Nevin's Data "Points"

Editor’s Note: There’s so much going on in the world of retirement saving and investing that I never feel the need (or feel like I have the opportunity) to recycle old columns – but this one has a certain “evergreen” consistency of message that always seems appropriate – particularly at this time of year. A few years back—when my kids still believed in the reality of Santa Claus—we discovered an ingenious Web site that purported to offer a real-time assessment of their "naughty or nice" status. Now, as Christmas approached, it was not uncommon for us to caution our occasionally misbehaving brood that they had best be attentive to how those actions might be viewed by the big guy at the North Pole. But nothing ever had the impact of that Web site - if not on their behaviors (they're kids, after all), then certainly on the level of their concern about the consequences. In fact, in one of his final years as a "believer," my son (who, it must be acknowledged, had bee

Not so long ago, plan sponsors gauged the success of their defined contribution offerings by a single metric: participation rate. It’s not that they didn’t pay attention to other criteria, but participation rate is objective, easy to calculate, and, certainly for a voluntary savings program, it’s not an inappropriate gauge of the program’s perceived value. Over the past couple of years, a growing number of plan providers have brought to market a new set of plan diagnostic measures, measures that not only show individual and plan balances, but also project those balances out to an estimate of what those balances will provide in retirement income, or presented as a measure of retirement readiness—compared with an established level of income replacement. It’s not a new idea, of course. Heck, there has even been legislation introduced to place—on participant statements—a projection as to what the participant’s monthly retirement income would be. Meanwhile, despite long-standing fears th

This week I will undergo one of those “you’re getting older” physicals. This has been scheduled for about six months now (yes, that’s how long it takes to get in for a physical these days)—and I have dreaded it, more or less consistently (and, more recently, constantly) ever since the appointment was made. I know that I’m eating too much of the wrong things, and not exercising enough (at all?)—and while I sincerely meant to alter some of those behaviors over the past six months, other things have taken priority. What remains to be seen is what my doctor will see/say—and what, if any, lifestyle changes lie ahead. In random conversations over the past several weeks, it was easy to find people who were supportive of the need to do something about the yawing federal deficit, and even easier to find folks who had problems with one—or more—of the recommendations of the so-called Deficit Commission that were made formal last week. Like my trip to the doctor, we all knew that we had some f

Having recently had a couple of new members join our 401(k) investment committee, I asked our investment adviser to conduct a briefing so that the new members – and those already serving on the committee – would have a better understanding of the responsibilities of being on that committee. Most of that session focused on what was expected of them: the requirement to act solely in the interests of plan participants and beneficiaries, the importance of process (and documenting that process), and the implications of the prudent expert rule. However, aside from the obvious motivations in helping my co-fiduciaries know what was expected of them1, at the conclusion of our session, I tried to summarize for our committee three things I think every investment committee member should know—and that, IMHO, kept top of mind, serve to keep an appropriate focus on those responsibilities: You are an ERISA fiduciary. Even as a small and relatively silent member of the committee, you direct and influ

Thanksgiving has been called a “uniquely American” holiday, and one on which, IMHO, it is fitting to reflect on all we have to be thankful for. Here's my list for 2010 : I’m thankful that the vast majority of plan sponsors continued to support their workplace retirement programs with the same match and options as they had in previous years—and that so many of those who had to cut back in 2009 made the commitment to restore some or all of it in 2010. I’m thankful that participants, by and large, hung in there with their commitment to retirement savings, despite the lingering economic uncertainty. I’m especially thankful that many who saw their balances reduced by market volatility and, in some cases, a reduction in their employer match were willing and able to fill those gaps, in most cases by increasing their personal deferrals. I’m thankful that most workers defaulted into retirement savings programs tend to remain there—and that there are mechanisms in place to help them save

In a very real sense, this has been a “rebuilding” year for many plan sponsors and participants: a time spent rebuilding account balances, resurrecting and/or reviving employer matching contributions, a time for shoring up participation rates, and—in some cases—restoring trust. The markets, overall, have been sympathetic to those causes, but in many respects, the still-soft economic trends doubtless weighed on the kinds of dramatic trend shifts that we have seen in recent years. That said, only a quarter (24.9%) of some 6,000 plan sponsor respondents said that “all or nearly all” of their participants were deferring enough to take full advantage of the employer match, a reading that declines sharply with plan size. Additionally, participation rates were roughly flat with a year ago; with responding plans reporting a combined participation rate of 71.5%, compared with 72.3% a year ago. The median participation rate was also lower; 75.0% in 2010, compared with 78% in last year’s surv

The morning after last week’s mid-term elections, a plan sponsor friend of mine called me up and asked me what I thought it all meant. Still bleary-eyed from sitting up watching the returns pile in the night before, I immediately launched into what I felt was an insightful assessment of the mood of the electorate, the trends of various interest groups that had, at least according to exit polling, shifted allegiances since 2008, the influence of the Tea Party, and the historical context of the shifts. After patiently listening to me ramble for several minutes, he finally interjected—“I mean, what does this mean for retirement plans.” Well, IMHO, you can’t completely separate the two. By any measure, the results were historic; Democrats lost their so-called 60-vote “super majority” in the Senate and, more significantly, control of the House, and in numbers that outpaced 1994’s turnaround (though that election also gave Republicans control of the Senate). That will certainly slow, if no

A couple of weeks back, the Social Security Administration announced that, for the second year in a row—but only for the second time since 1975—there would be no cost of living adjustment (COLA) for Social Security recipients. Of course, this close to an election, it should come as no surprise that some went scurrying to introduce legislation that would provide some kind of supplemental funding to the nation’s seniors; similar actions were undertaken a year ago, ostensibly in the interests of economic stimulus, as well as the importance of supporting those on fixed incomes. But this election year is one unlike most, perhaps any, in our memory—and concerns about the federal budget deficit have, thus far, overcome the political class’s natural inclinations in such matters. Whether or not you are on a fixed income, it’s hard to credibly argue that prices aren’t rising on everything from food to gasoline to utilities; from real estate taxes (those reassessments never come as rapidly when

Last week the Labor Department issued a proposal that would, by its reckoning, provide the first update to the definition of an ERISA fiduciary since shortly after the birth of the federal regulation (see DoL Broadens Fiduciary Net ). The move was much-anticipated and, in the eyes of many, long overdue. Clearly, the Labor Department wanted to narrow the exceptions to that definition (that were, somewhat ironically, put in place by the Labor Department of 1975) and, in the process, subject more advisers to ERISA’s fiduciary standards. At a high level, the Labor Department is seeking to restore the two-part test for fiduciary status found in ERISA, one that was expanded to be a five-part test in the 1975 regulations. The proposal seeks to set aside the additional conditions that the advice be rendered “on a regular basis,” that the advice would serve as a “primary basis” for investment decisions with respect to plan assets, that the recommendations are individualized for the plan, and

Last week, the Department of Labor reissued its proposed regulation on participant fee disclosure. Those familiar with the last proposal (put out by the prior Administration—see “ EBSA Finishes Regulatory Package with Participant Disclosure Proposal ”) will doubtless find this one to be a modest improvement (see “ EBSA Releases Final 401(k) Fee Disclosure Rule ”). Aside from the passage of time, this version incorporates additional input from the retirement plan community, financial services regulators, and even participant focus groups—most of it good, and all of it interesting. 1 The rule itself is worth a read for, IMHO, it offers valuable insights not only into the suggestions made, but into the Labor Department’s reaction and response to those comments. As always, the devil lies in the final details, but one senses a strong interest in balancing the desire to give participants more information to make better decisions with the practical realities attendant in providing trans

Last week, I got an early morning call from my daughter. This, of course, is not an everyday occurrence, and since she had driven MY car to work that morning, it didn’t bode well as a start to the day for either of us. Turns out, she had noticed an unusual warning light as she pulled into her workplace—and she had even taken the time to determine its meaning. The good news is, the light indicated nothing more serious than low pressure in one (or more) of the tires. Now, my vehicle routinely prompts me for certain scheduled maintenance visits—many of which I ignore/postpone since they seem mostly designed to keep me spending money at the dealer. Unfortunately, the last time this particular light came on, it was a somewhat belated acknowledgement that one of my tires was flat. Consequently, on this particular occasion, I immediately jumped to the conclusion that we were dealing with a flat tire. By the time I got to the car (fortunately, it was sitting in a parking lot on a brillian

I’ve long had an issue with weight scales, for the perhaps obvious reason that, these days, they frequently deliver a message I’d just as soon not receive. See, even when I’m feeling pretty good about the way I look and feel, those scales generally remind me that is at a weight that I know is not “appropriate” for my height. Over the years, I have rationalized that gap in any number of ways; that those scales are frequently inaccurate, that the definitions of “appropriate” are skewed, even that I’m wearing clothes (or shoes) at the moment that are throwing things off (hey, I’ve got pretty big feet). But since I know, deep down, that those are, after all, mere rationalizations for avoiding the truth, these days I pretty much just treat stepping on scales as I would stepping on a rusty nail—which is to say, I avoid them at all costs…at least until I manage to get back on a regular exercise regimen. My sense has long been that that is how participants approach the issue of figuring ou

Last week, during our PLANADVISER National Conference , I asked a panel of four plan sponsors if their current adviser was a fiduciary—and if that status mattered to them. It’s not the first time I’ve asked that question; in fact, I have asked it of these plan sponsor panels at each of our four such conferences to date (although the plan sponsors were, of course, different). I ask it for one simple reason: While I sense a certain unanimity of opinion on the matter in retirement plan adviser circles, plan sponsors frequently have a more nuanced view. Sure enough, this year a plan sponsor panelist not only said that his adviser wasn’t a fiduciary, but that he wasn’t at all sure why that mattered. In fact, he wondered aloud why an adviser would want to go to jail with him if something went awry. Now, you could tell that many of the advisers in the room were surprised, perhaps stunned, by that statement. And yet, IMHO, that plan sponsor demonstrated what I felt was a pretty insi

Last week, the Treasury Department and Department of Labor held two days of joint hearings on the subject of retirement income (see Lifetime Income Hearing Witnesses Demand Fiduciary Shield ). There was discussion about the need for product design enhancement (though much of the focus seemed to be on better explaining what was already available); better (i.e. cheaper) pricing for the kinds of institutional purchases these plans might provide (though I’m hard-pressed to see how you get any kind of aggregation benefit in terms of product just because the buyers all work for the same employer); and the challenges of portability, both when a plan changes providers and a participant changes employers. There was also talk about misunderstandings about annuities that no amount of communication or education seems able to dispel (my guess is the hearings won’t alter that dynamic, either), and there was concern about differences in gender-specific annuity tables (and, let’s be honest, gender-s

With our PLANADVISER National Conference just one week away, I found myself turning back to my notes from the PLANSPONSOR National Conference in June. Some of these came from presentations, others originated from the audience, and still others arose in the dozens of side conversations at breaks and such in between the official conference sessions. Some, honestly, are something of a synergy among the three. See if they don’t get YOU thinking… You may not be responsible for the outcomes of your retirement plan designs, but someone should be. How you spend your weekend is a microcosm of retirement. “Free money” isn’t. Retirement income is a lot less of a problem when you have saved a pile of money. You can lead a horse to water, after all—but you can’t make him think. No one expects taxes to be lower in retirement any more. Auto-enrollment is still viewed as a very paternalistic type of event. When it comes to fee comparisons, eventually there will be better sources of information, b

Next week we will launch our eighth annual search for the nation’s best retirement plan advisers. Each year, we receive a number of inquiries from advisers about the awards, many that fall into a category I tend to think of as “exploratory”—feelers as to what we are looking for. Well, at its core, what we hope to acknowledge—and, thus, what we are looking for—hasn’t changed at all from when we first launched the award in 2005: advisers who make a difference by enhancing the nation’s retirement security, through their support of plan sponsor and plan participant information, support, and education. And, since its inception, we’ve focused on advisers who do so through quantifiable measures: increased participation, higher deferral rates, better plan and participant asset allocation, and delivering expanded service and/or better expense management. Now, we’ve always tried to be very transparent about the award, and the process that underlies the selection. That said, I know that some

Last week, Fidelity published some data from their quarterly analysis of participant activity. For the very most part, the data (see Fidelity Finds Q2 Uptick in 401(k) Withdrawals ) revealed what we have come to expect from such reviews: Participants continue to stay the course, deferral rates are largely unchanged (average was 8%), and more increased their rate of deferral (5.3%) than decreased it (2.9%) in the most recent quarter. Additionally, the balance recovery continues apace, with the average account balance up 15% (though for this good news, you have to reach for a year-over-year comparison, because Q2 figures to be a pretty rough one for participant accounts—down 7.6% in Fidelity’s database). However, this report drew more than the customary amount of coverage for its finding that rates of hardship withdrawals and loans were higher—and by some measures, significantly higher—than they were a year ago.1 My initial reaction was that this latter finding was something of an outl

We have long lamented the reality that only about half of this nation’s workers have access to some kind of workplace-based retirement vehicle, and with good reason. Well, we now have bills introduced in the Congress, both House and Senate, that will, eventually, require that every American business that hires 10 or more workers offer them the ability to save for retirement (see Auto-IRA Bill Introduced With Employer Mandates , Auto IRA Bill Introduced in the House ). Now, my first reaction was “it’s about time.” After all, we can talk about inadequate savings rates, inefficient asset-allocation decisions, and egregious revenue-sharing arrangements—but workers with access to the opportunity to save are surely better-served than those without. And any number of studies have shown that those without access to those programs save less—when they save at all—than those who have the opportunity to participate. But honestly, the more I read through the bill 1 summary (and that’s MUCH easi

Last week’s column presented half of a list that I titled “10 things you’re probably STILL doing wrong as a plan fiduciary.” As I mentioned then, this is a compilation based on my experience, the experiences of a group of experts who conducted a panel by the same title at the PLANSPONSOR National Conference in June, and a list of “Common Plan Mistakes” from none other than the Internal Revenue Service itself. Here’s the rest of the list: 6. Not providing required notices to participants (e.g., safe harbor notices or QDIA notices). The law provides plan fiduciaries with certain protections conditioned on the timely provision of notices deemed sufficient to alert participants to their rights and the obligations of the plan fiduciaries. This holds true with so-called “safe harbor” plan designs as well as the selection of qualified default investment alternatives (QDIAs), or the implementation of automatic enrollment, where the participant could opt out of deferrals, select a different d