The Evolution of the Retirement Industry

Derrick Angradi

Overview

The Birth of Retirement

The Pension Age

Social Security

The Shift in Retirement

ERISA

The beginning of the 401(k)

Challenges and Opportunities / The Future of Retirement

The Birth of Retirement

Before the idea of retirement

The new idea of retirement

Life expectancy increasing

The Pension Age

What is a pension?

First pension - The Roman Army

New York City Police Force Plan (1857)

The American Express Company (1875)

The Revenue Acts of 1921, 1926 and 1928

Pensions Explained

The Great Depression

Stock Market crashes in 1929

Unemployment reached 37%

Pensions continue to grow

The effect on how people viewed their

finances

Pension Growth (1940-1970)

0

5

10

15

20

25

30

1940 1950 1960 1970

Millions

Social Security

Social Security Act (1935)

President Franklin Roosevelt:

“The Social Security Act offers to all our citizens a workable and working method of

meeting urgent present needs and of forestalling future need. It utilizes the familiar

machinery of our Federal-State government to promote the common welfare and the

economic stability of the Nation.”

How it works

Amendments to the Act

The Shift in Retirement

PensionsSocial

Security401(k)

Employee Retirement Income Security

Act (ERISA)

ERISA established ground rules for fiduciaries to follow when it comes to

handling plan assets.

Fee disclosures

Nondiscriminatory testing

Accountability for fidcuaries:

Sheyna Steiner stated:

“Without it, workers could be stuck in a surreal retirement savings hell rife with injustice.

For instance, highly paid executives could gorge themselves on lavish retirement benefits

while offering nothing to the average worker. Or, companies could dangle benefits like

carrots to lure recruits but impose ridiculous obstacles to actually getting them -- like

working at the company for 20 years.”

Employee Retirement Income Security

Act (ERISA)

Established the Pension Benefit Guaranty Corporation (PBGC)

Protection for pensions

Companies would pay the PBGC

If a company went bankrupt, PBGC would make pension payments to the plan

participant.

The main goal of ERISA was to protect the plan participants as well as hold the

fiduciaries accountable.

Teamsters Pension fund scandal

The Beginning of the 401(k)

Defined Contribution Plans

The Revenue Act of 1978

Established general guidelines behind these new types of plans

Original goal was to limit amounts that could be placed into accounts for

executives

Ted Benna found a loophole and started the 401(k) as we know it:

“I knew it was going to be big, but I was certainly not anticipating that it would be the

primary way people would be accumulating money for retirement 30 plus years later.”

Simplified Employee Pension (SEP Plans)

Laws that affected the 401(k) Market

Retirement Equity Act of 1984

Age requirement

Survivorship benefits adjusted

Rollover regulations

Small Business Protection Act of 1996

SIMPLE IRA established

Discrimination testing changes

Established the Required Minimum Distribution

Economic Growth and Tax Relief

Reconciliation Act of 2001 (EGTRRA)

Set up IRA limits

Established catch up

contribution rules

Allowed employer plans to be

moved from one qualified

plan to another regardless of

classification (401(k), 403(b),

or 457(b)).

Auto force out rules

Changes in the Pension and Social

Security Industry

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

Reduced the annual limitations for pension contributions for them to be considered

qualified plans.

Set up new standards for top heavy plans in order for those types of plans to

remain qualified.

Social Security Amendments of 1983

Nonprofit employees were also now covered fully under Social Security.

Prohibited States from terminating Social Security coverage for state and local

employees.

Removed all gender based distinctions associated with Social Security

Pension Protection Act of 2006

Established new contribution limits for IRA’s

and employer sponsored plans

Established the “catch-up” limits

Employer plans can now be rolled into a Roth

IRA

Roth source offered within a 401k

Pension Protection Act of 2006

Automatic enrollment

Default plan investment

Stricter funding for pensions

Increased penalties

Increased tax deductions

Challenges and Opportunities (Pensions)

Challenges

Expensive

Insurance through the PBGC

Pressure from shareholders

Life Expectancy

Pension Issues

Opportunities

Termination of pension plans

Alternative pensions plans

Defined Benefit Vs. Defined Contribution

Life Expectancy

Challenges and Opportunities (Social

Security)

Challenges

Life expectancy

Child births decreasing

Lack of education

Opportunities

Increase the wage cap

Increase tax percentages

Extend the age requirements

Social Security Deficits

The Future of Social Security

The Future of Social Security

Challenges and Opportunities (401k’s)

Challenges

Employers must offer a plan

Participation

Contributions

Opportunities

Education

Increasing the auto features

Auto Feature Importance

401k Automated

Retirement Statistics

Average Retirement Age: 63

38% of people save nothing for retirement

Only 4% of people at age 65 will have enough for retirement

63% of people at age 65 will be dependent on Social Security

Conclusion

Pensions are on the way out

Social Security has issues it must address

The 401k plan must force participants to act

Education on retirement is paramount

The Evolution of the Retirement Industry