Saturday, August 16, 2008

Crisis of Confidence

I’m old enough to have been a driver (albeit a young one) the last time we had a “real” gas crisis (the one where the issue was not being able to buy gas, not just being able to afford to buy gas).

I can still remember the national sense of frustration when a bunch of crackpots in Iran held 52 Americans hostage for 444 days; the concerns when the USSR, using language startlingly similar to that employed during the recent invasion of Georgia, strolled into Afghanistan—and, yes, I can still remember what a “real” recession felt like (the one where we actually had a 5% drop in GDP).

I also remember the “response” of our leaders in Washington at the time. Now, it’s easy to sit on the sidelines and judge those who actually have to make the tough decisions, but I think it’s fair to say that a common sentiment was that we were “getting what we deserved.” America had too long strutted the world stage imposing its values on others, some said—this was just the ghosts of Vietnam and Watergate coming home to roost. We were told that we were suffering from a crisis of confidence, a “national malaise.” It was, some said, simply time we, as a nation, learned to make do with less.

Fortunately, IMHO, not everyone accepted that assessment as a foregone conclusion. The turnaround wasn’t overnight, and it wasn’t easy. But it began with a leader who saw America’s best days still ahead, who was willing to call to mind that “shining city on the hill.” Frankly, it began when people began to believe they could solve the problems confronting them, rather than being victims of circumstance.

Now, I wouldn’t for a moment suggest that the current economy isn’t struggling. Like you, I feel the anger every time I pull up to the pump—that I get excited at the prospect of paying (slightly) less than $4/gallon is troubling, in and of itself. Like yours, no doubt, my 401(k) portfolio has seen (much) better days, and I have every reason to expect that I’ll be paying twice as much to heat my home this winter as I did a year ago.

Unfortunately, it seems that there is today a growing chorus of “it’s all our own fault” and a willingness, if not an eagerness—at least on the part of some—to once again effectively throw in the towel. Not just on the economy, mind you, or gas prices, but on the employer-sponsored retirement system.

Encouraging Words

It was encouraging, therefore, to see this week’s report from Fidelity that suggested that deferrals were up, albeit slightly, even while balances were down over the past year. It was even more encouraging that participants who had been deferring into the same plan year over year saw a more significant increase (see “Fidelity Database Shows Participants More Inclined To Save”), while statistics on participant loans (down slightly) and hardship withdrawals (up slightly) suggest that participants are, in large part, not only staying the course, but upping their ante.

Our industry has long cautioned against the consequences of not preparing adequately for retirement, but those June 30 participant statements were almost certainly a shock to participants who had been acting on those admonitions. Certainly there were some (perhaps many) who, as the averages in the Fidelity study suggest, saw their entire quarter’s contributions apparently “disappear” into the ether, swept under by the market’s maelstrom. That will, no doubt, fan concerns about how “safe” your 401(k) (or 403(b) or 457) plan is.

Without question, changes will be required. The three-legged stool, to the extent it ever existed, is a thing of the past for most workers (see "Saving While You Still Work"). We may well have to rethink our notion of retirement—though I’m not sure that notion will wind up being much different than the one our parents are already living. And yes, I think the federal government may well be part of the solution—but I don’t think most Americans want government to be THE solution.

The Fidelity survey offers hope—a reassurance that we can make (and are making) a difference; that we don’t necessarily have to lower our expectations of people. We could always do more—and perhaps better—of course. We need to keep exploring the reasons people hesitate to save, or don’t save enough. We need to continue to find solutions, like target-date funds, that make it easy to do the right things when it comes to retirement savings. We need to be willing to be open and honest not only about the goals and risks of these programs, but about their costs. We need to continue to encourage employers of all sizes to remain committed to these programs.

And, yes, we need to do all of that with an appreciation of the importance of our mission—and confidence in the abilities of ourselves and our profession to succeed.

- Nevin E. Adams, JD

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