Nevin's Data "Points"

I went to see “I Am Legend” over the weekend. It’s the third cinematic version of the post-apocalyptic story that Richard Matheson wrote in 1954. This weekend’s reviews will (rightfully) be mostly about Will Smith—but Vincent Price was the first to take on the role in 1964 (in “The Last Man on Earth”), as did Charlton Heston in 1971’s “The Omega Man.” Each film, of course, is different—and I’m not just talking about the generous application of CGI. So different, in fact, that while I had read the book and seen the prior two film interpretations (Matheson influenced the 1964 version, but had nothing to do with “Omega Man”), I was distracted by things not happening the way they were “supposed” to happen in the story. The “story” of this nation’s retirement has been similarly well-chronicled. For the very most part, the stories of late have been of the apocalyptic variety—and with some justification, IMHO. Last week, the Government Accountability Office (GAO) published the latest ve...

Having spent three days immersed in PLANSPONSOR’s second annual DB Summit, I was struck by just how relatively “easy” participant-directed plans—be they 401(k), 403(b), or 457- are. Now, I hope you picked up on the use of the word “relatively.” I wouldn’t suggest for a minute that participant-directed programs don’t have their challenges. If the concept of saving is simple enough, the science of investing, compounding, and tax-deferral presents daunting intellectual obstacles for many. Even expert practitioners struggle with notions of “reasonable” fees, appropriate glide paths for target-date funds, and the applicability of QDIA regulations in the “real world.” Over the years, our industry has worked to make participant-directed programs more accessible to participants. More recently, we have accommodated those who don’t want that access (for whatever reason)—or those who prefer to hire experts (or both)—with an assortment of automatic plan design features. Meanwhile, IMHO, defin...

The past year has brought with it an extraordinary amount of change to our industry. And yet, I have yet to meet an adviser—in any setting—who isn’t brimming (some are even bubbling) with enthusiasm for the opportunities they see for their business in all this change. That’s a very different perspective than I hear from their plan sponsor clients. Not that plan sponsors aren’t appreciative of positive change. It’s just that, as a general rule, my experience has been that plan sponsors are significantly more likely to associate change with work, rather than opportunity—and with some justification. Consider the recent finalization of regulations on the qualified default investment alternatives (QDIAs). Plan sponsors finally have some reasonably clear definition of what constitutes an appropriate default investment choice (at least according to the Department of Labor), one that provides a fair amount of flexibility for the sizeable number of plans that previously relied on a stable v...

Two years ago, I wrote about the “next level” in defined contribution designs: a growing interest on the part of plan sponsors in focusing on service elements like participation rates, deferral amounts, and appropriate asset allocation—a precursor, if you will, for the designs that would eventually come to a fuller fruition in the Pension Protection Act. Since then, there have been any number of industry surveys that tout the boom in automatic plan designs—as does ours. And yet, despite the pickup in automatic enrollment programs—23.1% of those 5,500 employers responding to PLANSPONSOR’s 2007 Defined Contribution Survey now have these programs in place compared with 17.1% a year ago—it has yet to manifest itself noticeably in participation rates. The average participation rate reported was 72.7%, and while that is higher than the 70.1% in the 2006 survey, it remains short of the 74.9% reported in 2005—before such programs were the hot trend(1). One explanation for the modest uptick...

Thanksgiving has been called a “uniquely American” holiday, and while that is perhaps something of an overstatement, it is unquestionably a special holiday, and one on which it seems a reflection on all we have to be thankful for is fitting. Here’s my list for 2007: First, I’m thankful for the voluntary nature of the defined contribution solutions in the Pension Protection Act—that plan sponsors were given guidelines and protections for adhering to specific safe harbor approaches, but were not forced to adopt those or prohibited from pursuing their own approaches to things like automatic enrollment (albeit without the regulatory protections). I’m thankful for the Department of Labor’s ongoing willingness—and enthusiasm—for soliciting and incorporating feedback on their regulations from those of us who have to work with them every day. I’m thankful that, despite the mass coverage of defined benefit plan freezes—and the new restrictions imposed on these programs by the PPA and the a...

Last week, as I was surfing the Web, I stumbled across an article titled “Time for Employers to Cut Cord to 401(k) Plans.” These days, I wouldn’t be surprised to see that kind of premise from a pro-business periodical (see “ Why Knots ”)—but the premise here was quite different. The article’s author—Bloomberg’s John Wasik—wasn’t suggesting that employers should get out of the 401(k) plan business because it made good business sense for them, but rather that “employees can benefit from having 401(k)-style plans cleft from their employers because the programs would cease to be a black box of excessive middlemen and management expenses.” The article points to the recent round of hearings on the issue in Congress, “several government reports,” and a recent survey by AARP as proof that employers are not fully disclosing and reducing fees in these retirement programs. And thus, Wasik argues, “[G]iving you more control over your 401(k) will also give you the chance to find the best provid...

I was having coffee with a buddy of mine a couple of weeks back, and before long the discussion turned to music; specifically the new Bruce Springsteen CD. Suffice it to say that he had just acquired it, and was enjoying it immensely. As it turned out, I had had a chance to listen to the album (yes, I’m old enough to still refer to them as albums) online – and had ordered it. I had not, however, received it in the mail yet. My friend – who had picked up his copy at a Starbucks – hesitated – then asked me how much I paid. I then told him (about $10) – and, almost as a courtesy (after all, money had already changed hands) asked how much he had paid. Well, I never did find out – though it was pretty clear he paid more than I did. In fact, I’ve seen the prices that Starbucks charges on the few CDs they stock there, and it may well have been a LOT more. Now, I’m sure the Bruce Springsteen album that was delivered to my house (that very afternoon, as it turned out) was identical in ev...

It may have lacked the hoopla of a midnight Harry Potter release, but in retirement industry circles, last week’s publication of the Department of Labor’s final regulations on qualified default investment alternatives (QDIAs) was nearly as eagerly anticipated. And, like the speculation as to which Potter character would survive the latest saga, the early betting had been that stable value would not make the QDIA cut—and, in large part, that turned out to be the case. Instead, stable-value (or more precisely, capital preservation) vehicle proponents had to content themselves with a sanction as a short-term repository for contributions (up to 120 days—long enough to accommodate the 90-day period that defaulted participants have to opt out), and the assurances from the DoL that they were sure that those vehicles would find a home alongside other options in the time-focused asset-allocation products that were accorded QDIA status (ironically, IMHO, in that regard, capital preservation veh...

I was at a conference a couple of weeks ago, when the CEO of a large, national consulting firm stood up and commented on the increased fiduciary burden that the Pension Protection Act had placed on plan sponsors – an obligation to ensure that participants’ savings are sufficient to provide an adequate retirement. Now, in fairness, I wasn’t paying a LOT of attention to him when he stood up. He wasn’t on the panel, and I was trying to finish taking down some notes from the comments of someone who was. Nonetheless, I think I got the essence of his perspective—that PPA has created a new level of fiduciary responsibility for plan sponsors—correct. Even if I missed some nuance in that particular instance (and I wasn’t the only one to hear it that way), I’m hearing that sentiment more and more these days—at least from the provider community. Now, there are a lot of troubling things in the PPA for defined benefit plan sponsors, though not as bad as many feared, and certainly not as bad now t...

We spend a fair amount of time worrying about the relatively small percentage of workers who choose not to participate—at all, fully, or effectively—in their workplace savings plan. Well that we should, because for a myriad of reasons, they are letting a great opportunity pass them by. However, the real crisis, IMHO, is not about the minority that we hope to stir to action with devices like automatic enrollment, tailored communications, and personal advice. Rather, the real crisis is the majority of American workers who lack even the opportunity to participate in a workplace retirement plan. Certainly, those people are on politicians’ minds, as evidenced by last week’s proposal by Senator Hillary Clinton that purports to provide "universal access to a generous 401(k) for all Americans.” Now, you can argue whether tax credits for the middle- and lower-income workers targeted will be enough to motivate them to take action, and you can certainly take issue with the price tag (and...

The testimony presented at last week’s hearing by the House Education and Labor Committee on the issue of 401(k) fees (see 401(k) Fee Disclosure Proposal Draws Industry Criticism at Committee Hearing ) was remarkably consistent, IMHO, certainly compared with the last time the Committee took up the issue (see Congressional Committee Hears 401(k) Fee Disclosure Testimony ). At a minimum, we seem to have moved past the question of whether more fee disclosure is needed to what kind of disclosures are needed, and how we can make them. At the risk of over-generalizing the perspectives of the individuals (and individuals on behalf of groups) who shared their experience/expertise with the House Committee, it seems to me that everyone supports the following conclusions: (1) We need a better understanding of 401(k) fees. (2) We need more disclosure about what 401(k) fees are. (3) We should let the Department of Labor finish their regulations on fee disclosure before doing anything legislatively...

Despite the variety of advisers, practices, business models, and broker-dealer affiliations at our recent PLANADVISER National Conference, there was a remarkable degree of convergence of purpose in evidence. That was perhaps to have been expected—after all, this was a group of some of the most successful retirement plan advisers in the country. There were, however, a couple of points where perspectives diverged—most intriguingly, IMHO, on the subject of participant advice. Not on whether or not participant advice is needed, of course—mostly on whether or not they should provide advice as a fiduciary adviser. Both National Retirement Partners (NRP) and LPL have signed on with DALBAR’S Fiduciary Adviser Network (FAN), positioning their advisers to be classified as fiduciary advisers under the Pension Protection Act (see “ The Future of the Independent Adviser ” at ). Meanwhile, firms like Merrill Lynch, Raymond James, and Principal have taken a different stance; generally either find...

A year ago, I wrote a column titled “Alphabet Soup” about the challenges associated with getting—and keeping—professional designations that are meaningful to plan sponsors (see “ Alphabet Soup,” PLANADVISER, Fall 2006 ). However, it’s not as though all certifications or designations are hard to come by—and, unfortunately, there are people out there who are willing to take advantage of people. Concerns about unscrupulous financial advisers using faux designations to mislead individual investors have resulted in a number of state initiatives to crack down on how these designations are used. And while stories of unscrupulous advisers are not as hard to come by as one might hope, the designation issue has already garnered coverage in the New York Times. The focus of that story was a “Certified Senior Adviser” in the state of Massachusetts who had allegedly taken advantage of clients, notably senior citizens, in promoting inappropriate insurance investments—and who subsequently was sued ...

"In inflation, everything gets more valuable except money." This week, the eyes of the stock market (and thus the eyes of those of us with 401(k) investments in that stock market) will turn to the meeting of the Federal Open Market Committee—that special subset of the Federal Reserve that determines short-term monetary policy for the nation. The Fed has long—and understandably—been on the alert for signs that inflation might rear its ugly head. Those of us who lived through the 1970s can remember all too well the relentless pressure of wages unable to keep up with prices—and can appreciate the vigilance of the Fed in seeking to keep inflation under control. In fact, for some time now, the Fed has moved preemptively to head off inflation, or so it claims. But anyone who has actually gone out and bought such basic household necessities as food or gasoline is well aware that the costs of living are climbing rapidly. We may well enjoy a sense of growing wealth as we watch hou...

This week, I’m going to do something I never thought I would do again. I’m going to fly on September 11. OK, so, in the overall scheme of things, it’s perhaps not that big a deal. I know that it’s been six years, that part of our not letting the terrorists win is to go on about our normal lives. I don’t even know anyone personally who died in the attacks, though I know people who do. At the time of the attacks, I wasn’t living in the parts of our nation targeted (although we relocated to the Northeast soon afterward). It’s not like I plan to spend some significant part of the day in prayer or contemplation—and it’s certainly not that I believe for one second that there will be a recurrence of those horrific events just because it’s the sixth anniversary. I was, however, traveling by air on that fateful day, only to be grounded hundreds of miles away from friends and family (see Never Forget ). I know that others were stranded farther away from their loved ones—and perhaps for long...

In a business notorious for change, it nonetheless seems fair to say that the past twelve months have been extraordinary ones indeed. In short order, we have had to absorb and assimilate the mandates of the Pension Protection Act, grapple with the portents of qualified default investment alternatives, gird ourselves for the impact of final regulations on deferred compensation plans and 403(b)s—and all this at a time when revenue-sharing practices are drawing an unprecedented level of scrutiny from all quarters. There is nothing like tumultuous times to highlight the value of, and reinforce the need for, expert help for plan fiduciaries. It is also the kind of challenging environment that tends to separate the chaff from the wheat—that sorts out the committed from the merely intrigued. And, yes, it surely plays to the advantage of a profession dedicated to helping plan sponsors construct the right programs, and participants make the best of them. That is why, in 2005, we launched our ...

Here we go again. I’ve been in this business long enough to call to mind several big financial scandals. Not Enron and WorldCom types—ultimately, those were, to my way of thinking, pretty isolated cases, albeit driven by the motivation that seems to drive all financial scandals: greed and hubris. However, over the past couple of weeks, retirement savings balances have been buffeted about by concerns about liquidity in the market, triggered by issues regarding institutions that have (apparently) loaned money to people that were based on property values that were projected to go up—when they haven’t. The problem, of course, isn’t just people being overextended on their mortgages (though that is a problem), or the firms that have allowed that situation to occur (though that is also a problem); it’s that the latter have created a whole category of investments that consist of those unraveling mortgage commitments—and lots of us have money tied up in those investments – or impacted by mon...

These days, the Pension Protection Act of 2006 (PPA) is sometimes referred to as the “Pension Destruction Act.” That’s too harsh an assessment, IMHO, but it certainly has a foundation in reality. Without question, the PPA (it was just a year ago Friday that President Bush signed the legislation into law) imposed some new—and for many plans, harsh—restrictions on funding and accounting for funding. Additionally, it did so after many of the worst offenders and abusers of the system were already “out” (legislation frequently closes the barn door after the cow has escaped), and it did so at a time when many plans seemed particularly vulnerable, and many through no real fault of their own. We may never know how many problems were averted by its passage—and by the time its new defined benefit provisions took hold, investment markets, interest rates, and contribution levels had combined to make the problems confronting pension plans much less severe than they were at the time of the law’s p...

We don’t have a large yard, but it’s big enough to be “unruly.” Despite my best efforts to ignore the unruliness (winter’s coming, after all), my wife—who thinks about things like having a yard that looks like we were in Cabo for the summer—was of a different mind. While there are three teenagers living under our roof at present, we long ago realized that we couldn’t rely on them to see that something needs doing, much less to, on their own initiative, undertake to do something about it (dads can be pretty oblivious as well, but teenagers give a whole new meaning to the notion). They CAN, however, be bribed—er, “motivated”—and their mother made them an offer it would be hard to refuse; cold, hard cash. And while it was a sum well short of what we’d have to pay one of the ubiquitous yard services that swarm through our neighborhood, it was a lot of money to cash-starved teenagers. And it appears to be working. What's In It For Them? I was talking to an investment analyst this p...

Last week, no fewer than a dozen industry trade organizations put their collective heads together and tried to help the Department of Labor—which has been working on a project regarding fee disclosure, and has asked for input—put together some workable principles on retirement plan fee disclosure (see Retirement Associations Submit Fee Disclosure Recommendations to DoL ). Also last week, and perhaps not coincidentally, Congressman George Miller (D-California) did what he has been making noises about doing for some time now: He introduced a bill that would put the force of law behind better retirement plan fee disclosure, both to plan sponsors and plan participants (see Representative Miller Introduces Fee Disclosure Legislation ). Miller’s 401(k) Fair Disclosure for Retirement Security Act of 2007 would go beyond mere words, however. It would mandate the inclusion of at least one “lower-cost, balanced index fund” on retirement plan menus. It’s hard to credibly argue that we shouldn’...

I am fortunate enough to have access to a vast array of studies, research, and surveys about this business. Even more fortunate to have access to a PLANSPONSOR research arm that provides an opportunity not only to gather and analyze, but to pose our own questions to a remarkably diverse audience. Still, as Mark Twain once famously wrote, “There are three kinds of lies: lies, damned lies, and statistics.” (1) We recently ran coverage of a survey that spoke to trends among defined benefit plans. That engendered the following response from a reader: Isn't it interesting how perspective can rule the most simple things? The article you refer to that shows defined benefit plans decreasing in number is such a case. Mercer deals with the larger corporate plan sponsors. Their plans are underwater for numerous reasons and are being terminated in wholesale lots. On the other hand, small companies are making defined benefit plans the plan du jour. There are several reasons fo...

Without question, asset-allocation solutions—particularly target-date fund solutions—are well on their way to becoming a dominating force on retirement plan menus. More than three-quarters of the roughly 5,000 respondents to last year’s Defined Contribution Services Survey already had one of these options on their menu. Moreover, the popularity of these offerings has resulted in a burgeoning number of choices, with what seems like a new introduction every other week, and by some of the most well-known and highly regarded names in the asset management business. Having said that, the notions of what constitutes an “appropriate” asset allocation, much less an appropriate asset-allocation fund—or fund family—are varied, to say the least. Almost as varied as the number of choices, in fact—and it appears that those notions are shifting as well. These “moving” targets (see “ Moving Targets ”) will keep us all on our toes for the foreseeable future—and I suspect that we will all bring to th...