Recent Developments in Benefit Plans
Health Care Costs in Retirement. According to the latest estimates from the Employee Benefit Research Institute, a 65-year-old man retiring in 2015 needs $68,000 in savings and a 65-year-old woman needs $89,000 to have a 50% chance of having enough money saved to cover health expenses in retirement. These projections assume median drug expenses throughout retirement. For a 90% chance of having enough savings, a man needs $124,000 and a woman needs $140,000. The analysis does not factor in long-term care expenses.
Loan Defaults. Failure to repay outstanding plan loans upon termination of employment costs 401(k) plan participants some $6 billion of retirement savings annually, according to the Pension Research Council at the University of Pennsylvania’s Wharton School of Business. In addition to the leakage in savings resulting from defaulting on their loans, participants incur income taxes and a potential 10% early withdrawal penalty on the defaulted loan amounts included in their incomes. The researchers estimate that about one in 10 loans is not repaid.
Benchmarking Survey. On average, 75% of employees participate in their employer-sponsored defined contribution plans, according to an annual benchmarking survey by Deloitte. The average account balance grew to $99,011 in 2015, up close to 4% from the prior period (2013-2014). Two thirds of the surveyed plans (66%) impose no service requirements for entry into the plan, and 49% have no age requirement for plan entry.