Glorified Savings Accounts

At KCS, we applaud any entity that provides their employees with a retirement vehicle! However, as we’ve written many times, we would prefer a defined benefit plan to a defined contribution plan for several reasons, including the fact that employees can take premature withdrawals and borrow from their accounts through loans. This access is crippling the financial future for many participants, and it will likely lead to significant shortfalls in retirement savings.

Fox Business is reporting on a PwC US study (2018 Employee Financial Wellness Survey), which tracks the financial and retirement wellbeing for 1,600 full-time employees. Not surprising, 42% of those surveyed expressed concern that they would have to tap their “retirement” account for everyday expenses associated with supporting their adult children, parents, and/or both. Furthermore, nearly 2/3rds of those polled anticipate delaying retirement for fear of rising healthcare costs.

There have been many significant improvements to defined contribution plans through the years, including such features as auto-enroll, auto-escalate, target-date funds as an approved QDIA, etc., but until we eliminate premature access to one’s retirement funds, these accounts will remain nothing more than glorified savings accounts.

Despite all the published accounts of how everything is just hunky-dory, we know that a significant percentage of our labor force are struggling to meet daily expenses let alone save for retirement. Student loans, healthcare, housing, etc., are all taking a bigger chunk of one’s income. As a result, we need to create true retirement vehicles for our employees, which are untouchable, that will permit them to retire at the appropriate time without ending up on the welfare ranks, as we expect many will.

 

 

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