand:
“There are 1,000 private single-employer plans whose premiums are
going to be at least 1% of plan assets,” reports Brian Donohue, a
partner at October Three Consulting in Chicago and author of a
series of papers on the PBGC premium burden. “It’s a deadweight
cost for plans that is just crippling, so sponsors’ efforts to
control them are not surprising.”
“There is a fixed per-participant
charge, and a variable charge on plan underfunding, and increases
in both have been inexorable,” says Greg Meila, senior investment
director at consulting firm Cambridge Associates in Boston.
“There were three rounds of increases in just a few years, so the
flat rate premium is 2.4 times what it was in 2007, and the
variable premium is up 4.2 times.”
Another increase is coming in
2019, after which premiums will be hiked by the rate of
inflation. Still, that is not much relief, says Peggy McDonald,
senior vice president of pension and investment solutions at
Prudential Financial, in Newark, New Jersey. “The variable
premium will be 4.2% of unfunded liabilities next year, but, assuming
five years of future inflation, that might rise to 5%. That’s a
lot of money.” Click
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