PLANSPONSOR - August/September 2018 - 30

2018 PLANSPONSOR NATIONAL CONFERENCE
Spending in Retirement
And Financial Shocks -
Fact and Fiction
Lori Lucas, president and CEO, Employee
Benefit Research Institute (EBRI), said
retirees spend less than the retirement
industry suggests workers save for their
post-employment years, and there are
various reasons. One, it is hard to teach
people today how to spend down their
nest egg come that very different future.
" Retirement is not a long vacation; people
are lost, confused, unsure, unclear,
perplexed, disoriented and bewildered, "
she said.
It is important to understand how
people spend assets in retirement in order
to know how to help them. According to
Lucas, a Society of Actuaries (SOA) focusgroup
study showed that people want to
maintain or increase asset levels in retirement,
also that retirees are reducing their
standard of living because they are reluctant
to spend. The question, she said, is
whether this choice is creating a problem
or if retirees are content with it.
An EBRI 2018 Issue Brief, based
on data from the National Institute on
Aging (NIA)'s Health and Retirement
Study (HRS), shows that, from two years
through 18 years in retirement, retirees in
the low-asset group-having $220,000
or less in investable assets-spend on
average only 24.4% of them. People
going into retirement with $200,000 to
$500,000 are spending 27.2%, and the
highest-asset group-people with over
$500,000 in investable assets-spend
AUDIENCE POLL
Current fiduciary relationships
n We have a 3(21) investment adviser
n We have a 3(16) plan administrator
n We have a 3(38) investment manager
on average only 11.8%. Some are actually
growing money: For the low-income
group, 35.1% had 20% of assets left 18
years after retiring; another 35.1% had
over 100% left.
Lucas said some people are running
out of money in retirement, but many
refuse to spend and are living below their
means. Are they doing this out of fear, or
do they just not need as much? According
to Lucas, in the SOA study, some said
they have enough to cover expenses, with
money left over to continue to grow, and
some are comfortable with Social Security
and pension income and feel they can
enjoy themselves without overspending.
What can the industry do to increase
certainty, reduce fear and insure future
retirees against financial shocks? Lucas
said plan sponsors should think about
their strategy regarding keeping people in
the plan or moving them out, and also ask
themselves if they want to have a retirement
investment tier.
For policymakers, she said, the advice
is to shore up Social Security and Medicare
and to issue a legislative safe harbor for
plan sponsors to adopt income solutions.
Finally, she said, the industry could better
tailor retirement income products to
retirees' actual spending patterns.
-Rebecca Moore
Washington Update
Top ERISA [Employee Retirement Income
Security Act] attorneys Jodi Epstein,
a partner in Ivins, Phillips & Barker's
employee benefits practice, and David
Levine, a principal at Groom Law Group,
Chartered, discussed retirement-related
developments and gave their best predictions
on matters, such as the fiduciary rule
and the Tax Cuts and Jobs Act of 2017, that
will affect plan sponsors and how these
will evolve. Here is what they said:
Status of the fiduciary rule. In March,
the 5th Circuit Court of Appeals, in New
Orleans, vacated the fiduciary rule in a 2 - 1
decision. Levine said the Securities and
Exchange Commission (SEC) is addressing
some of the same issues through its own
Regulation Best Interest.
Plan sponsors need to be clear on
whether their recordkeeper is acting as a
fiduciary. " Whichever role [it is] playing is
OK, " said Levine, " but it's the plan sponsor's
role to monitor [the recordkeeper]
and keep track of how many participants
[it is] counseling, for possible litigation
purposes. "
In need of guidance. Epstein said,
the Tax Cuts and Jobs Act of 2017 had
an inadvertent effect on safe harbor plan
participants: eliminating their ability, in
many situations, to use a hardship withdrawal
to repair damage to a principal
residence. Being considered is eliminating
participants' six-month suspension
of deferrals when they do take a hardship
withdrawal. " Hopefully the Treasury will
issue some guidance on the topic, " he
said. " Meanwhile, if need be, plan sponsors
should amend their plan documents
to reflect changes once those are set. "
Compensation. Another unintended
27.3%
23.6%
23.6%
n We are considering a 3(38) investment manager 12.7%
n We are considering a 3(16) plan administrator 10.9%
n We are considering a 3(21) investment adviser
1.8%
consequence of last year's tax bill was a
new definition for the term " compensation. "
For instance, company reimbursement
for moving expenses is now considered
compensation, while it had not been
before. Plan documents must be amended
to reflect changes such as these; plan sponsors
can get the wording for their amendments
from protocol books.
Open MEPs. When it comes to
the long list of examples of retirement
reform legislation circulating around
Congress, Epstein and Levine said they
are most closely following the effort to
expand access to so-called open multiple
employer plans, or open MEPs. Both also
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PLANSPONSOR - August/September 2018

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