Saturday, December 30, 2017

A List of 10 ‘Best of’ Lists

It is something of a tradition this time of year to look back, to reminisce about past events and lessons learned, and sometimes to look ahead.

Here are some insights from columns past that I hope have been of value in 2017 – and will continue to be in the months ahead.

5 Things You May Not Know About Roth 401(k)s

According to a variety of industry surveys, roughly 60% of 401(k) plans now offer a Roth 401(k) option, and Plan Sponsor Council of America (PSCA) data shows that 28.6% of 403(b) plans already allow for Roth contributions. Participant take-up, which just a few years ago hovered in the single digits, is now in the 15-20% range. Here are five other things you may not know about the Roth 401(k).

5 Things People Get Wrong About ERISA Fidelity Bonds

One of the most important – and, in my experience, least understood – aspects of plan administration is the requirement that those who handle plan funds and other property be covered by a fidelity bond.

5 Things You May Not Know About HSAs

Odds are that you’ve heard that health savings accounts, or HSAs, offer individuals a “triple tax advantage” – but here are five things you may not know about HSAs.

7 Reasons Why HSAs Are ‘Hot’

Health Savings Accounts, or HSAs, are hardly a new thing – they were approved by Congress in 2003 and became law in January 2004. But they are getting a lot of attention lately – here’s why.

6 Dangerous Fiduciary Assumptions

There’s an old saying that when you assume… well, here are six assumptions that can create real headaches for retirement plan fiduciaries.

20-20 Hindsights

Here are 20 things I wish I had known when I entered the workforce.

6 Assumptions That Can Wreck a Retirement

The future is an uncertain thing, and planning for uncertainty inevitably involves making some assumptions. Here are six that, done improperly, can wreck your retirement.

12 Ways That the Class of 2021’s Retirement Will Be Different

By the time the Class of 2021 entered school, laptops were outselling desktops, while on the technology front, in their lifetimes, Blackberry has gone from being a wild fruit… to being a communications device… to becoming a wild fruit again. But what about their retirement(s)?

The Value of an Advisor

Most of the attempts to affix a value to having an advisor tend to focus on investment returns or cost savings. Both are valid, objective measures that can have a real, substantive impact on retirement security. But here are five of the best values I’ve gotten from a plan advisor.

Why an Average 401(k) Balance Doesn’t ‘Mean’ Much

In recent days, we’ve gotten updates on average savings rates and 401(k) balances, and while for the very most part the reports have been positive and “directionally accurate,” I’ve always taken such findings with a grain of salt. Not so many in the press. Here are four things to keep in mind about those “average” 401(k) balances.

Even with the passage of time, there’s value in looking back even further. Here’s last year’s list (an 11th):

Things, Remembered – From 2016

Here are some insights – nearly 80 – from columns in 2016 that I hope have helped - and will continue to help lay the groundwork for a productive and prosperous New Year.

Here’s wishing everyone a happy, healthy, and prosperous 2018!

- Nevin E. Adams, JD

Saturday, December 23, 2017

Are Your Retirement Savings Naughty or Nice?

A few years back – well, now it’s quite a few years back – when my kids still believed in the reality of Santa Claus, we discovered an ingenious website that purported to offer a real-time assessment of their “naughty or nice” status.

Now, as Christmas approached, it was not uncommon for us to caution our occasionally misbehaving brood that they had best be attentive to how those actions might be viewed by the big guy at the North Pole. But nothing we said ever had the impact of that website – if not on their behaviors (they were kids, after all), then certainly on the level of their concern about the consequences.

In fact, in one of his final years as a “believer,” my son (who, it must be acknowledged, had been particularly naughty that year) was on the verge of tears, worried that he’d find nothing under the Christmas tree but the lump of coal he so surely “deserved.”

In similar fashion, must of those responding to the ubiquitous surveys about their retirement confidence and preparations don’t seem to have much in the way of rational responses to the gaps they clearly see between their retirement needs and their savings behaviors. Not that they actually believe in a retirement version of St. Nick, but that’s essentially how they behave – or more accurately, don’t behave.

A significant number will, when asked to assess their retirement confidence, express varying degrees of doubt and concern about the consequences of their “naughty” behaviors – but like my son in that week before Christmas, they tend to worry about it too late to influence the outcome.

Ultimately, the volume of presents under our Christmas tree never really had anything to do with our kids’ behavior, of course. As parents, we nurtured their belief in Santa Claus as long as we thought we could (without subjecting them to the ridicule of their classmates), not because we expected it to modify their behavior (though we hoped, from time to time), but because we believed that kids should have a chance to believe, if only for a little while, in those kinds of possibilities.

This is a season of giving, of coming together, of sharing with others. However, it is also a time of year when we should all be making a list and checking it twice – taking note, and making changes to what is “naughty and nice” about our lives, our relationships with others, and yes, our financial wellness.

Yes, Virginia, there is a Santa Claus – but he looks a lot like you, assisted by “helpers” like your workplace retirement plan, the employer match, and your retirement plan advisor.

Happy Holidays!

- Nevin E. Adams, JD

p.s.: I am happy to report that the “naughty or nice” site is still active. I’m even happier to report that, as of this writing, yours truly was rated “super nice,” with the following notation: “Has been nice most of the year (not just near Christmas)! Makes others happy. Could share a little more, however. Politeness is sometimes very good. Can be great listener.”

Saturday, December 16, 2017

‘Making’ the Lists

Several years ago, I was surprised (and quite pleased) when a friend reached out to tell me that I had made it to one of those retirement industry lists.

I was sure he was pulling my leg, of course – but after a couple of congratulatory emails from other associates, I decided to check it out, and sure enough – there I was.

At the time, I remembered being more than a bit humbled at my inclusion alongside a number of individuals who, at least in my estimation, were a much bigger deal than I. Still, the recognition was gratifying, particularly when you consider how many very special people in so many different walks of life, work hard, make a difference, have an impact, and yet never really get any kind of public acknowledgement.

As much as I like being on those lists, it has been my great good fortune over the years to have a hand not only in evaluating the composition of such accolades, but in determining the categories of recognition. The first, years ago, had to do with plan sponsors rating their providers, followed by the development of the Retirement Plan Advisor of the Year award, and Top 100 Plan Advisors (albeit at another publication). Here I have been glad to have a hand in elevating and expanding the quality and importance of our Top DC Wholesalers (the “Wingmen”), the Top Young Advisor list (our “Young Guns”), and more recently in launching the Top Women Advisor list and this year our first-ever Top DC Advisor Team list.

We’ll be publishing this year’s list of Top Women Advisors shortly – and the list of Young Guns just after the new year (voting on the latter remains open through Dec. 15 at Each year we get more nominations, and yet each year the quality of the candidates rises as well. Clearly the competition, not only “out there,” but here, is fierce. And well it should be.

Each list has unique attributes, of course, and participating in the development and refinement of the criteria – making those lists – is always a learning experience, not least because it gives me the privilege of having those discussions with some of the nation’s leading experts on our panels of judges.

I am pleased and proud to be able to acknowledge the good and valuable work of so many industry professionals – including those who may not make the list, but who nonetheless are making a difference in the nation’s retirement security every day.

But as much as there is to be learned from the evolution of the objective, quantitative standards for each list, there is the learning that comes from the qualitative responses of the nominees – the individuals who not only make those lists – but who, in their words and deeds – make those lists important.

- Nevin E. Adams, JD

Saturday, December 09, 2017

Is Your 401(k) Kinda Bullsh*t?

The headline of a recent article didn’t pose that as a question. And that should make you think.

The article, penned by a not-yet-30-year old, was mostly negative on the nation’s primary private retirement savings vehicle, but to my read, that wasn’t her fault. Rather, it was the net result of the feedback she got from a number of what we might consider the “usual suspects” who garner headlines that bash the 401(k), including (at least indirectly) the man the mainstream media credits with being its “father” (trust me, there’s more to it than that).

One of the folks she talked to was yours truly – and while I clearly wasn’t persuasive enough to overturn (completely) the cynicism with which I sensed she came to our conversation (at one point she went so far as to say, “you’re a lot more positive about the 401(k) than anyone else I’ve talked to”).

In the course of our conversation we covered a lot of ground – the origins of the 401(k), why traditional pensions have faded in the private sector, the notion that they were widespread and provided full benefits to those who were covered, the benefit of the employer match, and the innovations (like automatic enrollment and target-date designs) that have helped the 401(k) become “better” since I began saving.

Not all of that made it into the article, and some of it was worded differently than I would have explained it – but it was clear that she was listening and trying to understand, even though her article indicates she spent only two days doing her research.

That said, last week if you had Googled “401(k)”, her article came up a lot higher than anything I had managed to write in the last month (though, in fairness, I almost never use profanity in my titles, and reserve use of the “f” word for things like fiduciary).

There is good news here. The author’s cynicism (and misunderstanding of the U.K.’s pension system) notwithstanding, she’s (already) saving in her 401(k), cognizant of issues like fees and investments, and willing to press for continued improvements even as she continues to save. She sees value in having access to the advice of an ERISA fiduciary (though, perhaps since we didn’t discuss it, she doesn’t quite understand the impact of the fiduciary rule, or that it’s currently in place), and is desirous of steps that would make the 401(k) simpler and easier to use by non-experts.

Her 401(k) may still be “kinda bullshit.” But I’m pretty happy with mine. How about you?

- Nevin E. Adams, JD

Saturday, December 02, 2017

Familiar ‘Grounds’?

A recent report by the GAO paints a pretty bleak picture of American retirement. Is it accurate?

For the most part, the report covered familiar ground, bemoaning the “marked shift” away from the traditional defined benefit pension plan (glossing over how few private sector workers were covered by these plans, even in their heyday, and the fraction of those who received a full pension), and highlighting low savings rates, the pervasive lack of broad-based access to workplace retirement plans and the daunting challenges confronting even those who do enjoy that access.

The report also spends several of its 173 pages chronicling (with pictures) the ways in which “leakage” also undermines retirement savings. And for good measure, it invokes the findings of the Melbourne Mercer Global Pension Index  — which the GAO calls the “most comprehensive” — that ranks the U.S. retirement system 20th out of 25 countries surveyed (and gives us a “C” grade). Indeed, the report treads such familiar ground in such a familiar way that it hardly seems controversial.

In fairness, having seen, studied and even commented on the data, reports and surveys cited in the GAO report, the authors can hardly be faulted for their air of pessimism. As they explain in their introduction, “More and more people are retiring, and many are living longer in retirement. Health care costs are rising, Social Security is stretched to the limit, and debt — both personal and public — is a threat to financial security.” But in retreading this “familiar” ground, they also restate as fact some things that have been drawn into question — and gloss over some more recent findings that provide valuable context.

‘Over’ Looked?

For example, the 2013 Survey of Consumer Finance (SCF) is a widely cited report, and is invoked repeatedly by the GAO in its assessment of the resources available to American workers in retirement. This is a reputable and well-regarded source of consumer information, drawn from a sampling of about 6,000 households (different ones every cycle). That said, the information contained is “self-reported,” which is to say that it tells you what individuals think they have (or perhaps wish they had), but not necessarily what they actually have. Now, the GAO has previously relied on this data — and in fact recalls a 2015 report by the GAO that claimed (and was titled) “Most Households Approaching Retirement Have Low Savings.”

The rationale for the “most” in the 2015 report headline appears to come from its focus on households age 55 and older, where the GAO noted that (only) 48% had some retirement savings, and thus one might reasonably assume that the remaining 52% had no retirement savings — and that would seem to be the case. However, 23% of that 52% said they had a defined benefit plan. Now, that assessment may be inaccurate (see above), but if they do, in fact, have a DB plan, that plus Social Security might well be sufficient. So, “most” have no savings, but about half of that “most” might not need savings. Admittedly, that distinction makes for a clumsy headline.

Among those age 55-64 with no retirement savings, the median net worth was $21,000 (about half of these had no wage or salary income), while among those in the same age bracket with any retirement savings, their median net worth was $337,000. Compared to those with retirement savings, these households (those aged 55-64 with no retirement savings) have about one-third of the median income and about one-fifteenth of the median net worth, and are less likely to be covered by a DB plan. The bottom line is that, even accepting the self-reported data of these individuals, there is a considerable disparity, and one that suggests that a more targeted analysis (and dare I suggest remedy) might be more in order.

In evaluating things like retirement income and coverage, the GAO report draws on information from, among other sources, the Current Population Survey (and in some cases other reports based on that information). While it is one of the most-cited sources of income data for those whose ages are associated with being retired (typically ages 65 or older), and has also been used to provide annual estimates of employment-based retirement plan participation, a 2014 redesign of the questionnaire has resulted in much lower estimates of the percentages of workers who participate in an employment-based retirement plan. In fact, the non-partisan Employee Benefit Research Institute (EBRI) has cautioned that it has resulted in historically “sharp and significant” reductions in the levels of worker participation in employment-based retirement plans.

Missed ‘Out’?

Not mentioned in the GAO report (but cited in a recent Forbes article by Andrew Biggs of the American Enterprise Institute) is an analysis by Census Bureau economists Adam Bee and Joshua Mitchell, who used IRS data to measure the share of new retirees receiving benefits from private retirement plans. Biggs notes that in 1984, only 23% of new retirees received any sort of private pension benefits, but by 2007, 45% of new retirees received private pension benefits.

As for the aforementioned ranking of the U.S. retirement system, it’s really hard to compare apples to oranges, as such comparisons inevitably do. But in the Forbes article noted above, Biggs reminds us that Mercer measures adequacy by virtue of things like tax preferences for retirement savings, ages at which participants can access their savings, whether savings must be annuitized, etc. As things to consider, perhaps — but a ranking based on subjective weightings and criteria that includes certain qualitative factors doesn’t necessarily produce an objective result.

‘Post’ Retirement

Another recent analysis, “Using Panel Tax Data to Examine the Transition to Retirement” — conducted by Peter J. Brady and Steven Bass of the Investment Company Institute and Jessica Holland and Kevin Pierce of the IRS — found that most individuals were able to maintain their inflation‐adjusted net work‐related income after claiming Social Security. Looking only at how much individuals reported as net income on their taxes the year before they started drawing Social Security benefits, compared with the three years after they began that draw, they found that, looking at working individuals age 55 to 61 in 1999 who did not receive Social Security benefits that year, three years after they started claiming Social Security (which could be viewed as a proxy of sorts for entering retirement) that median ratio of net work‐related income at that point compared to net work‐related income one year before claiming was 103% — which means, of course, that three years later, they are actually reporting (slightly) higher income levels than they were prior to retirement. Does that mean they will still be doing so a decade later? No — but why not even an acknowledgement that such results have been documented with actual IRS data?

Other Points

The GAO report does remind us that where you work matters (in 2016, 89% of workers in information services had access to an employer-sponsored plan, compared with 32% of workers in the leisure and hospitality industry), and how you work matters (“one reason lower-income workers lack access to employer-sponsored retirement plans is that they struggle to meet plan eligibility requirements related to sufficient tenure and hours worked”) in terms of having access to a retirement plan, and how much you make really matters (“…workers in the lowest income quartile were nearly four times less likely to work for an employer that offered a retirement plan, based on our analysis of 2012 SIPP data, controlling for other factors”). And it highlights the critical importance of, and the very real danger posed to the nation’s retirement security by the projected shortfalls in Social Security.

On the other hand, for some reason the GAO report cites the creation of the QDIA safe harbor as a failure of sorts, in that no surge in new plan adoption accompanied it (completely disregarding the huge boost to diversified savings and increased participation via automatic enrollment that has resulted). Ditto the demise of the MyRA, whose dismal take-up rate stood in some contrast to its shockingly high cost. It had a different — and more sympathetic — perspective on the state-run programs for private sector workers, decrying the uncertain status of such offerings after the signing of legislation that overturned the safe harbor rule from the Obama administration.

Ultimately, the GAO report makes one very simple recommendation: the appointment of an independent commission to “comprehensively examine the U.S. retirement system and make recommendations to clarify key policy goals for the system and improve how the nation can promote more stable retirement security.” All well and good.

But here’s hoping that, should such a committee be formed, it will look beyond the all-too-familiar ground that the GAO chose to tread.

- Nevin E. Adams, JD