Nevin's Data "Points"

As a kid, I remember sitting in church listening to a sermon about what I have since come to know as the “parable of the talents,” found in the book of Matthew in the New Testament. Now, for those of you who slept through those sermons, the story (1) is about a man who is going out of town and gives three of his servants different amounts of money to hold for him while he is gone. The first is given five “talents” (2) , and on his master’s return, he proudly gives him back the five he was left with—and another five! The second servant, who was left with two, returns those to the returning master—and two more besides. Both of these servants are commended and given more responsibility. However, the third servant, who was only entrusted with one talent, tells his returning master that, knowing his master was the demanding type, he opted instead to bury his talent, so that he could return it safely—which he does. For his conservatism, this poor guy is called wicked and lazy, has the ...

Our industry often seems to treat participants like children who can’t make big decisions—but a recent research paper suggests they might make better choices  if  we expanded their perspective. The paper, intriguingly titled “ Financial Wellness Meets Behavioral Economics ,” highlights a behavioral tendency known as “narrow framing”—basically a tendency to focus on one complex choice, or one element of a complex choice, at a time.  Now, at first blush this seems rational, and perhaps even prudent—but the paper suggests that this kind of linear thinking means that people are inclined to overlook real-life disruptions like financial emergencies—which are not only uncertain with regard to amount or timing, but even in terms of whether they will occur at all. Little wonder, therefore,  that  studies   routinely find that workers say they are ill prepared to come up with the funds to cover some kind of short-term emergency o...

I was on a panel at our recent Plan Designs conference, and the topic of qualified default investment alternatives (QDIAs) came up. There was discussion about the Department of Labor’s proposed regulations on the subject; some observations about when we might expect to see final regulations; and ruminations from co-panelists Fred Reish and Mike Barry about ERISA’s embrace of the concepts of modern portfolio theory (MPT), and the importance of capital accumulation rather than capital preservation in making “appropriate” investment choices for participants that hadn’t, for whatever reason, elected to make their own. Then, a plan sponsor in the audience raised her hand and shared the experience of her plan—shared how they had carefully considered the alternatives of a stable-value investment alongside an asset-allocation alternative, and how they had decided on the former, and did so just before the market tanked in 2000. Her perspective was simply this: If they had chosen the asset-all...

   I recently stumbled into a bit of controversy on LinkedIn.  Honestly, I’m not even sure how this wound up in my “feed” — but there was a post from the  Atlanta Journal-Constitution  on the topic of “micro-retirements.” Now, if you’re like me, you may be wondering — what the heck is a MICRO-retirement?  Turns out that, unlike actual retirement, it’s a series of multiple, intentional “mini-breaks” from work throughout life — rather than waiting until the traditional “big” retirement at the end of a career.  Some of you are going to say — oh, we used to call that a sabbatical. Others might well see this as some kind of extended PTO or vacation break. But those, of course, are generally employer supported/sanctioned, whereas these micro-retirements presumably would not be.  Oh, and none other than  sidehustles.com [i]  (who admittedly might be biased on the subject) claims that 1 in 10 Americans plan to take one this year. That said, it’s...

Without question, asset-allocation solutions—particularly target-date fund solutions—are well on their way to becoming a dominating force on retirement plan menus. More than three-quarters of the roughly 5,000 respondents to last year’s Defined Contribution Services Survey already had one of these options on their menu. Moreover, the popularity of these offerings has resulted in a burgeoning number of choices, with what seems like a new introduction every other week, and by some of the most well-known and highly regarded names in the asset management business. Having said that, the notions of what constitutes an “appropriate” asset allocation, much less an appropriate asset-allocation fund—or fund family—are varied, to say the least. Almost as varied as the number of choices, in fact—and it appears that those notions are shifting as well. These “moving” targets (see “ Moving Targets ”) will keep us all on our toes for the foreseeable future—and I suspect that we will all bring to th...

You may have missed it in your preparations for the long holiday weekend, but we crossed a milestone of sorts last Friday. That was the day on which people born on January 1, 1946, turned 59 ½. Yes, that means – and there was media coverage to that effect - that the very first of the Baby Boomers became eligible to make non-early penalty withdrawals from their retirement accounts. Personally, I’m hoping that the coverage of that “event” was a function of a slow news day during the 24-hour news cycle. On the other hand, for people who have been waiting – and warning – about the onslaught of the Baby Boom retirements, that “pig in the python,” that “milestone” surely marks a point on that continuum (let’s hope that it doesn’t trigger a wave of withdrawal-related requests). For years, our society has been enamored of the movements and behaviors of the so-called Baby Boomers, and given the demographics, that is perhaps understandable. On the other hand, those demographics have long been de...

Two weeks ago, the Department of Labor and the U.S. Treasury turned to the retirement plan community for some input on how to “enhance retirement security for workers in employer-sponsored retirement plans through lifetime annuities or other arrangements that provide a stream of income after retiring.” Now, part of what the DoL is trying to figure out (see Feds Call for Lifetime Income Product Public Comment ) is why the take-up rate on annuities (technically “lifetime annuities or other arrangements that provide a stream of income after retiring”) is so dismal—not just because many see them as a superior way to ensure that “stream of income,” but because some are hoping that, if it can be made more available as a distribution option (perhaps even a default distribution option), more participants will take advantage of it. There are good reasons for the inquiry. We all know that most participants with a non-retirement-related distributable event (such as a job termination) tend to ha...

When it comes to qualified retirement plans, there are three kinds of people: people who are fiduciaries and know it, people who aren’t fiduciaries and know it, and people who are fiduciaries and don’t know it. Now, for the most part, those in the first category are in pretty good shape. Oh, there are a plethora of ways in which a fiduciary can fail to uphold his or her responsibilities under the Employee Retirement Income Security Act (ERISA)—but, in my experience, if you’re at least trying to do the right thing(s), and taking the time to document that effort, you’re in good shape. Still, even those who are trying to do the right things—and who embrace that role—don’t always fully appreciate the implications. The second category mostly tends to include those folks or firms that provide services to the retirement plan fiduciaries. Most enjoy that status because they don’t technically have any authority to do anything on their own; they just help those who do know what to do. Of co...

Ours is a business where surveys and trends often shape not only perceptions, but policy — though sometimes the conclusions drawn, and even the premise itself — make me go “huh?” Here’s a sampling: Citing a drop in deferral rates as a failure of automatic enrollment. Every so often a personal finance writer will stumble across an industry survey that shows that the average deferral rate in 401(k) plans has declined, a problem they attribute to automatic enrollment adoption. We all know what is going on here ; individuals who take the time to fill out a form and enroll in the plan manually tend to defer at a higher rate than do those who are automatically enrolled, the latter typically at a modest 3% rate. On the other hand, automatic enrollment has a dramatic impact on raising the participation rate. The rest is just math — more people, saving at lower rates = a lower average deferral rate. Now, those individuals automatically enrolled at a 3% rate may draw down the average de...

When it comes to workplace retirement plans, there are three kinds of people: people who are ERISA fiduciaries and know it, people who aren’t ERISA fiduciaries and know it, and people who are ERISA fiduciaries and don’t know it. If you’re in the first or last category — well, here are seven things that every ERISA plan fiduciary should know. If you’re a plan sponsor, you’re an ERISA fiduciary. Fiduciary status is based on your responsibilities with the plan, not your title. If you have discretion in administering and managing the plan, or if you control the plan’s assets (such as choosing the investment options or choosing the firm that chooses those options), you are a fiduciary to the extent of that discretion or control. If you’re not sure, there’s a good chance you are. For the very most part, you can’t offload or outsource your ERISA fiduciary responsibility. ERISA has a couple of very specific exceptions through which you can limit — but not eliminate — your fiduciary o...

All too often the innovations honored with a Nobel Prize fly under the radar of “regular” Americans. But that wasn’t the case last week when the work of University of Chicago’s Richard Thaler was acknowledged. Thaler was, of course, recognized by the Royal Swedish Academy of Sciences, who said that his focus on limited rationality, social preferences and lack of self-control has “built a bridge between the economic and psychological analyses of individual decision-making.” More plainly, to my reading, Thaler (finally) managed to prove to economists that human beings don’t (always) act rationally and/or in their own self-interest. Now, anybody who has ever actually interacted with human beings knows this. Indeed, in some ways the most amazing thing about Thaler’s insights of this reality is that it is seen as being innovative by economists. 1 I still remember reading the report that Thaler and Schlomo Benartzi authored way back in 2004, “ Save for Tomorrow: Using Behavioral Economi...

There’s little question that automatic enrollment “works,” at least in terms of turning employees into participants—just as there is little doubt that, left to their own devices, too many employees remain on the retirement-savings sidelines. However, as I talk to advisers, third-party administrators, and plan sponsors around the country, I’m increasingly aware that the Pension Protection Act’s automatic enrollment safe harbor is more unpalatable than one might have imagined on first blush. Sure, automatic enrollment is an effective way to get people into the plan—but that 50% matching requirement on an escalated contribution (Congress apparently thought that a 50% match up to 6% of pay deferral was “normal,” rather than merely common among larger plans), particularly on participation levels escalated by automatic enrollment, is simply too expensive for many. And many, already taking advantage of the current safe harbor designs, simply don’t need the discrimination testing shield tha...

Over the weekend, my daughter shared with us an insurance quote she’d received.  It had been a while since I had focused on such things, but I was struck first by how much it was.  It was for insurance in a different state, so we worked through the particulars, trying to be certain that we understood what was covered, matched that against her needs.  Ultimately, while much of the quote made sense, there were a couple of items that seemed too high. As we probed those items, my daughter explained that the agent had made an effort to match those levels against her current coverage.  A logical enough inquiry and starting point, but one that (apparently) failed to take into account that her current coverage – as part of our family policy – would be quite different from what she needed on her own.  The agent got an accurate response to the question he asked – but it wasn’t the right question. Individual Retirement Accounts, or IRAs, hold more than 25 percent of a...

   Could someone please explain to me why the retirement industry keeps publishing ridiculous, uninformed and often ludicrous notions of retirement income needs? Honestly, I have no earthly idea what value any rational thinking person would attach to the guesses that an uninformed public makes about retirement income needs. But then why any credible source would take those guesses and then AVERAGE them (cause you know how much more accurate an average is [i] ) for publication is — well, it’s the kind of thing that makes my head hurt (particularly after repeated banging of my head on a table after reading another). The latest I stumbled across came from  BlackRock , which — based on a survey of “1,000 national registered voters in the United States” — declared that $2.191 million is the “average expected amount of savings needed for retirement.” Seriously? No wonder among that same group just 22% were deemed to be “extremely or very confident they will have enough money to...