Retirement News & Products

A new study by Hewitt Associates shows that the gap has significantly widened between the amount of money U.S. employees currently have saved and what they need to save in order to maintain their standard of living in retirement. In July 2008, Hewitt says that it predicted that employees needed to replace, on average, 126% of their final pay at retirement, after factoring in inflation and increases in medical costs. According to Hewitt research, which examined the projected retirement levels of nearly two million employees at 72 large U.S. companies using actual employee balances and behaviors, most workers were on track to replace just 85% of their income. After factoring in the effects of the recent market downfall–where average 401(k) accounts decreased 18% during 2008–a new Hewitt analysis shows that most workers are now on track to replace just 81% of their income. In other words, the study says, “a typical 55-year-old employee with a current average 401(k) savings rate of 10% of pay will need to save an additional 12% each year until age 65, or work for two more years, to replace what was lost in 2008. The average 40-year-old with a current average 401(k) savings rate of 7% must work one more year or save an additional 1% of pay per year until age 65.”

Dalbar has introduced a new service called QDIA Validation that helps employers and advisors meet the Department of Labor’s (DOL) requirement to prudently select a qualified default investment alternative (QDIA). The QDIA Validation establishes a standard that fiduciaries and administrators can use to compare various QDIAs in their selection and monitoring, Dalbar says. The uniform evaluation against a single set of standards permits a rational comparison of a very diverse set of alternatives. “Deficiencies that often exist can be self-corrected to avoid regulatory action,” Dalbar says, noting that “unlike fund tracking, the QDIA Validation provides a line-by-line regulatory evaluation of each investment and applies uniform standards to the diverse types of investments that constitute valid QDIA alternatives.” Dalbar says the Putnam Absolute Return 500 Fund was the first to successfully complete the QDIA Validation.