Nevin's Data "Points"

Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the fifth in this series, IMHO offers another non-automatic alternative to help involve and engage participants. As always, I would appreciate your reactions, comments, and suggestions. == (5) Set up regular checkups When it comes to going to the doctor, I’ve always adhered to a very simple standard – if it ain’t broke, don’t. Of course, as one gets older, gains a family, and has greater responsibilities, one can – with the prodding of a caring wife, anyway – make exceptions to the strictest of rules. It was during one of those not-so-regular “regular” checkups years ago that I discovered that age, heredity, a bad diet, a busy/stressful occupation, and a relatively sedentary lifestyle can contribut

Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the fourth in this series, IMHO offers another non-automatic alternative to help involve and engage participants. As always, I would appreciate your reactions, comments, and suggestions. (4) Once you’ve built it, make them come. I spent most of my career working for companies that, once a year, put a hard push behind the support of a certain charitable campaign. That hard push included times when we were required to turn in pledge cards and, while the amount wasn’t mandatory, let’s just say it was pretty clear what the “right” amount was. However, adding insult to injury, either to reinforce our sense of charity or to create it, we also had to go to a meeting where we would have to watch a video

Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the third in this series, IMHO offers another non-automatic alternative to help involve and engage participants. As always, I would appreciate your reactions, comments, and suggestions. (3) Eliminate Self-administered “Risk Tolerance” Questionnaires A number of years ago at an offsite management meeting, I was introduced to the Myers Briggs Type Indicator. For those not familiar with MBTI, it is a personality inventory–-based on the theory that how we behave as individuals is due to basic differences in the way we, as individuals, prefer to rely on our perception and judgment. There are more than a dozen types, combinations that supposedly not only help you better understand yourself, but also the

. Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the second in a series, IMHO offers another non-automatic alternative to help involve and engage participants. As always, I would appreciate your reactions, comments, and suggestions. (2) More is Less – Put that Fund Menu on a Diet Remember the first time you walked into Starbucks looking for coffee? Well, I do – and I was awfully glad that the line was so long that I had a chance to try and figure out something to order without sounding like a total idiot. I’m sure you’ve seen those studies about participant choice and inertia – the studies about how people given 24 jellies to choose from chose to buy none, while those with a mere six flavors were significantly more likely to actually buy one

. Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. For the next several weeks, IMHO will focus on some non-automatic alternatives. As always, I would appreciate your reactions, comments, and suggestions: (1) Make employees fill out and return their enrollment forms. There was a time when participants’ contributing to a retirement plan was a means of enhancing a retirement that was primarily funded by a traditional pension plan and Social Security – a time when the so-called three-legged stool of retirement security actually had three legs. Now, of course, things are different, and while savings remains – and should remain - a voluntary action, there is no reason that we have to let employees simply ignore the option. And yet, in many – if not most

Many in the provider community appear to have given up on participants, and you see study after study purporting to document the futility of the cause. Studies that show employees don’t participate when they could, studies that show that participants don’t save enough when they participate – that show that they don’t invest “properly” when they do participate – that they don’t know a bond fund from a bond issue. In fact, as an industry we’ve become so convinced that participants can’t do it properly – or at least have no interest in doing it properly – that we have crafted a whole set of solutions that require no participant involvement whatsoever, other than to provide the funding. There is a point to be drawn from these studies, of course, and there clearly is a challenge looming, even if we once thought that all we had to do was conduct a few enrollment meetings, hand out several hundred thousand prospectuses, and provide a Web site link to turn participants into savvy and enthusi

' On Friday, the Government Accountability Office, or GAO, issued a report reflecting its analysis of cash balance plans and their impact on worker pensions. Before turning to the results of that report, we should start with some basic points of understanding. Simply stated, cash balance programs are widely described as “hybrid” benefit plans – technically a defined benefit plan, but with many of the characteristics of defined contribution plans. Like DB plans, they are typically employer-funded and insured by the Pension Benefit Guaranty Corporation (PBGC). They are like DC plans in that the benefit is a function of interest credited to your account each year, there is generally a regular statement of your account, and there is a lump sum payment option. The GAO report acknowledged, “CB plans may provide more understandable benefits and larger accruals to workers earlier in their careers, advantages that may be appealing to a mobile workforce.” However, most of the controversy aro

By now you have perhaps read – or at least been told about – the recent cover story in Time magazine titled “The Broken Promise.” The promise - one of retirement benefits and health coverage – has been broken by employers, with the complicity of government, according to the story’s authors. And, in fairness, if one is looking for trouble in the nation’s private pension system, there is trouble to find. Some of those “troublemakers” have been taken to task in this very column. It isn’t just workers who have had “promises” reneged on, of course. Lawmakers have made significant changes to the laws regarding these programs over the years and, unlike the portrait painted by Time, they have frequently served to discourage both the funding of existing programs as well as the formation of new defined benefit programs. Generally, as in the current wave of “reform” legislation, they are targeted at the bad behaviors of a few – but come into effect well after those targets have skipped town.

One of the most valuable skills in my profession - and perhaps in any profession – is an ability to discern trends early. Just as valuable is the ability to discern the sometimes fine line of distinction between what may be a trend, and what may, in fact, be nothing more than a fad. Most plan sponsors have a functional aversion to the latter, and the vast majority have no real passion for being too early in the adoption of the former. After all, nowhere in the fiduciary directive to do only things that are in the best interests of participants and beneficiaries can there be found an admonition to be first. Notwithstanding those natural disinclinations, ours is a business in which trends – and fads – constantly emerge. Whether it is simply a function of the incessant "arms race" deemed necessary to cement a provider's position in the market, or a genuine pursuit of excellence, it seems as if there is always some new idea or product coming to market. That’s a good thi

I don't get the Roth 401(k). More accurately, I don't get the need for the Roth 401(k). I understand that there is an emerging common wisdom that tax rates in the future will be higher than they are at present. I also understand that some may well believe that they are in a better position to pay taxes now than they may be in the future. Bottom line, I understand the appeal of the Roth IRA. I just don’t get why we need to clutter up the 401(k). Let’s be honest here. The folks most likely to benefit from the Roth 401(k) (other than a myriad of personal finance columnists) are, quite simply, those who are better-off financially. Not that I am against benefits for this group (I am, and hope to remain, among this constituency). However, given how many arcane rules and strictures exist in qualified plans to prevent them from benefiting unduly at the expense of the plan, the Roth 401(k) strikes me as peculiarly targeted. It’s not exactly a "giveaway" for the rich, who won’t

Last week, in Washington, DC, a couple of senators that most of you may never have heard of brought a rush to pension “reform” to a screeching halt – and may have killed it for this session. Senator Mike DeWine (R-Ohio), along with Senator Barbara Mikulski (D-Maryland), used a procedure that allows individual senators to stop legislation from advancing to the full Senate. The bill, co-sponsored by Senator Charles Grassley (R-Iowa), contains a number of pension reform provisions, including increasing the insurance premiums paid by defined benefit plans, expanding and enhancing funding level disclosures, changing some of the rules on how funding levels are determined, making it easier for companies to contribute more to those plans, and imposing tighter requirements on underfunded plans to address the situation. Senators DeWine and Mikulski took issue with a particular provision in the bill – one that would have assessed higher funding requirements on pension plans based on the credit

There are few things more unseemly than watching an elected official pander to his or her constituency – unless it’s an elected official who has made a political misstep trying desperately to get back on the right side of the issue. Far be it from me to disparage the motivations of all the political responses to the devastation of Hurricane Katrina – but surely some were of dubious origins. There were, of course, many well-intentioned and truly helpful responses, and surely Katrina – and more significantly, the flooding that followed – was a disaster of historic proportions, at least on an aggregate level. Still, I was stunned to watch the Internal Revenue Service and Department of Labor jump into assistance mode, dramatically lowering barriers to the withdrawal of retirement savings in response. With the stroke of a pen, they qualified distributions in the impacted area as hardships, waived the 10% early withdrawal penalty, waived the 20% withholding requirement (but not the eventu

Like much of the nation over the past couple of weeks, I have been tracking the events along the Gulf Coast with much interest. I’ve never lived close enough to the coasts that tend to fall prey to such calamities to have experienced their wrath directly – though I was close enough to brush some 70 mph winds from the last bits of Hugo in the early nineties. Unlike tornados, which seem to come from nowhere and disappear almost as quickly, hurricanes take time to build and to strike – and their destruction is likewise spread out over a much wider area and timeframe than most natural disasters. Katrina was a different kind of disaster, of course. By now we’ve no doubt become mini-geographical “experts” on the unusual topography of New Orleans. More than that, the impacted area was unusually urban, which not only revealed a new class of disaster victims (and found them clustered in high concentration), it likely facilitated the subsequent coverage of their plight. Moreover, unlike p

As the recent bankruptcies of Delta and Northwest Airlines remind us, pensions are a precarious business. Once again, we - and most particularly, the employees of those airlines - are presented with the stark reality that pension promises made in better times are frequently no more secure than the financial wherewithal of the institution that, once upon a time, made them. One can certainly have some sympathy for the individuals who have made an employment commitment predicated on those promises, most particularly for those who have already entered retirement. The signs of danger are all around us, and not just in private industry. By now, we are all well aware of the “perfect” storm’s combination of slumping asset values, the burgeoning pension obligations of early and accelerated retirements, and the exaggerated impact of historically low interest rates that result in even higher projected pension liabilities. We are frequently reminded of the “sorry” state of pension funding in t

There’s a commercial that seems to run pretty regularly these days that features a concerned looking man on the phone with his physician. In short order it becomes apparent that the physician is talking his patient through the intricacies of a surgical procedure, right down to telling the would-be patient where HE will need to make the incision. At that point, the understandably nervous man says, “Shouldn’t you be doing this?” No doubt to the chagrin of whoever put that commercial together, I can’t recall the sponsoring organization. However, its message certainly resonates with any financial advisor who has been asked to justify his/her role in helping workers make financial decisions. Much as I relish that commercial message, however, I’ve never been keen on a broad-based application of those types of analogies. Like, “You wouldn’t think of doing your own plumbing, why should you try to do your own portfolio management?” Or, “You have a mechanic to work on your car, why wouldn’t

The pages of PLANSPONSOR magazine frequently chronicle the impending onslaught of change and its implications for plan sponsors, and we also hope we provide readers a forward-thinking perspective on trends and opportunities, as well as threats. A constant theme in these pages, certainly over the past five years, has been not only the high standard to which fiduciaries are held in their actions, but also the difficulties associated with living up to that standard. Plan sponsors understandably rely on experts to assist them in their Herculean task, and ERISA contemplates that reality. Unfortunately for plan sponsors, the standards in selecting and monitoring, on an ongoing basis, the skills and actions of those experts can be almost as daunting as the underlying activities themselves. In the midst of these challenging times, financial advisors have become a ubiquitous element in many markets. Absent their presence, many small-plan sponsors might still lack access to a respectably priced

Last week Fidelity Investments put out the results of a “survey” about people’s attitudes toward saving and retirement (see One Third of Workers Delaying Retirement ). The headline – basically that a third of respondents were putting off retirement – was no big surprise. It is perhaps a sign of the times that people, particularly those nearing retirement, now speak with disarming regularity about their intention to stay in the workforce beyond the ages typically associated with “retiring.” Certainly, a growing number of us (including those on both sides of this newsletter) toil at professions that can, from a physical standpoint anyway, be pursued just as well at 70 or 75 as they can at 55 (whether we will be permitted to do so is another subject altogether). Nor were the reasons for pushing back retirement earth-shattering; more than half (55%) said it was because they hadn’t saved enough, while roughly a third said they were planning to do so to maintain their employer-sponsored h

I’ve always had a certain ambivalence about what are generally termed “Hallmark holidays.” You know the ones I’m talking about – the ones that seem crafted for the sole purpose of generating sales for greeting card sellers. Of course, after a while you no longer question their existence – and if one still struggles to remember exactly when “Grandparent’s Day” is, well, we’ve pretty much got Mother’s Day, Father’s Day, and Valentine’s Day down to a science. Regardless, I’ve never really been comfortable with ones like Secretary’s Day (now Administrative Professionals Day) and Bosses’ Day. I remember once, years ago, when I was part of a large department that had many “admins,” all with overlapping coverage responsibilities. The fact was, none of them could remotely have been considered to be anything like a “secretary” to me, or any one manager in particular. To me, they were simply part of the team that, like the rest of us, had a job to do, and did it. That didn’t mean we could

We all know that one of the hardest decisions for most plan participants is choosing how to invest their retirement savings. These days a widely touted solution is the asset allocation fund, or the lifestyle fund (I’ll use the terms interchangeably here, but there are differences) - an option that allows a participant to make a single investment choice: a fund pre-mixed to match an asset allocation deemed appropriate for a particular risk tolerance and/or retirement date. Not only have these options increasingly been promoted to participants – they have also become the solution du jour as a default fund choice for plan sponsors, particularly when combined with automatic enrollment. What hasn’t garnered the same level of attention is a potential irony regarding these funds. These very same funds that purport to make investment choices so much easier for participants, might actually present plan sponsors (and thus advisors) with a more difficult decision, IMHO. Consider that in choos

The headlines of late have nearly all been about the impact on pension plan funding, but legislation affecting investment advice has also managed to piggyback its way back into two of the most recent bills – one sponsored by Congressman John Boehner (R-Ohio), who chairs the House Education and the Workforce Committee, and the other crafted by Senator Max Baucus (D-North Dakota) and Senator Chuck Grassley (R-Iowa), who heads the Senate Finance Committee. Both have cleared their respective committees, and while their future is not yet certain – both are dominated by complicated funding considerations for defined benefit pension plans, and neither is exactly in sync with reforms already put forth by the Bush Administration – it is interesting (IMHO) that both contain provisions regarding investment advice. For years I have watched providers struggle to offer only education and not advice, watched employers try desperately not to take on additional fiduciary responsibilities, and witnesse

Of late, the retirement-plan industry has been working overtime crafting product solutions that ostensibly help participants save, or save better, for retirement. But for my money, you don’t need to look any further than the statistics on distribution practices to realize just how ill-informed participants still are about basic financial principles. I’ve had plenty of experts tell me that participants aren’t interested in making investment decisions, and one can certainly understand that there are situations where participants legitimately can’t afford to set aside money now for 30 years in the future when they’re struggling to put food on the table this week. But when industry data continues to show what participants do with those balances at termination – well, to me, that is the real sign of trouble. The most recent example was a study from Hewitt Associates that found that 45% of some 200,000 terminating participants took a cash distribution when they left their employer (about

It’s hard not to be impressed by the newfound enthusiasm for automatic enrollment features. After all, one of the greatest challenges to a reliance on participant-directed savings is - a lack of participant savings. Most surveys (including our own Defined Contribution Survey) indicate that only about 75% of those eligible to participate choose to do so at any level, but some of those – perhaps most of them – are not signing up because they either forget to or because they are simply stymied by the forms, the process, or the daunting list of investment choices. Automatic enrollment purports to help overcome those obstacles. And so it seems to, based on any number of studies. The most recent was by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute. That report notes that, without automatic enrollment, 401(k) participation depends “strongly on age and income,” ranging from a low of 37% among young, lowest-income workers who are eligible to a high of

Anyone who has driven our nation’s highways lately knows two things – gas prices are soaring, and there is a great disparity between what is being charged at different stations. In fact, knowing which stations offer the “best” (not that any of them are “good” these days) prices is the new home-field advantage, based on my recent vacation, where prices ranged as much as 23 cents/gallon in the space of less than five miles. A similar scenario is beginning to emerge in the retirement plan market, this one triggered by the response of mutual fund firms to the mandates of the Securities and Exchange Commission – triggered by the mutual fund trading scandal. More accurately, the SEC has mandated that fund complexes either adopt a redemption fee (but not more than 2%) applied to sales of fund shares held less than seven calendar days, or determine that such a fee is “not necessary or appropriate” for the fund. In March, they also mandated that fund companies are to enter into written agree

People who haven’t been saving the way they should got some good news recently – those fancy retirement savings calculators may have been exaggerating their retirement needs. That, at least, was the assertion of a new report on retirement savings, which ran in the June issue of the Journal of Financial Planning, but which got picked up in the Wall Street Journal and The Associated Press (and that put it in a lot of newspapers). The study, by financial planner Ty Bernicke, claims that people spend less in retirement than they do prior to retirement – and that they spend less in retirement the older they get. Now, that isn’t all that radical a notion – for years planners have been telling us to plan on needing 70% of our pre-retirement income. But Bernicke, who cites data from the US Bureau of Labor's Consumer Expenditure Survey to make his point, takes issue with retirement planning calculators that push spending higher each year (by about 3%) just by keeping the current levels “eve

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