Q2 2024
DC Pulse // 2Q 2024 in Review
Research, regulations, returns and trends in DC
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MFS DC Takes
2Q2024
MFS DC Takes
Both Plan Sponsors and Participants have Gaps in Retirement Confidence
Retirement Confidence
Factors contributing to lack of confidence
Top 3 concerns — women vs. men
Sources
Left Source: MFS 2023 US DC Plan Sponsor Survey. Left top: Q: How confident are you that your plan participants will be able to retire at the age they want to? Left bottom Q: What factors contribute to your confidence (or lack thereof) that your plan participants will be able to retire at the age they want to? Right Source: MFS 2023 Global Retirement Survey, US respondents. Right top Q: How confident are you that you will be able to retire at the age you want to? Right bottom Q: What are your top 3 financial concerns or worries regarding retirement? Percentages represent the sum of respondents that chose each statement as a top 3 concern.
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DC Regulatory and Legislative Happenings
DC Regulatory and Legislative Happenings
Challenges to the Fiduciary Rule
Since the new Retirement Security Rule was finalized in April, there have been litigation and legislative efforts to block the rule.
In May, Members of the House and Senate introduced companion bills that would nullify the rule under the Congressional Review Act. The legislation was endorsed by the Insured Retirement Institute and American Securities Association. Even if the bill were to pass the House and Senate, it would likely be vetoed by President Biden.
To date, at least two lawsuits have been filed challenging the new fiduciary rule. The second lawsuit was filed by a coalition of insurance industry trade groups.
PRTs in the Hot Seat…
There have been a few notable lawsuits filed following major pension risk transfer (PRT) deals in 2024.
The lawsuits have two commonalities: the same law firm, Schlichter Bogard LLP, is representing the plaintiffs in each case, and the transactions were all conducted with Athene Annuity & Life Co.
Claims of the lawsuits accuse Athene of investing in lower quality, higher risk assets that were potentially lower cost to the employer and higher risk to the retiree.
…While DC Litigation Declined
A recent study finds ERISA litigation declined nearly 50% in 2023, falling from 89 cases filed in 2022 to only 48 filed in 2023.
However, 2023 was a record year for settlements. While only four excessive fee cases went to trial, 42 ended in settlements with over $350 million in cumulative payouts. That far exceeded 31 settlements of nearly $150 million in 2022. The average settlement amount in 2023 was $8.4 million.
Social Security Gains
In an annual report released in May, the Social Security Board of Trustees finds the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds are forecasted to pay all benefits until 2035, which is one year more than projected last year.
Currently, Social Security total costs are projected to exceed total annual income generated in 2024. Total costs began to exceed total income in 2021 and without Congressional action, funds are projected to be depleted in 2035.
Sources:
https://www.plansponsor.com/bills-to-nullify-the-retirement-security-rule-proposed-in-congress/?utm_source=newsletter&utm_medium=email&utm_campaign=Newsdash&oly_enc_ id=1138E5729701I4V
https://www.ignites.com/c/4520674/593184/joins_second_suit_against_fiduciary_rule?referrer_module=emailMorningNews&module_ order=0&code=YW5OaGRtRm5aVUJ0Wm5NdVkyOXRMQ0F4TmpJNE9UTXpOQ3dnTWpnMU1qVXhNakl3
https://www.plansponsor.com/increased-litigation-around-prts-brings-insurance-industry-practices-to-light/
https://www.ignites.com/c/4513244/589664/suit_filings_dropped_almost?referrer_module=emailMorningNews&module_order=0&code=YW5OaGRtRm5aVUJ0Wm5NdVkyOXRMQ0F4TmpJNE9UTXpOQ3dnTlRBNU9UYzJOamd6
https://www.ssa.gov/OACT/TR/2024/
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DC Market Data
DC Market Data
Retirement Confidence
Sources of Income in Retirement
Retirement confidence is slightly better than last year, but workers and retirees are concerned about the impact of inflation. When it comes to income in retirement, workers may be overestimating their workplace retirement savings.
Sources:
1 EBRI 2024 Retirement Confidence Survey
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Investment Index Returns
Investment Index Returns
Sources:
SPAR, FactSet Research Systems Inc., MFS analysis. Illustrative 60/40 portfolio comprises 60% S&P 500 and 40% Bloomberg US Aggregate and is rebalanced monthly. This hypothetical example is for illustrative purposes only. MSCI indices shown are net returns. Returns for the Bloomberg Global Aggregate Index are hedged to USD.
Cash is based on returns for the FTSE 3-month Treasury Bill Index.
The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. You should consider your client’s financial needs, goals, and risk tolerance before making any investment recommendations.
Disclosures
Survey methodology
Source: 2023 MFS Global Retirement Survey.
US Results. Methodology: Dynata, an independent third-party research provider, conducted a study among 1,000 Defined Contribution (DC) plan participants in the US on behalf of MFS. MFS was not identified as the sponsor of the study.
To qualify, DC plan participants had to be ages 18+, employed at least part-time, actively contributing to a 401(k), 403(b), 457, or 401(a). Data weighted to mirror the age/gender distribution of the workforce. The survey was fielded between March 15–April 13, 2023.
Source: 2023 MFS US DC Plan Sponsor Survey.
Methodology: DCIIA conducted a study among 141 US plan sponsors on behalf of MFS. MFS was not identified as the sponsor of the study.
To qualify, survey participants were screened and selected if they offered a DC plan (401(k), 403(b), and/or 457) and their primary DC plan was governed by ERISA. The survey was fielded September to November 2023.
“Standard & Poor’s® ” and “S&P® ” are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by Massachusetts Financial Services Company (“MFS”). The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS’ product(s) is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates make any representation regarding the advisability of investing in such product(s).
Frank Russell Company ("Russell") is the source and owner of the Russell Index data contained or reflected in this material and all trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor or endorse the content of this communication.
BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.
Source FTSE International Limited ("FTSE") © FTSE 2023. "FTSE®" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or data underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication.
The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor. No forecasts can be guaranteed.
2Q2024
MFS DC Takes
Both Plan Sponsors and Participants have Gaps in Retirement Confidence
Retirement Confidence
Factors contributing to lack of confidence
Top 3 concerns — women vs. men
Sources
Left Source: MFS 2023 US DC Plan Sponsor Survey. Left top: Q: How confident are you that your plan participants will be able to retire at the age they want to? Left bottom Q: What factors contribute to your confidence (or lack thereof) that your plan participants will be able to retire at the age they want to? Right Source: MFS 2023 Global Retirement Survey, US respondents. Right top Q: How confident are you that you will be able to retire at the age you want to? Right bottom Q: What are your top 3 financial concerns or worries regarding retirement? Percentages represent the sum of respondents that chose each statement as a top 3 concern.
DC Regulatory and Legislative Happenings
Challenges to the Fiduciary Rule
Since the new Retirement Security Rule was finalized in April, there have been litigation and legislative efforts to block the rule.
In May, Members of the House and Senate introduced companion bills that would nullify the rule under the Congressional Review Act. The legislation was endorsed by the Insured Retirement Institute and American Securities Association. Even if the bill were to pass the House and Senate, it would likely be vetoed by President Biden.
To date, at least two lawsuits have been filed challenging the new fiduciary rule. The second lawsuit was filed by a coalition of insurance industry trade groups.
PRTs in the Hot Seat…
There have been a few notable lawsuits filed following major pension risk transfer (PRT) deals in 2024.
The lawsuits have two commonalities: the same law firm, Schlichter Bogard LLP, is representing the plaintiffs in each case, and the transactions were all conducted with Athene Annuity & Life Co.
Claims of the lawsuits accuse Athene of investing in lower quality, higher risk assets that were potentially lower cost to the employer and higher risk to the retiree.
…While DC Litigation Declined
A recent study finds ERISA litigation declined nearly 50% in 2023, falling from 89 cases filed in 2022 to only 48 filed in 2023.
However, 2023 was a record year for settlements. While only four excessive fee cases went to trial, 42 ended in settlements with over $350 million in cumulative payouts. That far exceeded 31 settlements of nearly $150 million in 2022. The average settlement amount in 2023 was $8.4 million.
Social Security Gains
In an annual report released in May, the Social Security Board of Trustees finds the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds are forecasted to pay all benefits until 2035, which is one year more than projected last year.
Currently, Social Security total costs are projected to exceed total annual income generated in 2024. Total costs began to exceed total income in 2021 and without Congressional action, funds are projected to be depleted in 2035.
Sources:
https://www.plansponsor.com/bills-to-nullify-the-retirement-security-rule-proposed-in-congress/?utm_source=newsletter&utm_medium=email&utm_campaign=Newsdash&oly_enc_ id=1138E5729701I4V
https://www.ignites.com/c/4520674/593184/joins_second_suit_against_fiduciary_rule?referrer_module=emailMorningNews&module_ order=0&code=YW5OaGRtRm5aVUJ0Wm5NdVkyOXRMQ0F4TmpJNE9UTXpOQ3dnTWpnMU1qVXhNakl3
https://www.plansponsor.com/increased-litigation-around-prts-brings-insurance-industry-practices-to-light/
https://www.ignites.com/c/4513244/589664/suit_filings_dropped_almost?referrer_module=emailMorningNews&module_order=0&code=YW5OaGRtRm5aVUJ0Wm5NdVkyOXRMQ0F4TmpJNE9UTXpOQ3dnTlRBNU9UYzJOamd6
https://www.ssa.gov/OACT/TR/2024/
DC Market Data
Retirement Confidence
Sources of Income in Retirement
Retirement confidence is slightly better than last year, but workers and retirees are concerned about the impact of inflation. When it comes to income in retirement, workers may be overestimating their workplace retirement savings.
Sources:
1 EBRI 2024 Retirement Confidence Survey
Investment Index Returns
Sources:
SPAR, FactSet Research Systems Inc., MFS analysis. Illustrative 60/40 portfolio comprises 60% S&P 500 and 40% Bloomberg US Aggregate and is rebalanced monthly. This hypothetical example is for illustrative purposes only. MSCI indices shown are net returns. Returns for the Bloomberg Global Aggregate Index are hedged to USD.
Cash is based on returns for the FTSE 3-month Treasury Bill Index.
The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. You should consider your client’s financial needs, goals, and risk tolerance before making any investment recommendations.
Disclosures
Survey methodology
Source: 2023 MFS Global Retirement Survey.
US Results. Methodology: Dynata, an independent third-party research provider, conducted a study among 1,000 Defined Contribution (DC) plan participants in the US on behalf of MFS. MFS was not identified as the sponsor of the study.
To qualify, DC plan participants had to be ages 18+, employed at least part-time, actively contributing to a 401(k), 403(b), 457, or 401(a). Data weighted to mirror the age/gender distribution of the workforce. The survey was fielded between March 15–April 13, 2023.
Source: 2023 MFS US DC Plan Sponsor Survey.
Methodology: DCIIA conducted a study among 141 US plan sponsors on behalf of MFS. MFS was not identified as the sponsor of the study.
To qualify, survey participants were screened and selected if they offered a DC plan (401(k), 403(b), and/or 457) and their primary DC plan was governed by ERISA. The survey was fielded September to November 2023.
“Standard & Poor’s® ” and “S&P® ” are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by Massachusetts Financial Services Company (“MFS”). The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS’ product(s) is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates make any representation regarding the advisability of investing in such product(s).
Frank Russell Company ("Russell") is the source and owner of the Russell Index data contained or reflected in this material and all trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor or endorse the content of this communication.
BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.
Source FTSE International Limited ("FTSE") © FTSE 2023. "FTSE®" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or data underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication.
The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor. No forecasts can be guaranteed.
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