Saturday, July 04, 2020

Times That Try Men's Souls

It seems trite, almost unnecessary, to comment that we are living in and through extraordinary times. 

I’m a student of history, and I have often found comfort, if not guidance, from what has gone before. As often as not, however unique and extraordinary the times seem (or are portrayed in the headlines), there’s inevitably a comparable, and almost always, an even more extreme example, of such times in decades past.[i]

And while there’s been a renewed interest in, and awareness of, the pandemic of 1918 (though I’m told the pandemic of 1957-58 is a more apt comparison to COVID-19), as the anniversary of our nation’s declaration of independence nears, I’ve been drawn to the events of 1776.

As it turns out, the newly declared (but not yet formal) nation was confronted not only with the struggle for independence (and no small number of voices that simply wanted to preserve the status quo), but with the scourge of smallpox. Just as the close quartering and movement of troops in the first World War served to spread what is now termed the “Spanish flu,” the Continental Army was confronted with a deadly disease that was arguably a larger threat to its cause than the British army.

Indeed, General Washington once wrote to Virginia Governor Patrick Henry that smallpox “is more destructive to an Army in the Natural way, than the Enemy’s Sword." And no wonder—we’re talking about a pandemic that killed one in three in the Continental Army who contracted the virus.

We mark the Fourth of July, and indeed the year of 1776, as the birth of our nation, but it’s worth remembering that it was a year full of disappointments and near disasters for George Washington’s Continental Army. One can garner a sense for the change in tide by noting in January of that year Thomas Paine published “Common Sense,” but before the year was out had turned his pen to “The American Crisis,” fretting about “sunshine patriots” and “times that try men’s souls.” And we hadn’t yet gotten to that terrible winter at Valley Forge.

There are challenges both personal and professional confronting us every day—they were “before,” though most were individualized, personal events: a death in the family, a job lost, a flood or tornado’s impact, a wildfire’s devastation. And while the events of the past several months have imposed new burdens on us all, it’s imperative that we remind ourselves that those we support and serve are struggling as well; their retirements, their plans for retirement, indeed their retirement plans themselves, despite years of careful planning and attention, may well have been upended in ways that no one could anticipate just a few short months ago.

In the days ahead, your insights, your expertise… your empathy… are going to be called upon in ways you might never have imagined. Surely, these are, certainly in recent memory, extraordinary times—times that have, and will, in some measure, continue to try our collective “souls.”

Bleak as things may seem at times, however, this is our time to shine.    

America’s retirement is depending on us.

- Nevin E. Adams, JD

[i]Perhaps unsurprisingly, one of my favorite quotes is George Santayana’s “Those who cannot remember the past are condemned to repeat it.”

Saturday, June 20, 2020

Leaving a Legacy

As Father’s Day approaches, I’ve been thinking about my dad, the life he led, the choices he made, and the legacy he left behind.

I’m not talking about money. In fact, I didn’t learn anything about finance from my dad—he avoided big purchases with the fervor of Ebenezer Scrooge, though he’d spend that much (and more) on small things (mostly books). Like many in his generation, my dad wanted to hold the checkbook, but it was Mom who always made sure that there was money in the account. Dad tithed “biblically,” but Mom was the one who started setting aside money from her paycheck in her 403(b) plan at work—and continued to do so, even when my father was convinced they couldn’t afford it—and made no secret of that opinion. Or did until he got a glimpse of the statement that showed Mom’s retirement account growth—and then, inspired by that example—he began setting money aside for retirement as well.

My dad was a man of few words—spoken words, anyway. At 6’ 5” he was an imposing figure, all the more from the pulpit from which he did speak. He was a good speaker, but not a natural one. He worked hard at it, studied his subject matter, practiced his presentation relentlessly, each and every week. I always thought it amazing that such a quiet, introverted man would choose that career—but it was something he felt called to do at an early age, though it can’t have been easy. He had opinions, but didn’t impose them on others. Indeed, it was difficult (and sometimes frustrating) to wrest opinions from him. Significantly, he walked his “talk”—his faith, his love and respect for all people, even those with whom he disagreed—and those were attributes in short supply, even then.

Though I talked about my work any number of times over the years, for much of my working life, I don’t think my dad ever really understood what I “did.” Oh, he knew I worked for banks (when I did), figured that being a “senior vice president” had to be a good thing, knew that I had something to do with pensions, and (eventually) grasped that it also had something to do with something called a 401(k). But as for understanding what I actually did every day—well, he cared mostly that I enjoyed the work, that I found meaning in my chosen field, that I was able—or felt I was able—to make a difference.

While Dad touched a lot of people with his ministry, he touched thousands more with what was a random, almost accidental opportunity. Back in 1972 he was asked by a friend to take on the writing of 13 guest columns in a denominational paper—an “opportunity” that went on for more than three decades (alongside his “day job”). In fact, one of the great joys of my life was when, 20 years into this retirement industry career, I was also presented an “opportunity” to begin writing for a living—and my dad, though he didn’t always understand what I was writing about, could appreciate that I was—eventually—following in his (writing) footsteps.

His impact on me, and my life notwithstanding, I’m a different person than my dad, though his example is never very far from my thoughts. As a parent, I’ve tried to share with my kids the lessons I’ve learned (and continue to learn), tried to spare them the pain that came with many of those, but also tried to give them the room they need—and deserve—to learn their own on the life path(s) they chose, though that’s a life lesson of its own, and one with which I still sometimes struggle.

Along the way, I’ve tried to make a point to tell them—regularly—how proud I am of them. But mostly I try not only to tell—but to show them—how much I love them—and to do so as often as I can.

Because while there’s a lot we can leave behind—there’s nothing like a living legacy.

- Nevin E. Adams, JD

Saturday, June 13, 2020

In Case of Emergency...

Back when I was in school (OK, so it was way back), there were these little red fire alarm boxes strategically placed throughout the building. Their purpose was clearly indicated in big white letters… but, inevitably, as the school year wound to a close…  

Well, it seemed that someone was always pulling those levers, and no, not because of any actual fire—but rather because some hapless soul had been pressured to create a nuisance, but more commonly just because some upper classman was looking to avoid a test for which they weren’t prepared, or wanted to get outside and enjoy the fresh air.

Initially these emergency calls got the expected response, and we all dutifully filed down the stairs and out to our designated areas. And, sure enough, by the time the building was evacuated, the premises sufficiently investigated, and the student body returned to our respective classrooms—well, it left little time for actual instruction, for a period, at least. And then afterwards we’d get the loudspeaker reminder that these were “for emergency only.”

Last week the Wall Street Journal ran a piece titled, “Should You Tap Retirement Funds in a Crisis? Increasingly, People Say Yes”, and then proceeded to outline the circumstances of several individuals who have, following a variety of hardships imposed by the COVID-19 pandemic (and subsequent economic shutdown) tapped into their 401(k) for some financial sustenance. The article[ii] proceeded not only to chronicle the recent legislation that has loosened the restrictions on loans, and created a whole new category of distributions to help stave off financial catastrophe in the wake of the pandemic, but that has, ever since Hurricane Katrina, become something of a pattern of relief—well, pretty much every time there is some kind of regional calamity.

Indeed, the lowering of the barriers to a pre-retirement withdrawal of these ostensibly for retirement funds has become so routine that it seems that every time there is a wildfire, flood, tornado, hurricane, earthquake, or natural disaster that impacts more than a local neighborhood, our industry queues up for the inevitable relief announcement like a Pavlovian pack.

Don’t get me wrong. I am pleased and proud of a system that, at a time of severe and extraordinary financial hardships, can provide an essential financial lifeline. Moreover, unlike the mammoth amounts of government aid and assistance already targeted, these funds provide relief that is literally funded by the very pockets of those impacted by the disaster.[iii]

And yet, while appreciating both the need and positive potential impact that these programs can have, as we look ahead to the future they’re “borrowing” from, one can’t help but hope that most won’t be forced to. Indeed, the WSJ article notes that from late March through May 8, (just) 1.5% of eligible people with 401(k) accounts handled by Fidelity Investments took some money out, while Empower Retirement notes that (only) about 1% of 401(k) savers in plans it administers that allow the withdrawals took money out through May 31, while Alight Solutions LLC, puts the figure at 1.2%, though it notes that more than half of those withdrew $100,000 (or their whole balance if it was less than that). Similarly, a recent survey of the ASPPA TPA community suggests that loan and withdrawal volumes are, in fact, largely, in line with traditional trends.[iv]

Even now, however, there are voices encouraging and enticing ostensibly COVID-impacted individuals who don’t have a financial emergency to take advantage of this new “opportunity” to pull money out of those retirement savings accounts, doubtless preying on their concerns, and—in some cases surely—greed.

Here’s hoping that individuals remember that these accounts—as with those school building fire alarms,—should be “pulled” only “in case of emergency.”

- Nevin E. Adams, JD

[ii]To their credit, the WSJ article includes cautionary voices, noting that pulling out retirement money now might undermine their future financial security, that pulling that money out during volatile markets might well be a “sell low” decision, and that encouraging withdrawals now is, at best, a mixed message about the retirement focus of these accounts. The title may suggest a groundswell of voices “increasingly” calling for pre-retirement access, but even those featured in the article whose hands have been forced by circumstances beyond their control largely express caution and concern at having done so—and a commitment to continued prudent preparations once their current economic turmoil ends.
[iii]Indeed, that’s quite different from the government or employer-funded international pension systems (Australia and Malaysia, of all places) cited in the WSJ article as now permitting pre-retirement access.
[iv]The WSJ article also reports that retirement savings programs sponsored by California, Oregon and Illinois reported increases in distributions following state shutdowns. As of the end of May, 13.7% of IRAs that Illinois residents funded through the state’s Illinois Secure Choice program had been fully or partially liquidated, up from 10.7% on Jan. 1.

Saturday, June 06, 2020

Uncertain Outcomes

As the nation enters its third month under the constraints of the COVID-19 pandemic, it seems a dramatic understatement to say we are living in uncertain times.

Let’s face it, even as the nation begins to (re)open, concerns about the coronavirus remain widespread, and the markets, though stabilizing, remain volatile. Unemployment rates, though optimism remains that they will be short-lived, are at levels not seen since… well, at levels never seen before. And then, in the midst of all this, as a nation, we are reeling from a fresh wound—the tragedy and implications of George Floyd’s death—and while many are hopeful that meaningful change can finally come from this, there’s sadness—and anger—that the protests calling for that change have been accompanied by acts of violence.

Amidst all this worry and uncertainty, it’s hard to believe that the CARES Act—and the Payroll Protection Program—have only just been drafted, executed, and implemented to help stave off at least some of the economic uncertainty that currently confronts many. Not to mention that we had only just begun getting our arms around the practical implications of the SECURE Act—which incorporated retirement provisions that purported to stave off future economic disaster.

The mortality and hospitalization projections related to COVID-19 have perhaps provided a fresh appreciation for both the importance, and the limitations, of models as a predictor of the future impact of current decisions. That said, those seeking to forestall problems are generally well advised to rely on something other than a “gut sense” of the potential impact.

Earlier this year the Employee Benefit Research Institute (EBRI) projected the potential impact of the key provisions[i] of the SECURE Act. EBRI projected that those projections could  reduce the U.S. retirement deficit for workers currently age 35-39 by as much as 5.3%—double that if they work for small employers (those less than 100 employees), mostly because those who are in the latter category are so much less likely to have access to a retirement savings plan at work—and, as readers of our publications know, those without access to a plan at work are significantly less likely to save for retirement—12 times less likely, in fact.

However, the overall impact of these SECURE provisions is larger; those specific projections merely quantify the reduction in shortfalls for those who otherwise wouldn’t have enough retirement income.
Among those who were already deemed to have had “enough” retirement income (and EBRI employs a fairly conservative basis for that foundation, one based on actual estimated needs, rather than an ad hoc percentage of pre-retirement income), SECURE almost certainly adds some cushion to those projections. Indeed, the EBRI report differentiates between reductions in deficit and increases in surplus.

When You Assume…

Those are encouraging numbers. But it’s worth acknowledging that there’s a healthy dose of assumptions underlying those projections, as surely there must be in anticipating future human behaviors. EBRI’s Research Director (and data modeler extraordinaire) Dr. Jack VanDerhei takes pains to outline those in the paper, but it’s worth noting that the ranges in assumptions employed are—well, they’re all over the place.

Consider that in the EBRI report, the assumptions presented for MEP adoption range from a one-third take-up by employers with no participant opt-out to one in which two-thirds of employers who do not currently offer a plan choose to do so, with a 25% opt-out rate by workers. And, as you might imagine, the results vary widely based on the assumptions used. On the other hand, they’re arguably no different than if you were to ask a random group of advisors how many more employers will now offer plans because of changes like the greatly expanded start-up tax credit, or as a result of the efficiencies resulting from an open MEP.

Now, unlike many of the uncertainties in our lives, when it comes to retirement, advisors can make a difference—and potentially a huge difference in the SECURE Act realities, whether it’s by informing and encouraging employers to take action, nudging them toward positive and proactive plan designs, or simply working with individual workers to help them maximize the expanded opportunities. In sum, we can all have an impact far beyond our immediate circle—and beyond our lifetimes.

We live in uncertain times, after all—but the importance of the role you  play in expanding retirement opportunity and security—and our nation’s future—is anything but…

- Nevin E. Adams, JD

[i]Specifically, the projections contemplate greater access by allowing providers to offer multiple employee plans (MEPs), and also factor in the impact of raising the cap under which plan sponsors can automatically enroll workers in “safe harbor” 401(k) plans from 10% to 15% of wages, and required coverage of long-term part-time employees.

Saturday, May 23, 2020

The Contingency 'Plan'

So, how much should the plaintiffs’ attorneys who wrangled a $12 million settlement receive for their time, effort and trouble?

Well, if you’ve been keeping up with such things, you’ll do some quick math and arrive at a figure of $4 million since, after all, these class action suits[i]—undertaken on a contingent fee basis—generally produce a pay day of somewhere between 25% and 30% of the settlement amount.[ii]

In this case, that’s the settlement amount requested by the law firm of Schlichter Bogard & Denton for their work in a suit involving Oracle Corp. and its 401(k) plan (over 6,300 hours—5,631.10 hours of attorney time & 696.5 hours of non-attorney time—according to the filing (Troudt v. Oracle Corp., D. Colo., No. 1:16-cv-00175, motion for attorneys’ fees 5/8/20). That’s aside from the requested reimbursement of what those same attorneys characterize as “reasonable out-of-pocket expenses of $410,501.60,[iii] and $25,000 for each of the named class representatives.”

The filing states that that fee “would not even provide the lodestar[iv] amount that the attorneys who handled this case would have generated on an hourly rate charge, and would provide no compensation or multiplier to Class Counsel for the substantial risk of nonpayment they undertook.” Specifically, those 6,327.60 hours add up to a combined lodestar of $4,316,867.00—only 92% of the hourly rate of the Schlichter lawyers and staff in working on this case.

Par for the course in such motions, the plaintiffs take pains to justify settlement in lieu of a full adjudication of the issues by pointing out the uncertainty of the result. Here they not only note that “even if Plaintiffs prevailed at trial the aggressive defense presented the possibility that Class Members would have to wait over a decade to receive any compensation pending multiple appeals,” explaining that both Tussey v. ABB, Inc. and Tibble v. Edison took more than a dozen years and involved multiple appeals.

The filing cites the “fact-intensive nature of the remaining imprudent investment claims,” the “adverse findings” in the case of Sacerdote v. New York Univ. “…on similar imprudent investment claims, including the court’s rejection of Plaintiffs’ expert, who was the same expert here.”

The petition makes two other obvious but seldom acknowledged points. First, that the named plaintiffs “…would not have been unable to pursue this litigation other than on a contingency fee basis and no competent plaintiffs’ lawyer or law firm would take on such risky representation for less than one-third of any monetary recovery.”

Second—and perhaps just as importantly—they acknowledge that “as a plaintiffs’ law firm that works solely on a contingency basis, the decision to pursue this class action and commit significant resources and potentially thousands of attorney hours to obtain a successful recovery impacts Class Counsel’s ability to handle other actions.”

And that, it seems fair to say, was always the contingency “plan.”

- Nevin E. Adams, JD

[i]This settlement, as have several in this genre, notably those brought by the Schlichter law firm, are more than just monetary, of course. This one in particular imposes limitations on the recordkeeper (current and over the next three years) in terms of soliciting plan participants for non-retirement plan related services.

[ii]Indeed, according to the filing, when you take into account the benefit of the tax deferral on the settlement amount once its restored to the 401(k), the requested fee is 28% of the settlement’s full value.

[iii]According to the filing, the “vast majority of these fees were incurred for necessary experts and to conduct critical depositions.”

[iv]Basically, the lodestar method involves multiplying the number of hours reasonably devoted to the case by a reasonable hourly rate—the latter may, of course, vary based on the geographical area, the nature of the services provided, and the experience of the attorneys. And, of course, what’s deemed “reasonable.”

Saturday, May 16, 2020

A Bad Example

You have to hand it to the Washington Post. At a time when millions of working Americans are finding a financial lifeline in their retirement savings, they managed to find in the questionable life choices of a half dozen individuals a condemnation of the nation’s private retirement system.

The piece, laboriously titled “Millions of baby boomers are getting caught in the country’s broken retirement system” is light (and selective) on data (they managed to get hold of a 2016 report by the Economic Policy Institute subtitled “How 401(k)s have failed most American workers,” some datapoints from the National Institute on Retirement Security (for those who have forgotten some of the issues with their database, see Data ‘Minding’” and a couple of quotes from none other than Teresa Ghilarducci). Indeed, the article isn’t really about factual data; rather it’s mostly reliant on the anecdotes of six individuals the author has somehow stumbled upon.

Weirdly, the article’s author (who is said to cover energy as his regular beat) does manage to find a kind of silver lining in these individuals’ predicaments, noting that “the coronavirus pandemic has scrambled the lives of these six boomers just as it has everyone else’s, though with no savings to worry about at least it hasn’t directly hurt them financially.”

And while the article claims that “none of these stories is an outlier,” well—judge for yourself.

One 70-year-old “had some good jobs over the years,” but her two divorces “involved lawyers, the need to set up new households, and a general drain on savings.” She admits that “I would rather be happy today than miserable 25 years from now. And so I made choices based on that rather than on the economics, which, you know, one could argue fairly successfully that I made some pretty stupid decisions.”

Another says he came down with non-Hodgkins lymphoma, figured he didn’t have long to live and was fed up anyway with life in “corporate America”—and so “retired”… at age 52. Thereafter he says he sold his house and cashed in his 401(k), which had about $100,000 in it, wound up stuck with back taxes, penalties and the like, but also bought a new car, gave some money to family members who needed it and, yes, went on a cruise because he thought he’d die soon. He admits, “I went through a lot of money very quickly.”

Other examples cited one individual who chose to pursue passion—and traded full-time employment for part-time—living in Manhattan. Another, a former truck driver, retired at 62—with $10,000 in his 401(k)—opting to retire now “because my body’s been beat up so bad after 40 years of driving.”

Not to demean or dismiss the financial hardships of the individuals chronicled in the article, but it was hard not to see in nearly all of these stories an abundance of personal choices that lead to their post-retirement “plight.” A point that the individuals featured make no bones about.

It’s not like dissing the retirement system or the 401(k) is a new “sport” for the media. And let's be honest - some will run short of money in retirement, and some—like the individuals featured in the article—may well be forced to make the tough decisions late in life that different decisions earlier could have forestalled.

It may not be the lifestyle they might choose, but many will nonetheless be able to replicate a respectable portion of their pre-retirement income levels, certainly if the support of Social Security is maintained at current levels. In fact, an analysis in 2014 by the non-partisan Employee Benefit Research Institute found that current levels of Social Security benefits, coupled with at least 30 years of 401(k) savings eligibility, could provide most workers—between 83% and 86% of them, in fact—with an annual income of at least 60% of their preretirement pay on an inflation-adjusted basis. Even at an 80% replacement rate, a full two-thirds (67%) of the lowest-income quartile would still meet that threshold—and that’s making no assumptions about the impact of plan design features like automatic enrollment and annual contribution acceleration.

It would be naïve to argue that the voluntary nature of the 401(k) design works for everyone, certainly not for those who don’t take advantage of the option, and it most assuredly won’t work for those who don’t have access to its benefits. That said, 401(k)s are working for far more people and in much more varied circumstances than the fear-mongering headlines acknowledge. It’s one thing, after all, to acquiesce to what has become a journalistic “creed”—that “if it bleeds, it leads”—and something else again to wield the knife.

It’s well past time to call out these reports—that “normalize” these “bad” examples—for what they really are: at best a naïve and misinformed parroting of surveys with questionable samplings and methodologies, and at worst serving as the agent of a long-standing and deliberately intentioned “plot” to kill the 401(k). They do so first by undermining its value, discounting and demeaning the modest tax deferrals that encourage most who have access to such programs to set aside their natural preferences for spending—and then discrediting as “rich”[i] those who do take advantage of the option and make thoughtful preparations for retirement (and who, ironically, may well wind up supporting those who didn’t via higher tax burdens because they actually have retirement income).

It’s been said that “a lie unchallenged becomes the truth.” If those of us who know better don’t start speaking up—and speaking out—you can bet that the drumbeat of coverage about the failure of the 401(k) will one day become a self-fulfilling prophecy.

- Nevin E. Adams, JD

[i]You don’t have to be rich to do so—even among modest income workers ($30,000-$50,000/year), we’ve seen that workers are 12 times more likely to save via a workplace retirement plan than to open that individual IRA.

Saturday, May 09, 2020

The Next Chapter

Life has many lessons to teach us, some more painful than others—and some we’d just as soon be spared. But for the graduates of 2020—well, theirs is surely a unique time. So, if you have a graduate—or if you ARE a graduate, here are some thoughts…   

My kids have passed those milestones—but I have two nieces that will graduate this year without an “official” ceremony to commemorate the occasion, no capstone to those years in pursuit of education, and preparation for the next of life’s stages, and—while social media, cell phones, TikTok and Zoom provide some solace—this is a class that will, for the moment anyway, be denied the hugs and warm embraces of classmates, friends and family alike.

That said, those next steps lie ahead—and if the when, where (and how) remains elusive—the if is surely only a matter of time. And as graduates everywhere look ahead to the next chapter in their lives, it seems a good time to reflect on some lessons learned along the way—most of which apply regardless of the times.

The world is made up of introverts and extroverts—learn and respect the difference(s).

You can “social distance” without being socially distant.

Because you’re young(er), people are going to assume you know things you don’t—and assume you don’t know things you do.

Nothing says a video conference has to include video.

There can be a “bad” time even for good ideas.

Emails can be a blunt instrument for (mis)communication.

Be who you are and say what you feel, because those who mind don’t matter and those who matter don’t mind. But not necessarily at work.

Paying the minimum due on your credit cards is dumb.

There actually are stupid questions.

A picture may be worth a thousand words, but sometimes it pays to read the fine print.

Never say you’ll never…

“Bad” people almost always get what’s coming to them. Eventually.

Always sleep on big decisions.

When it seems too good to be true, it’s generally neither good, nor true.

Never let your schooling stand in the way of your education.

Sometimes the grass on the other side looks greener because of the amount of fertilizer applied.

Never miss a chance to say, “thank you.”

Hug your parents—often.

If you wouldn’t want your mother to learn about it, don’t do it.

Bad news generally doesn’t age well.

Your work attitude often affects your career altitude.

Comments that begin “with all due respect” generally aren’t.

Sometimes the questions are complicated, but the answer isn’t.

That 401(k) match isn’t really “free” money—but it won’t cost you a thing.

And don’t forget that you’ll want to plan for your future now—because retirement, like graduation, seems a long way off—until it isn’t.

Congratulations to all the graduates out there. We’re proud of you!

- Nevin E. Adams, JD

Got some to add? Feel free to add in the comments.