Nevin's Data "Points"

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...