Tuesday, December 27, 2005

Doctor’s Orders

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 contribute to high blood pressure. Mine is a relatively mild case – I now exercise modestly and take a single pill daily – but that simple finding has transformed the mere inconvenience of going to a physician into a new area of stress. See, every time I go to the doctor, I am worried that my blood pressure will be high enough to warrant a more severe regimen – and that worry, in turn, engenders an increase in blood pressure. No matter how much I try to calm myself, I appear to have a severe case of what they call “white coat syndrome.” Fortunately, my doctor has learned to take a reading at the end of my visit, as well as at the beginning.

Back when the markets were consistently surging higher, participants seemed to look forward to opening that retirement plan statement, or booting up that account balance screen with the enthusiasm of a child on Christmas morning. Now that we’re back to the uncertainty of a more “normal” market cycle, many participants seem reluctant to pay attention to such matters. It’s more than that they don’t have the time or the expertise for such things – though those are certainly considerations. Like my occasional trips to the doctor, they are also “afraid” of what they’ll find reflected on that retirement plan statement – and what they’ll be told they have to do.

Those concerns notwithstanding, pretending the problem doesn’t exist won’t keep one’s retirement plan healthy, any more than my simply refusing to go to the doctor will keep my blood pressure under control. IMHO, a sold retirement plan checkup requires a commitment to the following:

Set ANNUAL savings goals – For too long we have pushed the long-term nature of retirement plan saving. Yes, we have time, but that time isn’t indefinite – and time works for you, but not if you don’t start. Participants need shorter-term goals – ones that fit within a mere mortal’s budget mindset. Ask them how much they can afford to save for the rest of their life (and that’s what most enrollment processes suggest), and you’ll get hesitation. But set a goal for the next year – and you might be surprised just how “aggressive” a goal people are willing to set.

Get quarterly, HARDCOPY participant statements – Ok, some people prefer online, and paper may cost more – but there’s nothing like the tactile experience of touching a retirement plan statement for conveying a sense of substance. More importantly, whether it’s once a year, or once a quarter, the arrival of that statement provides a built-in reminder/opportunity to keep an eye on what’s going on.

Set a time annually to evaluate, and if necessary, adjust goals -- Let’s be honest: Every financial advisor worth his/her salt would love to do this with participants – but even the most engaged participants may struggle with that kind of commitment. Ironically, the more often you do it, the less time – and the less pain – it seems to require.

Interestingly enough, just knowing that that regular semi-annual appointment is coming has kept me more aware of diet and exercise, and that has not only made those appointments less painful - ultimately I am healthier, and happier that I am healthier (and no doubt healthier because I am happier) -- even if I still hate going to the doctor. What might a similar approach mean for the retirement health of plan participants?

- Nevin Adams editors@plansponsor.com

Sunday, December 11, 2005

Meeting Minders

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 and listen to a testimonial about the good work that has been, and now would be, done -- thanks to our contributions and support.

Now, I always hated having to go to those meetings – it was time I couldn’t spare on a subject I didn’t need to be educated on (there was one glorious year where, so long as you had pledged the “proper” amount, you didn’t have to go to the meeting). But aside from the fact that they took attendance, it was common knowledge that the company president was not only committed to the cause – he was inclined to meet/greet folks at the door. Needless to say, I grumbled, but I went.

My experience notwithstanding, one of the most obvious remedies to anemic plan participation is – mandatory employee meetings. Not that the concept is controversial with advisors – I have yet to meet one who didn’t advocate the practice. The problem, of course, is plan sponsors – or more accurately, managers reluctant to shut down production long enough to accommodate that 401(k) meeting.

I’ll concede it’s a challenge – aside from the production concerns of management, many workers don’t want, or don’t feel that they can afford to take the time off (and yes, some don’t think they require education on the subject) – and that reluctance all-too-frequently manifests itself as non-meetings, since your contact in HR may have little sway over the activities of the production line. Stuck between that rock and a hard place, many advisors try to do the best they can with the hand they are dealt, ultimately resigned to a “if you build it, you hope they will come” strategy. To their credit, many advisors have achieved success with some remarkable “workaround” approaches, but all too often at the sacrifice of their time and a lesser result for the plan. At best it is, after all, trying to do your job with one arm tied behind your back. After all, how are you supposed to help people become capable retirement plan saver-investors if they won’t even come to hear what you have to say?

The consequences go far beyond merely being unable to get your message to every eligible worker. If employees don’t have to come, then clearly the topic, the message, and perhaps the messenger, aren’t all that important. At that point, you’re probably left either preaching to the choir, or those who simply don’t have anything better to do. More insidious is the potential for a culture of “too cool to participate” -- where those who don’t attend the meetings because “they’re a waste of time” actually reinforce their position by ridiculing those who take the time to do so.

Confronted with these realities, what can an advisor do? The best time is on the front end, of course. Everyone talks about fund menus and fees – but the best advisors are now talking about things like participation and deferral rates. An integral part of your strategy to curing that 55% participation rate should be an insistence on mandatory enrollment meetings, for instance, and perhaps some kind of annual review, timed around the delivery of participant statements.

If you can’t get support for mandatory employee meetings, there are alternatives. Employers reluctant to shut down production can pay workers to show up a half hour early for their shift (I would not recommend an after-shift session when everyone is tired), or maybe the mandatory sessions could be set at various times for different units (or parts of different units). Still can’t get folks to come? Seek out what I call “missionaries” – or convert a few to your cause. These are the folks that everyone listens to on the shop floor. Get them involved in not only spreading the word about the importance of savings – but of the importance of attending the meetings. Their words – and example – can have a great impact (they can also help overcome language and cultural barriers for you) – and they can continue to deliver the message(s) well after you leave.

Employers unwilling to impose a “mandatory” meeting on workers may have at their disposal a tool that can be just as effective – maybe more. If you can get the company president to make the commitment to attend the sessions – well, trust me – not only will it support your efforts, not only will it provide the firm with some nice PR with the workforce – but workers generally won’t want – or won’t feel they can afford – to miss those meetings, even if they are “voluntary”.

- Nevin Adams

Sunday, December 04, 2005

Ask Me No Questions

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 behaviors and preferences of those you work with. I don’t know that it ultimately made much difference in how our management team interacted with each other but, for a short time anyway, we were at least more aware of the differences in how individuals process information and respond.

It may be a crude comparison, but many retirement plan programs have instituted a questionnaire that also purports to help individuals better understand how they feel about the process of investing–-the risk tolerance questionnaire. Originally designed to assist financial advisors to develop a workable financial strategy for higher-net worth customers, the initial applications to the retirement plan space were largely crude and awkward: They used terms that the average retirement plan investor didn’t understand, relied on them to assess how they would feel about events they had never experienced, and ultimately tried to buttonhole the investor as either “conservative,” “aggressive,” or “moderate”–-oh, and were generally self-administered. A determination that was then used to match them up with a sample asset allocation model that applied to their expressed tolerance for risk.

Much as these questionnaires have improved over the years, I still shudder at their application to the uninitiated investor. In the hands of a skilled advisor, they can provide valuable insights into both the investment knowledge and concerns of a participant. However, administered in the absence of that grounding, they seem capable of providing a result that is irrelevant at best.

By its very existence, the questionnaire serves to intimidate the would-be participant–-imposing a “test” that still uses terms that the average retirement plan participant doesn’t understand to present potential risk scenarios that that same participant cannot envision as a precursor to the result. That might be an acceptable trade-off if it contributed value to the ultimate result–-but what in the world does one’s tolerance for investment risk have to do with achieving retirement security? Even if one fits someone’s textbook definition of a “conservative” investor, that doesn’t necessarily mean that one is comfortable with the notion of the smaller nest egg that a more conservative investment approach may yield. In fact, the typical questionnaire focuses only on the perceived risks of investing, rather than the potential risk of having accumulated too little.

Let’s assume for a minute that the would-be retirement plan investor gets through the questionnaire, let’s assume that he or she isn’t confused by the nomenclature affixed to his investment style, let’s even pretend that that affixation actually has some bearing on how they should invest to achieve a comfortable retirement. Having figured out their investment type, they must now move to the next stage of the process–-matching their risk “type” with the sample portfolio designed for that type. Just a matter of picking the right pie, right?

Generally not–-because it is at this stage that those swollen fund menus (see last week’s IMHO at http://www.plansponsor.com/ad_type1/?RECORD_ID=31619) reemerge as a problem. All too frequently, the participant is shown a pie chart that is color-coded with the various asset allocation categories–-and he/she must then not only figure out which funds from the plan menu match those colors, he/she must also pick between multiple funds in the same category.

No small part of the success of our Myers Briggs exercise was that the results were administered by a person trained to interpret and explain those findings. Similarly, a well-designed risk tolerance questionnaire (and by that I mean one that also deals with the risks of not investing enough, or aggressively enough, to meet retirement income expectations) administered by a trained professional can lay a valuable foundation for informed decisionmaking by both the advisor and the participant.

However, IMHO, participants should not be making retirement investment decisions based on their tolerance for investment risk. In far too many cases, we are still asking a participant who doesn’t know what to do (and who is already intimidated by the process) to take a quiz that he doesn’t understand–-so that we can affix a label that may not have anything to do with achieving retirement security–-so that we can let him put together a portfolio that is probably more complex than he needs–-through a process so complicated that he will likely never want to go through it again.

And then we wonder why they want someone else to do it for them.

- Nevin Adams editors@plansponsor.com