Nevin's Data "Points"

Every plan, and every investment committee, is unique — and yet, conducted properly, there are inevitably areas of commonality. As the quarter draws to a close and preparations for these meetings get underway, here are some questions that could enhance the discussion, if not the outcome, of your next meeting. 1. Do we really need to have all these funds on the menu? We know that participants tend to hold four or five funds on average, regardless of how many choices are on the menu. And for years we’ve known that the more choices participants have, the more difficult it is for them to make choices. (Remember the famous study about jam choices ?) Sure, it can be hard to let go of a fund, especially if some participants have invested money in that option. But what tends to happen over time is a kind of fund menu inflation, where new funds get added but old ones never leave. The funds on your menu should have a purpose. If they don’t — even if they once did — you aren’t doing anyon...

A research paper finds that introducing a Roth 401(k) option doesn’t have much impact on current plan savings rates — but what does that have to do with their preference for tax preferences? Well, according to “Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions,” governments could actually increase private savings by taxing savings up front, rather than in retirement. This conclusion basically suggests that taking away the current 401(k) pre-tax contribution and replacing it with a Roth assumption would not only not decrease, but it might actually increase , retirement savings, and with no additional cost to the government. For years a key education element touted about 401(k) plan participation has been the ability of the individual to put off paying taxes on their contributions and on the earnings attributable to those contributions (and those of their employer, if any) until retirement, at which point they would ostensibly find themselves in a...

Recently the Government Accountability Office (GAO) released a report titled with its conclusion: “ Most Households Approaching Retirement Have Low Savings .” The title was no surprise — though the definitions of “most” and “low” bear further understanding. The GAO Analysis The GAO based most of its conclusions on findings from the 2013 Survey of Consumer Finance (SCF), conducted by the Federal Reserve every three years. It is a reputable and well-regarded source of consumer information, drawn from a sampling of about 6,000 households (different ones every cycle). That said, the information contained is “self-reported,” which is to say that it tells you what the individual thinks they have (or perhaps wishes they had), but not necessarily what they actually have. More on that in a minute. The rationale for the “most” in the headline appears to come from its focus on households age 55 and older, where the GAO noted that (only) 48% had some retirement savings, and thus one mig...

The headlines are all about revenue-sharing, conflicts of interest and statutes of limitation — but the things that are likely to get plans and plan sponsors in trouble are a lot more mundane. Here are seven that are more likely to gum up the works for your average plan sponsor. 1. Not following the terms of the plan document regarding the administration of loan provisions (maximum amounts, repayment schedules, etc.) or hardship withdrawals. Plan documents routinely provide that hardship distributions can only be obtained for certain very specific reasons, and that participants first avail themselves of all other sources of financing before applying for hardship distributions. (These conditions often are incorporated directly from the requirements of the law.) Similarly, loans are permissible from these programs only when they comply with certain standards regarding the amount, purpose and repayment terms. Failure to ensure that these legal requirements are met can, of course,...