November 21, 2012

Surprising Findings From MassMutual Review of Its Retirement Plans

Boomers nearing retirement are taking steps to "close the gap" in savings, while many plan participants cut back on loans and hardship withdrawals

Although more participants in defined contribution plans are from Gen Y or Gen X, boomers hold a larger percentage of assets, according to an analysis by MassMutual of retirement plans administered by the firm.

MassMutual announced Nov. 16 that 55% of participants in its plans were age 47 or younger; 41% of participants were between ages 48 and 66. The company administers plans for approximately 1.6 million participants. 

There are several factors affecting the age distribution of MassMutual’s DC participants, Steve LaValley, second vice president of market research with MassMutual’s Retirement Services Division, told AdvisorOne by email on Tuesday.

“The biggest one is that there are more Gen Y workers in the workforce than in the past as they move on from school into the workforce, aided by a gradually improving employment market,” he said. “Another factor, more specific to MassMutual, is that we have had record sales of retirement plans in the past couple of years and the retirement plans we have gained have had a younger demographic than our existing plan base.”

Furthermore, older boomers are retiring, pushing the age distribution more heavily to younger groups, he added. In spite of that, boomers hold 61% of assets, while younger participants account for just 31% of assets.

“The biggest reason is they have been in their employer plans for a longer period of time, so they have experienced the benefits of market growth along with having had more years of savings (and employer contributions) than younger workers,” LaValley said. They also tend to be in better financial health and are able to save more than younger participants, he suggested.

LaValley also said that despite many reports to the contrary, boomers in MassMutual's plans are taking appropriate steps to plan their retirement. "Boomers are far more aware of the shortfall between what they likely will need in retirement and what they have saved and often increase their savings within the plan to help close that gap,” LaValley said.

Gen Y participants were the most likely to use age-based or risk-based options in their plans. Just under half of participants born between 1982 and 1995 used those types of investment products, compared with 30% of Gen X and 22% of boomers. Overall, age-based and risk-based products accounted for more than a quarter of defined contribution assets in the third quarter, an “all-time high,” according to the firm.

In addition to young people’s apparent preference for age-based and risk-based products, MassMutual also found differences in preference between genders. Women prefer age-based products to risk-based products by more than two and a half times. Men are more evenly divided, with a little over half preferring age-based products.

Average account balances grew for both men and women in the third quarter, but MassMutual found men’s balances grew more. The average balance for men grew 4.17%, compared with 3.92% for women. In addition to higher balances, MassMutual found fewer people took loans against their DC plans: 1.7%, the lowest level in four years.

“Loans and hardship withdrawal requests tend to follow the economy in general,” LaValley said, citing research from the Investment Company Institute indicating that loans and hardship withdrawals have fallen in 2012 as the economy improved. “Education also plays a significant role in the volume of participant loan and withdrawal rates. MassMutual Retirement Education Specialists, call center representatives and web tools provide participants with education to help participants make an informed decision before taking out a loan or making a hardship withdrawal. We believe that education has contributed to our relative low rate of withdrawals compared to the industry as a whole.”

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