I’ve long enjoyed John Oliver’s take on the world. He has a gift for bringing humor to subjects that aren’t generally seen as funny, and in the process not only helps make complex topics more approachable, he gives voice to the frustration that millions surely feel at the world around us.
That said, when he decides to weigh in with his style of biting commentary on your profession – well, let’s just say that you’re likely to be in for a bumpy ride. And so it was this weekend, when he took on retirement savings, retirement advisors and the process of setting up a small plan 401(k).
Now, it wasn’t as biased as some media treatments of the retirement plan profession have been. Oh, they brought in the exaggerated math on fees from that 2013 PBS Frontline special, copied (and doubled down on) their dismissal of active management …and he did reference termites. But all in all – and while continuing to emphasize throughout that this was a complicated process (one that your average worker, not to mention plan sponsor, probably isn’t prepared to undertake) – he looked at our industry through the kind of eyes that most of us can appreciate, for its humor, if nothing else.
Make no mistake, Oliver was, of course, exaggerating to make a point (or two). But to my ears, the most compelling part of the program was when he described the process his production company went through in trying to set up a 401(k) plan for their employees. Of course, we know nothing about the particulars of the plan, and that makes it nearly impossible to do a reality check. Suffice it to say that he felt that this tiny start-up plan was being overcharged (1.69% + $24/participant + investment management fees), and even more so by the broker engaged to help them set up the plan – who (aside from making spreadsheet errors) seemed to be basically collecting money (1% in year one, and 0.5% each year thereafter) for (apparently) doing little more than telling them that their plan was “too complicated” to be placed at Vanguard (and whose idea was that, anyway?).
Is that overly simplistic? Almost certainly. This was no mere “hatchet” piece, however. To my ears Oliver gave voice to some great advice that, with luck, every listener (and reader) will take to heart:
Start saving now.
Oliver acknowledged that this can be rather simplistic advice for some, noting that some individuals aren’t currently able to afford to save. However, he quickly set that aside to make clear to his listeners that saving for retirement should be a priority. And he said it more than once.
Seemingly tiny fees can add up.
It’s not all about the fees, of course (or shouldn’t be), but the point that fees compound just like returns was well worth understanding. In my experience the issue isn’t that individuals think their fees are small, but that they are either unaware of them or, even worse, think that because they are unaware of them (despite those reams of disclosures), they must be $0.00.
There is, of course, no such thing as a free lunch – or a free retirement plan. Even if participants aren’t paying those fees, someone is.
If you’re lucky, you have a 401(k) at work.
Though Oliver didn’t cite this statistic, we know that workers who have a plan at work are 15 times more likely to save than those who don’t. If you have a plan at work, you have the advantage of payroll deduction, the encouragement of an employer’s education program, and likely their match, and increasingly options like automatic enrollment, contribution acceleration, and defaulted investments into qualified default investment alternatives (QDIAs) like target-date funds or managed accounts, which are not only better diversified at the outset than your average worker would be able to do on their own, but are rebalanced automatically over time by people who actually know what they are doing.
Oh, and you have a plan fiduciary looking out over all of this, with a charge to ensure that the program’s design is in your best interests, and that the fees for those services are reasonable. Lucky indeed. And Oliver’s production firm employees seem to have been well served here.
The retirement plan is a potential minefield, and you need to pay attention.
Arguably this applies to both participants and plan sponsors, but Oliver’s admonition was to an employer, like his company, that goes about setting up a 401(k) plan for its workers. This may look easy from the recliner watching HBO, but in the real world, there are complicated legal documents, complex investment considerations, regulatory requirements, participant disclosures… oh, and did we mention the personal liability?
To his credit, Oliver acknowledged the complexity, explaining that his production company “spent weeks trying to understand our own 401(k) plan.” How many employers can say that?
If you don’t pay close attention, this can really get away from you.
Complicated as things can be during the set-up, Oliver made a subtler point: that if you think setting up a retirement plan is a “set it and forget it” project – well, you’re wrong. To his production company’s credit, they did the math on their fees (going so far as to not only involve, but get “Janice in accounting” excited about their potential savings. Of course, their team not only did the math, they also had in mind a specific figurethey thought was reasonable (though whether it actually was for a start-up plan of unknown complexity is another matter). It may not have been a very well researched benchmark, but it gave them an objective measure against which they could evaluate their plan.
Ultimately, Oliver stated that, “It doesn’t need to be this confusing.” More precisely, it shouldn’t be.
- Nevin E. Adams, JD
It's worth reading John Hancock's perspective on the plan setup situation described by Oliver. It's here.