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Thursday January 24th 2019

Prudential: Global Economic Crisis ‘Shocked the Retirement System’

The growing number of plan sponsors that are suspending employee 401(k) matches or freezing defined benefit plans is a disturbing trend that could dissuade new employees from participating in their company’s retirement programs in the future.

This assessment was made by James Cornell, vice president, Prudential Retirement, at a press briefing held in New York on Tuesday by Prudential Retirement and Quantitative Management Associates (QMA) to discuss the economic outlook. Cornell, who said the economic crisis has “shocked the retirement system,” is afraid the dissuasion could be especially harmful to those whose participation in company retirement programs is vitally important, such as young employees and minorities.

He also warned against employees resorting to “reckless conservatism”-a play on former Fed Chairman Alan Greenspan’s “irrational exuberance” remark-by moving all of their 401(k) investments out of equities and into overly-conservative investments. Perhaps most disturbing, according to Cornell, is that Prudential’s research has shown a growing number of employees that have stopped contributing to their 401(k).

The trends haven’t been all bad however, as Prudential is starting to see a rise in the use of auto-enrollments. James is also encouraged by the use of retirement programs that offer a guaranteed stream of income.

“People are much more understanding of risk and more interested in guaranteed products,” he said.

Ed Keon, managing director and portfolio manager of QMA, cautioned against over-regulation of the financial markets. He called the balancing act, “regulation vs. innovation,” which means finding a common ground between increasing regulation without restricting people from innovating in the financial markets.

“No doubt there will be regulation,” said Keon. “The question is how can we correct some of the abuses without going too far?”

He believes President-elect Barack Obama has assembled an economic team that is sensitive to this, and he also has confidence that House Financial Services Committee Chairman Barney Frank is too.

“Economic disasters are always going to have a regulatory reaction,” added Keon. “That’s right and proper.”

Meanwhile, several recent studies have shown that the economic crisis will cause many baby boomers to likely delay their retirement, but Keon doesn’t think this is necessarily bad news.

“If every baby boomer retired at 62, we’re going to have major labor shortages in critical areas like healthcare,” he said. “But [the delay] will also cause some complications for businesses, like dealing with an older workforce.”

Originally published in Retirement Income Reporter.

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One Response to “Prudential: Global Economic Crisis ‘Shocked the Retirement System’”

  1. Brianna Lee says:

    my grandfather is a baby boomer too, he is very old now but he is the best grand daddy-“

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