Things That Make Me ‘Mad as Hell’ — Part 2
Last week, I shared a list of things that make me “mad as hell” — things that those in our industry generate, promote and often share as fact without any application of common sense, and no apparent appreciation for the damage done by their complicity in sharing such nonsense.
Here’s the rest of the list:
Reporting on average — well, anything (see Why an Average 401(k) Balance Doesn't 'Mean' Much).
You name it, if it involves numbers from widely varied sources, individuals, or different time periods, somebody in this industry will report it as an arithmetic average. This industry continues to insist on reporting average 401(k) balances, average fees, average estimates on retirement needs, and more recently “forgotten” average account balances. I get it. Averages are widely considered to be a middle of the pack assessment of reality.
But that’s only true when you are averaging things that are similar, and more importantly real. If you take numbers from completely different time periods, from individuals with a wide disparity of existence, or — worse yet — take completely made-up numbers compounded by wild exaggerations — and average them … well, you get mush. And that’s a kind assessment.
Surveys that show an average or median account balance — with no delineation for age or tenure. See 4 Things That Make Me Go ‘Huh?’
So, if you take the average balance of a 24-year old who has just started contributing, and add it to that of a 55-year-old who has been saving for a career — and then average those together … on what planet would that tell you ANYTHING about the real state of retirement plan saving or preparation?
Worse, every year that number is presented against the average (of averages) from the prior year as though that change tells us anything about the actual progress of anything beyond the ability of folks to do simple math, and with no acknowledgement as to just how silly it is to blend together the cumulated savings of individuals who are paid a wide range of salaries, who defer at widely different rates, who live in completely different parts of the country, and who range in age (and participation) from “yesterday” to decades.
Yes, I’d say that your average 401(k) balance is, generally speaking, mathematically accurate — and, at least in terms of ascertaining the nation’s retirement readiness, nearly completely useless.
A single provider survey that shows an average or median account balance. See Why an Average 401(k) Balance Doesn't 'Mean' Much.
Most of these average account balance surveys are, in fact, the average of account balances of those whose balances are maintained by a single firm. Aside from the obvious disparities noted above (age, tenure) that distort the result into meaningless mush, we all know that people change jobs — and that employers change recordkeeping providers — all the time.
So, if my 401(k) balance is part of Recordkeeper A’s portfolio this year, but my employer changes recordkeepers so that my balance (and that of my co-workers) is part of Recordkeeper B’s portfolio the following year — imagine how that might (and should) impact the so-called “average” 401(k) balance that Recordkeeper A reports — suddenly several hundred million dollars “disappear” — particularly when it chooses to apply some percentage change to those two different years.[i]
Tell me again why anybody thinks that number — much less the variance — tells me anything relevant about the state of retirement savings/security.
Surveys that claim participants want things they can’t possibly understand. See Talking Points: (Just Because) Survey Says?
In recent days, we’ve been assured that participants are clamoring to have access to private market investments. Before that, it was cryptocurrency — and for what seems like months now it’s all been about retirement income. Apparently vast majorities of participants are eager to have access through their 401(k) to an array of complex financial instruments to which they have, thus far, been largely (or totally) barred — or so surveys say.
Indeed, I’ve always been amazed that organizations are able to find so many ostensibly knowledgeable participants to weigh in on these complex topics — particularly since there is an abundance of (other) surveys that suggest that when it comes to financial matters, participants are, largely, clueless.
Not that that seems to dampen their collective interest in these new options — though when given a chance to put their money where their mouth is, participants seem to be about as cautious as you’d expect (want?) largely financially clueless individuals to be. Doubtless the questions posed in those surveys are less complex than the actual decision points turn out to be.
That said, and not to be TOO cynical — the vast majority of these surveys are sponsored by, and in many cases, conducted by the very firms that are manufacturing the very products that their surveys say participants want.
I’m not saying they couldn’t have found individuals that do, or that they weren’t able to pose the questions (or present the responses) in a way that supports those conclusions.
But it does make you wonder…
Data “analysis” that takes real stuff, combines it with fake stuff, makes up a new scary-sounding name for it, and then claiming that vast majorities of all the retirement plans in existence are in “violation.” See Talking Points: A Red Flag for a ‘Red Flag’ Report.
As you can tell from the above, there are plenty of mis- or exaggerated positionings of data (real and imagined) to take issue with. But the most egregious example of this in recent memory was a report that claimed — based on an “analysis” of Form 5500 filings — that 84% of all (that’s right ALL) retirement plans in the United States have “at least one likely Employee Retirement Income Security Act (ERISA) red flag from a regulatory and/or fiduciary violation.”
Now, we all know that at any given moment, there are plans with issues. That said, and as with the “analysis” on “forgotten” accounts, this one is just silly on its face. Not that that kept even the trade press from dutifully (almost breathlessly) sharing that headline. And then they proceeded to detail — without comment/context — the basis for that “assessment.”
See, they made up categories; Regulatory Infraction Red Flags (RIRF) and Egregious Plan Mismanagement Red Flags (EPMRF). Nothing illegal about that — and to their credit, they at least detailed the “red flags” that would cause a plan to be tagged in one (or both) of those categories.
Regarding the former, those 1) had loss from fraud or dishonesty; 2) not offering qualified default investment alternatives (QDIA); 3) an insufficient fidelity bond; and 4) not 404(c) compliant. With a straight face, the firm claimed that at least 328,833 retirement plans had at least one of these RIRFs, representing approximately 43% of the total plans. And with an equally (and much more disappointing) straight face, the trade press glossed over the reality that neither offering a QDIA nor being 404(c) compliant were requirements under ERISA.
As for the latter, those “infractions” (their word choice, not mine) were detailed as “1) Not including automatic enrollment; 2) No corrective distribution of excessive contributions; 3) No 404(c) with participant-directed accounts; and 4) Failure to transmit payments on time.” Once again, we don’t have a breakdown of how many in which category, but they claim that at least 584,113 retirement plans had at least one EPMRF, representing approximately 76% of the total plans. And, once again, they just ignored the reality that neither automatic enrollment nor 404(c) compliance is legally required (unless it’s a plan adopted after Dec. 29, 2022, and those won’t yet have shown up in the Form 5500 data). And, once again, the trade press just reported these categories and criteria “straight.”
Look, an advisory firm can set out whatever standards it deems appropriate, affix clever (if arguably misleading) names (and acronyms) to practices that fall short of those individual standards, and even issue a press release proclaiming that it has found the vast majority of plans in existence are found “wanting” based on those standards — doubtless in hopes that it will be picked up and shared uncritically by the media (and read by potential clients).
But is that the kind of firm you’d be wanting to help ensure legal compliance?
What to Do
One would like to think that with the readership here, all it would take is for yours truly to hold this kind of stuff up to the light, and we’d self-correct, or disappear altogether. Worst case, you’d hope that the trade press would at least apply a context filter to their reporting. Sadly, several of the things on this year’s list continue to be reported and carried — with no context or caveat — year after year.
And let’s face it, every time someone writes about them — even critically — it generates both the awareness, “clicks” and impressions that feed and fuel the impact metrics that PR firms used to benchmark success. Like Howard Beale on Network, the crazier and more outrageous the commentary, the more likely it will get picked up. I’ve even tried ignoring the nonsense — but with expanded access to social media, I find that a growing number of “us” are uncritically sharing and forwarding, perhaps on the assumption that you can’t put out a press release with made up stuff in it.
I’ve tried to comment on that stuff — included links to my analysis, where applicable — and hoped to encourage caution, if not responsibility, in those actions. Trust me, folks who don’t like the 401(k) or the private retirement system are looking for this kind of commentary to undermine confidence and support in those systems.
Today I would quite simply ask each of you to pause when you see the types of things I’ve noted here — if you see merit in sharing them, please consider providing context to go with that share.
And if it’s clearly nonsense on its face, please join me in calling it out for what it is — “BS.”
Maybe if enough of “us” hold them to account (and remember that some of “us” are “us”), we’ll all be better informed and better able to help folks build a financially successful retirement.
- Nevin E. Adams, JD
[i] This can, of course, also happen at the individual participant level for someone who changes jobs and takes his/her balance either with them to a different provider, or perhaps takes it out altogether to an IRA.
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