Len Boselovic’s Heard off the Street: Saving for retirement? Maybe not enough

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Fresh off Federal Reserve Board report that nearly a third of workers have nothing saved for retirement comes word that many of those who are saving are not setting aside enough.

More than a third of employees who contribute to a 401(k) or other employer-sponsored retirement plan have never increased the percentage of their paycheck they contribute to the fund, according to survey results released by TIAA-CREF last week. Another 26 percent have not increased their contribution in more than a year, according to the financial services provider, which manages $613 billion in retirement funds for those who work in academic, research and related fields.

The findings are based on a survey of more than 1,000 retirement plan participants nationwide.

Of those questioned, 57 percent said they did not increase their retirement contributions after their last pay increase. The reason most of them cited: the immediate need to pay expenses. Another 25 percent said they did not increase their contributions because they were already contributing the maximum.

A week earlier, the Federal Reserve’s study on the financial well-being of American households found that 31 percent of workers have no retirement savings or pension. Of those aged 55 to 64, 19 percent have nothing set aside.

The Fed’s findings are based on a survey of about 4,100 people last fall.

These are just the latest indications of how stagnant wages, a lackluster recovery and poor saving habits have caused retirement savings reality to diverge from retirement savings theory.

Many financial experts believe workers should be putting as much as 15 percent of their paycheck into workplace retirement plans. Instead, the average worker is deferring 7 percent of their pay and the median worker is only setting aside 6 percent, according to Vanguard’s annual study of how Americans save. The investment firm said average deferral rates peaked at 7.3 percent in 2007 and have fallen since the onset of the recession.

Workers fortunate enough to receive matching contributions from their employers put away an average of 10.2 percent of their pay, Vanguard reported. The investment firm said 91 percent of the more than 3,000 plans for which it is the record-keeper feature matching employer contributions.

It’s easy to say people should be saving 15 percent of their pay and to chastise them for not saving enough. But consider what the U.S. Conference of Mayors had to say last week about how hard it is for some to do that. The mayors found that jobs gained during the recovery from the Great Recession pay an average of 23 percent less than the jobs lost during the recession.

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Now, a word about workers who are saving. A federal judge in Massachusetts has given preliminary approval to a proposed settlement in two lawsuits brought against Fidelity Investments by participants in the investment giant’s profit-sharing plan, which covers more than 57,000 participants.

The lawsuits alleged Fidelity violated its fiduciary responsibilities by offering only Fidelity funds as options. They also charged that Fidelity was pocketing too much of the fee revenue collected by the Fidelity affiliate that manages the funds. A portion of those fees is typically shared with the retirement plan’s record-keeper — in this case another Fidelity unit — to offset the costs participants pay for plan administration.

Terms of the proposed settlement include Fidelity paying $12 million; making both Fidelity and non-Fidelity funds available; and continuing to offer free advice to participants. The investment firm also will make changes to the plan’s auto-enrollment feature, increasing contributions to 7 percent of pay from 3 percent. Fidelity provides a dollar-for-dollar match up to 7 percent of pay.

Fidelity spokesman Vincent Loporchio said both lawsuits lacked merit, but that it was in the best interest of employees and the business to settle.

Since most of the $12 million, after costs and expenses, will go to Fidelity employees, “we believe that it is better for our employees to receive that financial benefit rather than have the company expend a substantial amount on litigation,” Mr. Loporchio said in an email.

A court hearing on whether the settlement is fair is scheduled for Oct. 14.

Mr. Loporchio noted that only about 2 percent of 401(k) participants nationwide receive a match on 7 percent of their contributions. In addition, Fidelity typically makes profit-sharing contributions of at least 10 percent of an employee’s compensation, he said.

Despite the gripes outlined in the lawsuits, a San Diego company that grades retirement plans gives high marks to Fidelity’s. BrightScope places the plan in the top 15 percent of plans among similar companies. It also ranks in the top 15 percent of plans based on company generosity.

Len Boselovic: 412-263-1941 or lboselovic@post-gazette.com

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