PENSION CRISES SPUR COMPANIES TO CHANGE PLANS: Beset by increased costs, falling investment returns and pressure to limit future risk, more than half of the 125 companies participating in a Deloitte Consulting survey said that they are considering or already have made changes to their pension plans in the past year.

Two-thirds of survey respondents who made plan changes cited cost savings as the primary driver, with 63 percent also seeking to reduce cost volatility. Among those respondents that have changed their pension plans, 38 percent revealed that they had frozen their plan or moved it to a defined-contribution plan. Only 14 percent of respondents offering cash balance plans now intend to make changes to their retirement programs.

If survey respondents had the opportunity to create a retirement program from scratch, only 10 percent said that they would offer annuity-based pension plans, and 21 percent would offer account balance pension plans (either cash balance or pension equity plans). “The risks for defined-benefit plans continue to grow, pushing more and more companies to defined-contribution plans,” noted Michael Fucci, U.S. managing director of Deloitte Consulting’s human capital practice.

Deloitte surveyed senior human resources executives from 125 companies with median revenues of $1 billion and an average of 4,000 employees. Respondents represented all industries, with 36 percent in manufacturing and 12 percent in financial services.

GE Financial has rolled out GE Guaranteed Income Advantage, a new, flexible product rider offering investors who purchase a GE Life and Annuity Assurance Co. variable annuity the ability to build a guaranteed minimum income component into their long-term investment plan.

GE Guaranteed Income Advantage allows investors who purchase a GE Series variable annuity to allocate for future guaranteed-income needs. Based on the amount that the investor allocates over time, they will receive a guaranteed minimum income (after selecting a date 10 years or more into the future).

Some 64 percent of Americans are currently enrolled in retirement plans that don’t allow them to make adequate adjustments to their investments in response to market pressures or life changes, according to a retirement study commissioned by Golden Retirement Resources Inc.

Over the past five years, 83 percent of survey participants aged 50 and older experienced a reduction in their ability to generate sufficient retirement income due to outside pressures such as cost of living increases, decreasing value of their investment portfolio or falling interest rates. Some 51 percent were impacted by a reduction in portfolio values and 47 percent indicated that they were impacted by a fall in interest rates.

Nearly one fifth, or 18 percent, of survey participants felt that the help they received from their advisor for retirement planning was fair or poor, and another 44 percent either had no advisor or said that their advisor was “no longer around.” Some 29 percent of current retirees in the survey have experienced a reduced standard of living.

Ensuring that your financial planning clients enjoy a sustained income stream following retirement hinges largely on successfully balancing their portfolios between annuitized and non-annuitized assets as they move from the wealth accumulation stage to the income distribution stage of their post-working lives, according to planning experts. Regional planning specialists at Terra Securities’ national convention revealed that an astounding 47 percent of workers and 40 percent of retirees have saved less than $50,000 for retirement.

“The population is maturing and Social Security will be in a deficit by the year 2018,” said Terra’s Pat McNally. “[Social Security] will not be enough to live on.” McNally outlined several of today’s obstacles to retirement, including longevity. “If you have a couple who are 65, today there is a 60 percent chance that one spouse will live to the age of 90.”

“You need to position yourselves as retirement experts, and show that you know how to set up an income for them,” said Robert Fezza, CFP, another Terra planning specialist. “The most frequent reasons that clients fire their financial advisors are lack of service and lack of returns.”

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access