Thursday, December 24, 2015

Naughty or Nice?

A few years back — when my kids still believed in the reality of Santa Claus — we discovered an ingenious website.

This was a website that purported to offer a real-time assessment of your “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 website — if not on their behaviors (they were 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 been particularly naughty that year, and he knew it) was on the verge of tears, worried that he’d find nothing under the Christmas tree but the nuggets of coal in his stocking he so surely deserved.

Bad Behaviors?

With so many reports purporting to chronicle the sorry state of retirement confidence and lack of preparations (think the two might be connected?) among Americans, it seems that many participants act as though some kind of benevolent elf will drop down their chimney with a bag full of cold cash from the North Pole on retirement’s eve. They behave as though, somehow, their bad savings behaviors — and incessant warnings — throughout the year(s) notwithstanding, they’ll be able to pull the wool over the eyes of a myopic, portly gentleman in a red snow suit.

Ultimately, the volume of presents under our Christmas tree never really had anything to do with our kids’ behavior, of course. As parents, we nurtured their belief in Santa Claus as long as we thought we could (without subjecting them to the ridicule of their classmates), not because we expected it to modify their behavior (though we hoped so from time to time), but because we believed that kids should have a chance to believe, if only for a little while, in those kinds of possibilities.

We all live in a world of possibilities, of course. But as adults we realize — or should realize — that those possibilities are frequently bounded in by the reality of our behaviors, be they “naughty” or nice. This is a season of giving, of coming together, of sharing with others. However, it is also a time of year when we should all be making a list and checking it twice — taking note, and making changes to what is naughty and nice about our savings behaviors.

Yes, Virginia, there is a Santa Claus — but he looks a lot like you, assisted by “helpers” like the employer match, your financial adviser, investment markets and the tax incentives that encourage workplace retirement plans and your ability to save.

Happy Holidays!

- Nevin E. Adams, JD

p.s. The Naughty or Nice site is still online (at, and it now includes suggestions for how to improve your standing, should that be required. Those looking for suggestions on how to improve your savings standings can check out, along with the Ballpark E$timate, to see how you’re doing!

Saturday, December 12, 2015

6 Tips on Shopping for a Provider

My single memory of venturing out on Black Friday to shop came at the instigation of my “little” sister, who has long undertaken such forays. Nor was this to be a random shopping expedition — armed with circulars and coupons, she directed me and my two brothers with the fervor and furor of General Patton as to which stores we were to invade, the objective(s) of these intrusions, and in some cases, the line(s) in which we would take up residence while she pursued items she (apparently) did not trust to the pursuit of mere amateurs.

Shopping for a new provider is not something one would normally compare with a Black Friday foray, but if you have a plan sponsor — or plan sponsor prospect — who’s thinking about shopping for a new provider, here’s a list they may find useful.

Make a list — and yes, check it twice.

In an area fraught with as much potential complexity as searching for a retirement plan provider, it’s easy to think you’ll learn what you need to look for by simply going through the process. Though learn you will, shopping for a retirement plan provider without a sense of your core needs is a bit like going grocery shopping on an empty stomach; everything will sound good, and you’ll likely overload on “sweets.” Santa Claus makes a list — so should you: of plan design features (real and anticipated) that you want supported.

Know your pain points — and be ready to share them.

If you’ve had a plan in place before, you have almost certainly experienced at least one bump in the road, and perhaps several (and perhaps more than a mere “bump”). At the core of those experiences is something someone either did or didn’t do that contributed to the problem(s). Or maybe you simply have certain areas of sensitivity. Regardless, make sure you’ve detailed those, and be certain to share them with potential providers, preferably with a preface of “what procedures/protocols do you have in place to prevent something like….”

Have — and know — your budget.

These services aren’t free, though they may well be packaged in such a way that the plan sponsor doesn’t have to write a check. At a minimum. know how much you are able — and willing — to pay. And while you’re at it, you’d be well advised to be attentive to the cost(s) of the plan, who’s going to be pay them, and how those who provide services to the plan will be paid, and by whom.

Remember that provider rankings are only a starting point.

Think about it — an unknown number of plan sponsors about which you know nothing in terms of complexity of plan design, capabilities of staff or breadth of perspective/experience or tenure with the provider rate those provider capabilities, and from that a satisfaction score is gleaned.

It’s not a bad place to start — but like those rankings on Amazon, they have a limited value in predicting your satisfaction with that platform. They’ll likely affirm your preexisting preferences or fuel your imbedded concerns, but they aren’t much benefit in creating new ones.

Trust — but verify — references.

Proffered references are, almost by definition, going to be positive. (If they aren’t, and aren’t positioned as negative, that will tell you something valuable about the provider who provided them.) But having taken the time to request them, you shouldn’t assume that no value can be gleaned. Press for references that are like you in terms of plan size, design and complexity. Try to get someone who has converted to their platform in the past year — better still, someone who has left that platform in the past year (though it will likely be due to M&A activity, not service or fees). And ask them what questions they wished they had asked when they went through their process. If you ask them if they are satisfied, they’ll likely say they are. The question is, should they be? And will you be?

Get help.

Unless you are a serial provider shopper, odds are you aren’t an expert at the business of shopping for a provider. It is a complicated and time-consuming process, with an abundance of opportunities for disconnect in expectations simply because you don’t ask the right question(s). As an ERISA fiduciary, you are expected to review (and subsequently monitor) those that provide services to the plan with the skill and expertise of a prudent expert. If you lack that, you are expected to engage the services of someone who does.

Or else run the risk of winding up with a lump of coal.

- Nevin E. Adams, JD

Saturday, December 05, 2015

The 5 W’s: A New Plan Fiduciary Perspective

The Five Ws (or as they are sometimes called, Five W’s and one H) are questions whose answers are considered basic in information gathering in a variety of settings.

There are a lot of questions that plan fiduciaries should ask, but here are five W’s and an H that every new plan fiduciary — or every “old” fiduciary who is new to a plan — should ask.

Who are the (other) plan fiduciaries?

Fiduciary status is based on your responsibilities with the plan, not your title. If you have discretion in administering and managing the plan, or if you control the plan’s assets (such as choosing the investment options or choosing the firm that chooses those options), then you are a fiduciary to the extent of that discretion or control. And, if you are able to hire a fiduciary, then you’re (probably) an ERISA fiduciary because the power to put others in a position of power regarding plan assets is as critical — and as responsible — as the ability to make decisions regarding those investments directly.

But assuming for a second that you are a plan fiduciary, it’s important to know who the other fiduciaries are for the simple reason that all fiduciaries have potential liability for the actions of their co-fiduciaries. If a fiduciary knowingly participates in another fiduciary’s breach of responsibility and conceals that breach or does not take steps to correct it, then both are liable.

What does the plan cost?

Ever made a hotel reservation or rented a car, only to find that the final bill reflected a price that was significantly higher than the price quoted on the firm’s website or in their promotional materials? Sometimes those extra charges are arguably beyond the control of the provider (sales taxes, special local room taxes, etc.), and sometimes — well, sometimes you just feel that the only reason they charged those the way they did was to obscure the actual cost of what you thought you were buying until they had already charged your credit card.

401(k) fees can feel a little like that, in that some fees are explicit, some are implicit, and some are transactional, meaning that they only show up when certain transactions occur (e.g., loans). Odds are that you are familiar with the explicit fees, and you may well be familiar with certain aspects of the implicit ones too. For example, you may know the basis points charged by the funds on your investment menu, on average if not specifically. But when was the last time you multiplied those basis point charges times the dollar value of assets in those funds?

Those fees might not seem like much — and may, in fact, seem “reasonable” expressed as basis points. But do the math and you might be surprised — especially if your plan assets have been growing. (As a reminder, the fiduciary admonition is that the fees and services must be reasonable, and the reasonability of fees charged should certainly be viewed in the context of the services rendered.)

That said, there’s nothing like bringing it down to an individual account level to really put fees in a “real world” perspective. So whether you actually have an “average” participant or need to create one, take the time to figure out how much they are paying for their retirement plan each year. And then ask yourself whether, if they knew that, they would they feel it was “reasonable”? If the answer is “no,” you either have some communications work, or some fee negotiations, ahead.

When was the plan document last updated?

Having a plan document is one thing, finding it (sometimes) another. But if that document isn’t updated to reflect the latest legal requirements — well, that’s a problem.

Where is the plan document (or at least a copy of it)?

On your way to figure out when your document was last updated, you’ll also have an opportunity to locate it. Like most legal documents, plan documents can be rather tedious to read, much less understand. And, like most legal documents, the longer they are in place, the more changes (particularly changes imposed by law, rather than by specific intent) tend to be appended separately, rather than incorporated, making them even more difficult to read, much less understand.

This frequently results in other documents — sometimes those as “official” as a summary plan description, sometimes as ad hoc as a plan sponsor’s “cheat sheet” — being the actual reference for plan administration. There’s nothing wrong with that, of course — unless or until those “other” documents reflect something other than what the actual plan document provides, since plan fiduciaries are accountable for ensuring that the plan is administered in accordance with the plan document. Thus, knowing what the plan document says (and where it can be found so that you can be sure you know what it says) is crucial.

How much insurance coverage do you have?

As an ERISA fiduciary, your legal liability is personal. While employers routinely carry professional liability insurance (sometimes called errors and omission insurance), in most cases that won’t cover ERISA claims. While fiduciary liability coverage is not required by ERISA, plan fiduciaries are well advised to not only see that this separate coverage is obtained, but to verify the conditions and limits of the policy.

Why do we offer this workplace retirement plan?

The kneejerk response to this question is almost always, “to attract and retain qualified workers.” While benefits matter, and can matter significantly depending on individual circumstances, most surveys suggest that benefits, and specifically retirement benefits, are a secondary consideration.

These programs do have costs, of course: the time and effort to administer the program, the costs of the plan itself, the dollars invested in an employer match, and your time (and exposure to liability) as a plan fiduciary. Those costs may pale in comparison to other programs you are expected to oversee — and the return, that ever-present obsession with ROI, may be years down the road.

Still, anything worth doing is worth doing right. And doing a workplace retirement plan “right” generally starts with having concrete goals and objectives: a specific rate of participation, a quantified level of individuals taking full advantage of the employer match, a definite number with appropriate asset allocations in place, perhaps even an established focus on individual retirement readiness.

Regardless of your goals, and how you strive to achieve them, if you don’t know why the plan is offered in the first place, you may well find yourself lacking the principles that every busy plan fiduciary needs, sooner or later, to keep conflicting priorities in balance — and yourself out of trouble.

- Nevin E. Adams, JD