Sunday, July 30, 2006

Protect Shuns?

Last week’s Congressional machinations brought to mind Otto van Bismarck’s comment that “Laws are like sausages, it is better not to see them being made.” I had just about given up on seeing anything emerge from this session. Frankly, most plan sponsors I had spoken with would have been just as happy to see no bill as a bad one – and most of them (that is to say, the ones who weren’t troubled airlines) were hard-pressed to see how a “good” one could emerge from what was on the table.

The advice provisions in the House-passed bill will, no doubt, create some stirrings in your world – if enacted - but it is by no means yet certain that it will be (for why, see Pension Reform Takes an Unexpected Detour). The encouragements surrounding automatic enrollment programs will almost certainly generate a bit of activity on that front, but I suspect the actual take-up rate will be relatively modest, certainly in the short-term. The participant information disclosures will probably generate more plan expense than true information. The sanction of cash balance plan design is certainly welcome – and long overdue – but even that is clarity on a prospective basis, with no real reassurance for plans that have already crossed that Rubicon.

The good news is that most of what was in the bill that the House passed was “anticipated.” The bad news is that it is generally anticipated to have a bad effect on the large number of still-very-viable pension plans, in the name of purporting to increase disclosure and transparency of these widely misunderstood programs – which, in turn, is designed to stem the tide of pension plan dumping on the nation’s pension insurance system. It may, in fact, have some impact on the latter – but I doubt it. Unfortunately, I have little doubt that it, in tandem with accounting changes that the Financial Accounting Standards Board (FASB) will insist on imposing later this year, will accelerate the trend away from these programs. None of this is new – or news.

These are all incredibly complicated issues, and one should, I suppose, be impressed that lawmakers have tried to deal thoughtfully with such a comprehensive list of changes. It is difficult, however, not to view the final result with more than a twinge of regret – and I routinely hear from plan sponsors a quiet, simple resignation to what seems to most to be an inevitable conclusion. More’s the pity.

As an industry, we are almost uniformly in agreement that these changes will condemn defined benefit plans to extinction, certainly once interest rates recover to a place where that action will be financially viable. As an industry, we are almost uniformly in agreement that workers don’t/won’t/can’t save enough to fund their own retirement, and we share a similar consensus that Social Security’s contribution will be more modest in the future than at present.

If we agree on so much, perhaps we ought also to just agree that defined benefit plans aren’t well-structured to fit the way we work, or the way the “experts” want to account for such obligations, rather than referring to these kinds of changes as “enhancements” to retirement security. Because, IMHO, while these changes surely protect something – most likely the perceived financial integrity of the PBGC – it’s difficult to see how this “pension protection” act lives up to its name.

- Nevin Adams
You can read more about what is in the Pension Protection Act at

Sunday, July 23, 2006

Feels Like the First Time

Like many of you, my job takes me away from home from time to time. For the most part, these are short jaunts, at least from a time standpoint. These days, it’s not unusual for me to make a cross-country trip – deal with business, and come back – all in the same calendar day. I get to visit some nice places but, frequently, all I actually get to SEE of those places lies between the target venue and the airport.

Over time, like all good “road warriors,” I have learned how to pack, know what size bags work best with the carry-on restrictions, and have invested in a series of portable toiletries that never have to leave my travel bags. When lugging my laptop and assorted work materials was beginning to take its toll on my back, I even bought a special backpack. I can almost get up the morning of my departure and pack with my eyes shut (in fact, I’m sure that I did for some of those early flights). Oh, and I NEVER check bags.

Then, last week, I did something I have seldom been able to do – I managed to couple a business trip to the West Coast with a family vacation. Now, bearing in mind that nearly all of our family trips have been in ground vehicles, all of a sudden I found myself needing to worry about the number of carry-ons, the process of checking bags for a family of five, and the need to pack everything I would need for three days of business – and another week of vacation. Oh, and what kind of picture I.D. DO you need for someone who is not yet old enough to drive?

Thanks to my wife’s superior organization skills (and her ability to wrest a modicum of order from the preparations of three occasionally unruly teenagers), we managed to get everything together, to the airport, and to security. That’s when I realized just how much the process of flying has changed since our last family trip. Things that have long since become part of my traveling “routine” – having to take off your shoes, sending your cell phone through with your luggage, being able (encouraged?) to bring food from the terminal onto the plane – even being able to send your laptop through the x-ray without booting it up (remember those days?). Things that I had grown accustomed to accepting without question were a new experience to the rest of my party.

It was kind of fun being the experienced traveler in the group (my kids actually listened to me, for a change). However, it also gave me a different perspective on things – and a renewed appreciation for the perspective of the “amateurs” that seem always to be gumming up the works when I am running late to catch a flight (I still think there should be lines for “I don’t know what I am doing here”).

Those of us who work day in and day out with retirement plans, and for whom making investment evaluations is just part of what we do, may well suffer from a certain lack of appreciation for the perspective of someone who hasn’t made those kinds of decisions in a long time – or perhaps ever. Can you still remember what it felt like to see that eight-page, glossy brochure for the first time? Can you recall the first time you heard phrases like “the time value of money,” or “the magic of compounding”? How many investment funds did you have to choose among the first time you made a retirement-plan election?

I wonder how much more effective our education materials would be – how much more impact those enrollment meetings would have – if we could remember how we felt the first time we sat in that room. Maybe you can – I’d recommend the effort to do so. It could make a difference.

- Nevin Adams

Saturday, July 15, 2006

Life Lines

In this business, we spend a lot of time planning for, and talking about planning for, retirement security (and talking about helping others plan for retirement security). However, tomorrow’s version of retirement seems likely to be quite different from that image in the travel agency brochures—or that enrollment plan kit.

This came home to me in a very real sense recently when I sat down with my mother to work up a budget that would last—the rest of her life!

Now, I’ve done plenty of budgets in my life, both personal and professional. But even those that incorporated, in some form or fashion, elements of longer-term goals…bear in mind my eldest heads off to college this fall…have always tended to be a year-to-year process. Mom’s income isn’t getting any bigger—or not much bigger, anyway. There’s a serious dearth of promotional opportunities in retirement, after all.

I will confess to a bit of anxiety ahead of the event. Like many families, while I knew some of the details of their financial situation, we had never really sat down and talked about the whole picture while Dad was with us. When asked, I’d do some research on taxes or make the occasional recommendation on a mutual fund investment. I remember a reasonably animated conversation with my dad about annuities when he retired. We’d talk about things like the pros and cons of paying down their mortgage—and every so often Mom would ask me if we didn’t need to rebalance that asset allocation fund (but that’s a story for another day). I knew where the will was, what the will provided for, but I didn’t know many of the basics—their regular expenses or even their annual income, much less the sources of that income. On a rational basis, I know I should have imposed myself on their privacy years ago, but it’s hard in the real world to push deeper than “are you guys doing OK?” if it’s clear they aren’t really interested in sharing that information.

Now, three months after Dad’s passing, most of the dust had settled—the calls made, the funeral-related bills paid, the requisite beneficiary distribution forms completed and submitted, and yes, an ability to see what regular monthly expenses one person has, versus that of a couple that had been together for nearly 55 years.

Lest you worry, I think Mom’s going to be fine. She still has a pension, access to retiree medical, a long-term care policy, a tax-sheltered annuity, access to Medicare, and her house is bought and paid for. She doesn’t have Social Security—she “lost” that when my dad passed (she had an opt-out provision in favor of her teacher’s pension years ago). But Dad also had a savings plan, and it will pay her an annuity for the rest of her life. It isn’t much, perhaps, but, all in, it’s roughly what their combined retirement income was last year. If her needs don’t change drastically, she’s in good shape.

Things could change drastically, of course. Medical expenses remain the largest unknown, and while she currently has insurance to cover that, her son is all too aware of how fleeting those commitments can be. Gasoline is over $3 per gallon there already, and winter is coming. She’s got some problems with her knees that make getting around a bit of a challenge, and while her teacher’s pension has a cost-of-living provision, the politicians seem, in the aggregate, to lack any real sense of fiscal responsibility.

The bottom line is that, thanks to their planning ahead of time (aided by modest expectations), she’s in better shape a decade into retirement than many begin it. But the careful planning that made that possible isn’t over—it’s just beginning.

- Nevin Adams

Saturday, July 08, 2006

Critics "Cull"

At the end of two weeks on the road – the first for our Plan Designs 2006 conference, the latter a chance to spend time with the majority of our family that still lives in the Windy City – and an unplanned day in the office to “catch-up” on the things that don’t follow you via e-mail and voice mail, my kids (for whom the two weeks on the road actually constituted a vacation) were pressing to see the new “Pirates of the Caribbean” movie (in point of fact, they have been pressing for it ever since the release date was first published a year or so ago).

Now, truth be told, I was predisposed to honor their request. Like many, I hadn’t expected much from the first installment (I hadn’t even realized it was a “first installment”) and, instead, I found myself having a better time at the movies than I had in a long time. Still, in the part of the world that I live, a night at the movies with my family (including that trip to the concession stand) for a prime-time movie viewing costs nearly $100. Consequently, my paternal predispositions were at least tempered by the long list of reviews critical of this latest production – critics who said they had seen it all before, that it was (at least) a half hour too long, that Keira Knightley was too masculine, Johnny Depp too feminine…

Those concerns notwithstanding, I acquiesced – and while I suppose I must admit that it, like most sequels, lacked some of the “magic” of its predecessor (let’s face it, we now have expectations of a character like Captain Jack Sparrow), I’m glad I didn’t let the critics keep me at home. Even if it isn’t likely to be nominated for Best Picture, we had a good time (and may even have gotten our money’s worth). In fact, over time, I have learned that very few movie critics look for the same thing in a film that I do – and thus I take their recommendations (and rejections) with a hefty portion of salt.

The past several years, “critics” of retirement plan savings have had a field day. Oh, they aren’t generally as obvious as those that were chomping at the bit to make “Pirates” walk the metaphorical plank, but like many of those critics, there’s no news like bad news to fill a regular column. First they worried about the downturn in the markets, then there was the drum beat about how you couldn’t count on that employer match…and if that wasn’t enough to keep you up at night fretting about your retirement savings balance, fees remain an omnipresent concern.
Like the movie critic concerns about “Pirates,” all of those issues have a foundation in reality: Markets do, in fact, go down as well as up; that annual employer match IS discretionary (but from what I can tell, seldom treated as such); and, yes, fees can indeed take a heavy toll on that retirement plan balance. Unfortunately, if it bleeds it leads, and the headlines that accompany these pieces all too frequently seek to draw the reader in by painting a picture of looming disaster. The good news is that (apparently like the crowds flocking to see “Pirates” this weekend) most are looking elsewhere for true guidance in whether to save in their workplace retirement savings plan.

It’s perhaps a good thing to remember, as we head back to work today, that surveys continue to suggest that most workers listen to people they trust – friends, family, co-workers - for counsel on their approach to many things - retirement savings and cinematic selections alike. Financial advisors can join that inner circle, of course – but only once they have earned that trust. Generally, that is a function not only of expertise, but also an ability to see things from the perspective of the individual whose trust they endeavor to earn.

- Nevin Adams

Sunday, July 02, 2006

Fourth Coming

This week, of course, is the Fourth of July, the anniversary of the signing of the Declaration of Independence. While, these days, few would argue that the result we celebrate today remains largely unique in the history of the world, it is easy, looking back, to gloss over just how remarkable a sequence of events made this nation’s independence a reality. The bickering and machinations of Congress then were every bit as unpleasant, and occasionally unproductive, as the worst of today’s elected officials – even though, and perhaps in some measure because, hostilities had officially been underway since the so-called “shot heard round the world” the preceding spring.

The men that gathered in Philadelphia that summer to bring together a new nation came from all walks of life, but it seems fair to say that most were men with something to lose. True, many were merchants (some wealthy, including President of Congress John Hancock) already chafing under the tax burdens imposed by British rule, and perhaps they could see a day when their actions would accrue to their economic benefit. Still, they could hardly have undertaken that declaration of independence without a very real concern that they might well have signed their death warrants. Nor did they even represent the position of a majority of their countrymen at the time – historians have said that only about a third of the nation favored independence, while a third remained loyal to Britain (the remainder apparently just wanted to be left alone).
Ironically, despite tomorrow’s celebrations, the resolution that declared that “these United Colonies are, and of right, ought to be, Free and Independent States” was approved by the Continental Congress on July 2. In fact, only President of Congress John Hancock and Charles Thomson, secretary, signed it on the 4th (the former in a hand "large enough for King George to read without his spectacles"). Most of the 56 delegates didn't sign it for another month. One didn't sign until 1781.

Of course, that declaration was neither the beginning nor the end. The winter at Valley Forge still lay ahead, and Cornwallis' surrender at Yorktown was still more than five years off. An official end to the hostilities would not come until 1783. Despite all those sacrifices, less than a hundred years later, as the nation approached another Independence Day celebration, President Abraham Lincoln would find himself in the middle of an enormously unpopular war fought to keep the nation together, while two armies converged at Gettysburg.

In sum, as monumental an undertaking as it was to state for the ages a belief that we are created equal, “endowed by their Creator with certain unalienable Rights,” among those “Life, Liberty and the pursuit of Happiness” – we continue to enjoy the exercise of those rights only because people have, over the ensuing years, been willing not only to defend our rights, but to sacrifice so that others could enjoy the exercise of those same freedoms.

This Independence Day, let’s keep those who continue to risk their lives in the pursuit of liberty for all in our prayers.

- Nevin Adams

You can read more about the Declaration of Independence at