Nevin's Data "Points"

It is something of a tradition this time of year to look back, to reminisce about past events and lessons learned, and sometimes to look ahead. Here are some insights from columns past that I hope have been of value in 2017 – and will continue to be in the months ahead. 5 Things You May Not Know About Roth 401(k)s According to a variety of industry surveys, roughly 60% of 401(k) plans now offer a Roth 401(k) option, and Plan Sponsor Council of America (PSCA) data shows that 28.6% of 403(b) plans already allow for Roth contributions. Participant take-up, which just a few years ago hovered in the single digits, is now in the 15-20% range. Here are five other things you may not know about the Roth 401(k). 5 Things People Get Wrong About ERISA Fidelity Bonds One of the most important – and, in my experience, least understood – aspects of plan administration is the requirement that those who handle plan funds and other property be covered by a fidelity bond. ...

A few years back – well, now it’s quite a few years back – when my kids still believed in the reality of Santa Claus, we discovered an ingenious website 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 we said 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) was on the verge of tears, worried that he’d find nothing under the Christmas tree but the lump of coal he so surely “deserved.” In similar fashion, must of those responding to the ubiquitous surveys abou...

Several years ago, I was surprised (and quite pleased) when a friend reached out to tell me that I had made it to one of those retirement industry lists. I was sure he was pulling my leg, of course – but after a couple of congratulatory emails from other associates, I decided to check it out, and sure enough – there I was. At the time, I remembered being more than a bit humbled at my inclusion alongside a number of individuals who, at least in my estimation, were a much bigger deal than I. Still, the recognition was gratifying, particularly when you consider how many very special people in so many different walks of life, work hard, make a difference, have an impact, and yet never really get any kind of public acknowledgement. As much as I like being on those lists, it has been my great good fortune over the years to have a hand not only in evaluating the composition of such accolades, but in determining the categories of recognition. The fir...

The headline of a recent article didn’t pose that as a question. And that should make you think. The article , penned by a not-yet-30-year old, was mostly negative on the nation’s primary private retirement savings vehicle, but to my read, that wasn’t her fault. Rather, it was the net result of the feedback she got from a number of what we might consider the “usual suspects” who garner headlines that bash the 401(k), including (at least indirectly) the man the mainstream media credits with being its “father” (trust me, there’s more to it than that). One of the folks she talked to was yours truly – and while I clearly wasn’t persuasive enough to overturn (completely) the cynicism with which I sensed she came to our conversation (at one point she went so far as to say, “you’re a lot more positive about the 401(k) than anyone else I’ve talked to”). In the course of our conversation we covered a lot of ground – the origins of the 401(k), why traditional pe...

A recent report by the GAO paints a pretty bleak picture of American retirement. Is it accurate? For the most part, the report  covered familiar ground, bemoaning the “marked shift” away from the traditional defined benefit pension plan (glossing over how few private sector workers were covered by these plans, even in their heyday, and the fraction of those who received a full pension), and highlighting low savings rates, the pervasive lack of broad-based access to workplace retirement plans and the daunting challenges confronting even those who do enjoy that access. The report also spends several of its 173 pages chronicling (with pictures) the ways in which “leakage” also undermines retirement savings. And for good measure, it invokes the findings of the Melbourne Mercer Global Pension Index   — which the GAO calls the “most comprehensive” — that ranks the U.S. retirement system 20th out of 25 countries surveyed (and gives us a “C” grade). Indeed, ...

Thanksgiving has been called a “uniquely American” holiday, and though that is perhaps something of an overstatement, it is unquestionably a special holiday, and one on which it seems appropriate to reflect on all for which we should be thankful. Here’s my list for 2017: I am thankful that – for the moment, anyway – it looks as though retirement savings will be largely spared tax reform’s ravages (though I’m not convinced that we’re out of the woods – yet).  I’m thankful that participants, by and large, continue to hang in there with their commitment to retirement savings, despite lingering economic uncertainty and competing financial priorities, such as rising health care costs and college debt. I’m thankful for the strong savings and investment behaviors emerging among younger workers – and for the innovations in plan design and employer support that foster them. I’m thankful that, as powerful as those mechanisms are in encouraging positive savings behavior, we con...

Behavioral finance tells us that human beings are prone to relying on heuristics – mental shortcuts, if you will – to solve complex problems. While these may not be very accurate, survey data and anecdotal evidence suggest that participants often rely on these benchmarks. Here are four that workers use more often than we’d perhaps like to admit. The Company Match Survey data and academic research have long suggested a link between the employer match and the level to which workers contribute. Indeed, there has been evidence (frequently invoked by advocates of the so-called “stretch” match) that it’s not the amount of the match that motivates, but the existence of the match at any level. There is, in fact, evidence that a lot of people save only as much as they need to receive the full employer match (unfortunately, there’s also evidence that many don’t take full advantage – particularly lower income workers – and confusion about how ...

In recent days, we’ve gotten updates on average savings rates and 401(k) balances, and while for the very most part the reports have been positive and “directionally accurate,” I’ve always taken such findings with a grain of salt. Not so many in the press. Indeed, the press coverage of those reports is generally quite negative, in the “how can people possibly retire on those small amounts” vein. Here are four things to keep in mind about those “average” 401(k) balances. Your average 401(k) balance may not be based on very many plans or participants. Some reports of plan design trends and average balances may do so based on a relatively small customer base, and/or homogenous plan size. That doesn’t mean the results are without value – but let’s face it, sample size matters in discerning trends. The average 401(k) balance in a universe of 50 plans is surely less instructive than one that is a hundred times that size. In all surveys, sample size matters. And when it comes to avera...

A few weeks back, my wife and I went to see the updated version of It . Now, I’ve been a fan of King’s work ever since a friend shared a copy of Salem’s Lot with me, though his work doesn’t always translate as well to the big screen. “It” is a malevolent entity that emerges about once every 27 years to feed, during which period it takes on various shapes designed to lure its prey – generally children, and then it returns to a hibernation of sorts. “It”’s most notorious incarnation is, of course, Pennywise the Dancing Clown (the lovely visage below). Ironically, tax reform too seems to be a once-in-a-generational thing. It’s been 30 years since the Tax Reform of 1986 cut tax rates 1 – and cut into retirement plan saving and formation with the creation of the 402(g) limit (and its tepid COLA pace), not to mention the cost and timing issues associated with multiple iterations of the nondiscrimination testing that often produced problematic refunds for the highly compensated group. T...

It is all too common in human affairs to make choices that have “unforeseeable consequences.” And then there are those situations where people should have known better. Like the current rumors about capping employee pre-tax contributions at $2,400. Having the opportunity to put off paying taxes is something that most Americans relish — even those whose tax bracket means they really don’t wind up owing taxes. While there’s plenty of evidence to suggest that it is the employer match, rather than the (temporary) tax deduction that influences worker savings, most are happy to get both. Indeed, the ability to defer paying taxes on pay that you set aside for retirement is part and parcel of the 401(k) (though cash or deferred arrangements predated that change to the Internal Revenue Code). Enter the talk about “Rothification” — the limit, or perhaps even complete elimination, of pre-tax contributions to 401(k)s. While a definitive notion of how participants would respond remains elusive...

All too often the innovations honored with a Nobel Prize fly under the radar of “regular” Americans. But that wasn’t the case last week when the work of University of Chicago’s Richard Thaler was acknowledged. Thaler was, of course, recognized by the Royal Swedish Academy of Sciences, who said that his focus on limited rationality, social preferences and lack of self-control has “built a bridge between the economic and psychological analyses of individual decision-making.” More plainly, to my reading, Thaler (finally) managed to prove to economists that human beings don’t (always) act rationally and/or in their own self-interest. Now, anybody who has ever actually interacted with human beings knows this. Indeed, in some ways the most amazing thing about Thaler’s insights of this reality is that it is seen as being innovative by economists. 1 I still remember reading the report that Thaler and Schlomo Benartzi authored way back in 2004, “ Save for Tomorrow: Using Behavioral Economi...

There’s an old saying that when you assume… well, here are five assumptions that can create real headaches for retirement plan fiduciaries. Assuming that not being required to have an investment policy statement means you don’t need to have an investment policy. While plan advisers and consultants routinely counsel on the need for, and importance of, an investment policy statement (IPS), the reality is that the law does not require one, and thus, many plan sponsors — sometimes at the direction of legal counsel — choose not to put one in place. Of course, if the law does not specifically require a written IPS — think of it as investment guidelines for the plan — ERISA nonetheless basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, plan sponsors (and the advisors they work with) will find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those ...

If you’re still struggling to figure out how to reach Millennials (even if you are a Millennial), take heart – there’s (already) another generational cohort entering the workforce. This new cohort is called Generation Z (at one point, Millennials were referred to as Gen Y, so…) – they are, generally speaking, children of Gen X – born in the mid-1990s, and separated from Millennials by their lack of a memory of 9/11. Gen Z is, in fact, already entering the workforce – and, according to the U.S. Census Bureau, they currently comprise a quarter of the population. They are seen as being more “realistic” when it comes to life and working than Millennials, who have been characterized as more “optimistic.” Gen Z is said to be more independent and competitive in their work than the collaborative Millennials, more concerned with privacy (Snapchat versus Facebook), and are said to have a preference for communicating face-to-face. It’s said they’ll eschew racking up big college debt, and are...

In the course of my day, I talk to (and email with) people, read a lot, and every so often jot down a random thought or insight that gives me pause and makes me think. See what you think. Disclosure isn’t the same thing as clarity. Sometimes it’s the opposite. It’s not what you’re doing wrong; it’s what you’re not doing that’s wrong. Sometimes just saying you’re thinking about doing an RFP can get results. The best way to stay out of court is to avoid situations where participants lose money. The key to successful retirement savings is not how you invest, but how much you save. It’s the match, not the tax preferences, that drives plan participation. Does anybody still expect taxes to be lower in retirement? If you don’t know how much you’re paying, you can’t know if it’s reasonable. You want your provider to be profitable, not go out of business. Retirement income is a challenge to solve, not a product to build. When selecting plan investments, keep in mind the 80-10-10 r...

In about a month, the IRS will announce the new contribution and benefit limits for 2018 – and that could be good news even for those who don’t bump against those thresholds. These are limits that are adjusted for inflation, after all – designed to help retirement savings (and benefits) keep pace with increases in the cost of living. In other words, if today you could only defer on a pre-tax basis that same $7,000 that highly compensated workers were permitted in 1986 – well, let’s just say that you’d lose a lot of purchasing power in retirement. But since industry surveys suggest that “only” about 9%-12% currently contribute to the maximum levels, one might well wonder if raising the current limits matters. Indeed, one of the comments you hear frequently from those who want to do away with the current retirement system is that the tax incentives for 401(k)s are “upside down,” that they go primarily to those at higher income levels, who perhaps don’t need the encouragement to save....

A recent ad campaign focuses on the distinction between identifying a problem and actually doing something about it. In one version  a so-called “dental monitor” tells a concerned patient that he has “one of the worst cavities that I’ve ever seen” before heading out to lunch, leaving that cavity unattended. Another features a “security monitor” who looks like a bank guard, but only notifies people when there is a robbery. As an industry, we have long worried about the plight of the average retirement plan participant, who doesn’t know much (if anything) about investing, who doesn’t have time to deal with issues about their retirement investments, and who, perhaps as a result, would really just prefer that someone else take care of it. What gets less attention — but is just as real a phenomenon — is how many plan sponsors don’t know anything about investments, don’t have time to deal with issues about their retirement plan investments, and who, perhaps as a result, would — y...

In addition to the books, reference guides, and a few personal “knick knacks,” I have for years had in my office a couple of model cars – but not for the reason people generally think. These models happen to be Studebakers (a 1950 Champion, a 1953 Starliner and a 1963 Avanti). I’d wager that a majority of Americans have never even heard of a Studebaker, and the notion that a major U.S. automobile maker once operated out of South Bend, Indiana would likely come as a surprise to most. I keep them in my office not because I have an appreciation for classic cars (though I do), but because of the role the automaker played in ERISA’s formation. Born into a wagon-making family, the Studebaker brothers (there were five of them) went from being blacksmiths in the 1850s to making parts for wagons, to making wheelbarrows (that were in great demand during the 1849 Gold Rush) to building wagons used by the Union Army during the Civil War, before turning to making cars (first electric, then gaso...