Nevin's Data "Points"

Generalizations are often misleading, but I think it’s fair to say that some people (specifically those of the male gender) are notoriously reluctant to ask for directions—even when it’s painfully clear to everyone else traveling in their company that they are “lost.” If you’re not one of those people, I’ll bet you know someone (and probably more than one someone) who is.¹ The rationalizations offered by those refusing to seek help are as varied and variable as the individual circumstances that bring those hesitations to light: a shortage of time; certainty that, however lost they seem, they actually know where they are (or will be shortly); a lack of trust in the reliability of the instructions they might receive; the inconvenience of stopping…this despite the knowledge (frequently even among those reluctant to ask directions) that the modest investment of time to seek assistance will likely be far less than the time (and aggravation) that they will expend trying to find their own w...

There is an old adage that cautions about the consequences “when you assume…” And yet, the business of retirement planning is replete with any number of so-called “common wisdom” rules of thumb. Doubtless many have well-intentioned origins – to make complicated concepts easier to grasp, and thus to address. One of the more pervasive notions is that a realistic target for retirement savings can be determined by accumulating a sum that will provide an income stream equal to a percentage of one’s pre-retirement earnings – a sum that is generally expressed as 70-80% of what you earn prior to retirement. This starting point - generally called a "replacement ratio" - includes any number of imbedded assumptions, perhaps most significantly that the individual will need to spend less post-retirement, generally understood to be on things such as taxes, housing, and various work-related expenses (including saving for retirement). Moreover, the replacement rate approach represent...

Today PLANSPONSOR opens nominations for our Retirement Plan Adviser of the Year awards. Each year we receive a number of inquiries from advisers and plan sponsors about the awards, and many of these fall into a category I tend to think of as “exploratory”—feelers as to what we are looking for. At its core, what we hope to acknowledge—and, thus, what we are looking for—hasn’t changed 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. 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. A Different World The world has, of course, undergone much change since we first launched those awards, and advisers now have an expanded...

I have watched with increasing interest the growing furor over the Department of Labor’s proposed new fiduciary definition. My first impressions of the proposal were positive: generally speaking, IMHO, the more people who work with ERISA plans that conduct themselves as ERISA fiduciaries, the better. The notion that broadening that standard would serve to “run off” those not as committed to this business bothered me not at all. However, and as is often the case with new regulations, areas of concern began to pop up. Those involved with the valuation of privately held stock in Employee Stock Ownership Plans (ESOPs) were initially most strident, though the work they do has a tremendous impact on thousands of employer and employee accounts. More recently, and of more interest to many advisers, the Department of Labor’s temerity in bringing IRA accounts under the ERISA fiduciary umbrella has drawn fire from “more than three thousand advisers,” according to the Financial Services I...

Three things every adviser (and provider) wishes plan sponsors understood about recordkeeping conversions: Everybody wants to change providers on January 1. Everybody can’t. If your plan year end is December 31 (and it is, for the vast majority of plans), there are some real benefits to making a provider change at that point in time. Plan reporting—both participant and regulatory (Form 5500)—is quite simply neater when you finish the reporting year at the same time you conclude your arrangements with a provider. Anything else is going to require someone somewhere to “splice” together reports at some point. Doing so doesn’t have to be a big deal—but it can be “awkward.” There are some reasons not to make those kinds of changes at year-end, of course. First off, there’s generally quite a queue wanting to do so. You may well be able to get in that queue, but your new provider will likely have their hands full with a lot of plans just like yours. More significantly, your soon-to-be...

Plan sponsors spend a lot of time wondering—and worrying—about the “right” way to do things. They rely on the guidance of experts, the insights of publications like ours, the black—though often gray—letter of the law, and sometimes they must rely on the occasionally contradictory adjudications of the courts. Those contradictions have been much in evidence in the series of 401(k) revenue-sharing lawsuits, which, IMHO, continue to suffer from what seems to be a confusing “flexibility” in judicial discernment regarding the standards of fiduciary responsibility and application of ERISA’s 404(c) safe harbors. In fact, it is only a matter of time until some plan sponsor somewhere files an injury claim for whiplash incurred from simply trying to keep up with the direction of these decisions. The most recent example was the case of Gerald George vs. Kraft Foods Global (see Appellate Court Sends Back Kraft Fee Case ), a case the 7th U.S. Circuit Court of Appeals remanded (albeit in a split ...

One of the first things you learn in any kind of ERISA primer is that, as a fiduciary, you are expected to conduct yourself either as if you are an expert, or hire someone to help you who is. This so-called “prudent expert” rule is, of course, a significantly higher standard than the one applied to mere common- law fiduciaries—in fact, it is generally described as the highest legal standard. Of course, plan sponsors have long relied on the help of experts—attorneys, third-party administrators, investment managers, and recordkeepers—if only because so much of what a plan sponsor must do in operating their retirement program requires their active involvement. Not so retirement plan advisers, who, for many plan sponsors, remain something of an optional enhancement to their program. That said, in an environment that remains a legislative, regulatory, and operational thicket for even the most active and engaged plan sponsor, it is a plan option that is rapidly becoming standard equipmen...

Believe it or not, PLANADVISER Magazine is five years old this year. As such, we wanted to commemorate our fifth anniversary by recognizing as “legends” five individuals who had made a “significant personal impact to the retirement plan industry and the advisers who support it”. Now, perhaps you think that would be easy—but I can promise you it’s harder than it looks. And over the past several weeks we have gone through our list—moving some off, bringing others on, and “sleeping on it” more nights than you might think. First off, we limited the list to five individuals (for five years), and we also tried to focus in on the past five years. Limiting the list to five was hard enough (certainly once we got started), but trying to focus in on the period since we launched the magazine created an even more daunting task. Sure, it was “only” five years ago, but it’s amazing how much has happened during that time. That was the year the Pension Protection Act was signed into law, after all,...

If 2010 was not quite the return to “normal” we might have hoped, there was more than enough—both new and old—to draw the attention of plan sponsors. Here is the second part of our look at the trends that were on our mind this past year—and those just over the horizon. Stop Gaps: Closing the Pension Funding Gap What we said last year : It remains more expensive—and complicated—to walk away from pension commitments than most realize, though many employers remain committed to their pension plans for reasons that transcend those financial considerations. Still, it seems likely that freezes, both hard and soft, will continue to be applied, certainly in the private sector. The public sector’s commitment to pensions remains largely unabated—and yet, a sense remains that it may only be a matter of time before fiscal realities bring about a different result. Where we are : For the very most part, little has changed. Pension funding remains a challenge, with the funding gap seemingly cons...

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...

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...

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...

I participate in a number of LinkedIn groups (and “sponsor” a couple). In one of those groups last week, a member said they were interviewing potential new 401(k) recordkeepers/advisers—and asked a provocative question: What is the one question that you will be sure to ask the next time that you interview potential 401(k) providers? Of course, we all know that the search for a new provider entails a lot more than a single question. And, as I skimmed my way through the suggestions that had already been proffered, there were a number of important and familiar inquiries; things having to do with the fees charged, fee disclosure, the quality of support staff, willingness to stand in as a plan fiduciary…. These are all important—so important, in fact, it was hard to imagine that they wouldn’t be routinely included in even the most casually composed RFP. Having read the question—and skimmed the answers—I was about ready to move on. Ironically, the way this question was phrased (or at leas...

I have always taken seriously the notion that news and information should be presented “straight”, and without commentary. But there are times when it’s hard not to just scratch your head and say “huh?” or laugh out loud at some of the stuff that comes across our news desk. Here’s a (somewhat cynical) sampling from just the past couple of weeks: CONFIDENCE MIEN? A nationwide survey by Citi and conducted by Hart Research Associates found that 44% of investors report being confident in their ability to retire in financial security as they had planned ( said another way, that’s nearly half who DO feel that confident ) . More than a third (36%) said they might need to adjust their plans ( so, do two-thirds not see any need to do so? ), and ( a mere ) 16% said they are not confident in their ability to retire in financial security. Must be a lot of rich uncles out there… MORE “NOTHING” DOING. Throughout one of the most stressful and volatile markets in memory, the vast majority of ...

Having been born in the Midwest, lived a quarter of my life in the South, and now another sixth in the Northeast, I can tell you—people are different. However, having worked for huge firms and considerably smaller ones, I can also tell you that, when people come together in groups, they are not as different as you might think (or hope, as the case may be). There is a “common wisdom” in our business that suggests that all plan sponsors are, more or less, alike; that large plans are the inevitable early adopters of trends that, sooner or later, trickle down to plans of all sizes. Consequently, those who make their living trying to discern trends and patterns frequently focus on the behaviors in evidence at larger programs—figuring that, in three years or so, those same characteristics will emerge across the spectrum. There’s some logic to that perspective, IMHO. Plan fiduciaries frequently draw comfort and solace from the experience of others, and smaller programs can hardly be faulte...

Change is a reality of life. Establishing and maintaining benefit programs that are competitive and distinctive requires an awareness of trends in the marketplace, in the population, in the legislative and regulatory worlds, and in the needs of the workers that your plan sponsor clients hope to attract and retain. While product development and enhancements can certainly play a role, there are also the overarching issues that drive and shape those developments. Here are 10 of which you should be aware. Sandwich “Spread”? Much has been written about the impact of the retirement of the Baby Boomers, the so-called Silver Tsunami. Every day, hundreds—even thousands—in that generational bloc do indeed leave the ranks of the employed, though not always by choice. Still, many are staying—or making plans to stay—longer than they might have chosen in less-stressful times. Indeed, the Boomers increasingly find themselves with a new labeling—the “sandwich” generation—in which they are not only...