Nevin's Data "Points"

   I will confess that I am (still) of a mixed mind on imbedding retirement income solutions in 401(k) plans — and a new whitepaper on the implications of the new Investment Selection rule has done little to assuage those concerns. The Morningstar paper — aptly titled “ Guaranteed Income in DC Plans: Evaluating Target-Date Funds with Built-In Annuities ” — covers a lot of ground. That said, more than half the paper is background [i] — chronicling both the trend lines to date, as well as offering a readable description of the two primary types of retirement income options that have found their way into the target-date fund framework (and yes, they’re quite different!). Those trendlines have captured the attention (and doubtless recirculation) of the paper, particularly among proponents. But the “meat” of the paper considers the implications of applying the Labor Department’s “new” Investment Selection Rule (though its official label at present remains “ Fiduciary Duties in Sel...

Resistance to retirement plan innovations (like automatic enrollment) have long been excused as being “too paternalistic” – but there might be a better standard. We’ve all heard it – concerns that imposing certain default choices on participants (and sometimes plan sponsors) are, however well-intentioned, intrusive and demeaning. Generally speaking, such concerns aren’t challenged – we “get it,” after all – most of “us” are do-it-for-myself types. Of course, most participants aren’t – and there’s plenty of anecdotal evidence that workers, and particularly younger workers, WANT that kind of proactive support from their employer. All of which calls to mind a new standard – one first (to my ears, anyway) articulated in the Nevin & Fred podcast by none other than Fred Reish. See, Fred was talking about explaining to his daughter what a fiduciary was – and she quickly grasped the concept, applying it to her mother and her support for her kids in looking out for them...

Could lifetime income disclosures undermine retirement savings? Over the past several years, a growing amount of attention has been focused on the decumulations of defined contribution plan balances in retirement – and a sense that the emphasis on account growth, and account balances, glosses over the reality that at some point in the future those savings will need to be turned into a retirement paycheck. Enter the SECURE Act, which among its numerous retirement-related provisions added the new “lifetime income disclosure” requirements  to ERISA’s benefit statement rules. It applies to individual account plan benefit statements and the lifetime income disclosure must be provided in one benefit statement during each 12-month period. Simply stated, the new law requires that the participant’s total accrued benefit be expressed as a “lifetime income stream” in the form of a single life annuity and a qualified joint and survivor annuity, assuming the participant has a ...

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 – and who am I to buck that trend? Here’s a look back – and some “things” that I hope will help lay the groundwork for a productive and prosperous 2019 for both you, and those you serve. 5 Things of Which Plan Fiduciaries Need to Be Aware Whoever said ignorance was bliss surely wasn’t talking about fiduciary litigation. 5 Key Industry Trends You May Have Missed Here are five key trends highlighted in the Plan Sponsor Council of America’s 60 th Annual Survey of Profit-Sharing and 401(k) Plans that you may have missed. 7 Reasons Retirement Income Solutions Stall A recent report suggests that participants are “clueless” about decumulation. And who can blame them? 6 Things Those Who Don’t Get the Saver’s Credit Don’t ‘Get’ About the Saver’s Credit  Here are six things that people who don’t get the Saver’s Credit – and so...

A recent report suggests that participants are “clueless” about decumulation. And who can blame them? Actually, the issue is perhaps more basic than a decumulation strategy. The report  – by Cerulli Associates – based that conclusion on a survey that merely asked 401(k) investors who were at least 45 what they planned to do with those savings when they retired. In response, a quarter said they didn’t know, and another quarter said they planned to consult with an advisor – an alternative that Cerulli characterized as “a marginally more prepared version” of the same response. I’ve long noted that while workers love pensions, they hate (or are at least ambivalent about) annuities – and while there’s a bit of hyperbole there, at least as things stand today, writ large, plan sponsors still seem to be keeping retirement income options at arm’s length  – and by that I mean outside the plan’s distribution options. Participant interest and takeup is even less enthusias...

One of the great concerns of our industry — when we aren’t worrying if people have saved enough for retirement — is worrying about how those savings are going to last through retirement. Enter to that debate a recent report from the Government Accountability Office (GAO) that basically takes the Labor Department to task for not doing enough to encourage the use of lifetime income options in workplace retirement plans. Sure enough, it’s been hard for lifetime income options to get traction with retirement plans. The GAO rightly outlines a number of the concerns typically articulated with these options — which are well known to those who have looked to remedy the situation (see “ 5 Reasons Why More Plans Don’t Offer Retirement Income Options” ). GAO Alternatives So, what suggestions does the GAO have for the DOL? Well, the GAO has several specific suggestions, including that the DOL: do more to clarify the safe harbor for selecting an annuity provider; consider providing lega...

A frequent commentary on today’s plan designs is that they are more focused on accumulation than the eventual spend-down of those savings. It’s said that defined contribution plans too often not only facilitate lump-sum distributions, but, in design at least, encourage them. And yet, despite a growing awareness of the importance of retirement income planning, PLANSPONSOR’s 2014 DC Survey  finds that nearly half of plan sponsors offer no income-oriented products to their participants. Here’s five reasons plan sponsors give for not offering retirement income options. 1. There is no legal requirement to provide a lifetime income option. Let’s face it, it’s a full-time job just keeping up with the plan provisions, standards, participant notices and nondiscrimination tests that are required by law. The notion that a plan sponsor would, in the absence of a compelling motivation take on extra work, and work that carries with it additional financial and fiduciary responsibility a...

One of the most valuable skills in my profession — and perhaps in any profession — is an ability to discern trends early. Just as valuable is the ability to discern the sometimes fine line of distinction between what may be a trend, and what may, in fact, be nothing more than a fad. Most plan sponsors have a functional aversion to the latter, and the vast majority have no real passion for being too early in the adoption of the former. After all, nowhere in the fiduciary directive to do only things that are in the best interests of participants and beneficiaries will you find an admonition to be “first.” One must be careful in making generalizations about such things, of course. The difference between a fad and a trend is often no more than one of time and acceptance, after all, and each plan sponsor situation is based on hugely independent factors. Still, in working with plan sponsors over the years, I have found that a new idea/product can quickly evolve to become a trend if it: ...

There’s a saying that “the best laid plans of mice and men often go astray,” and one need look no further than the experience of a morning commute to see the principle in action. While we all head to different places from different places, most head out for work at what for each of us is likely a consistent, regular time. That timing may be driven by external or internal factors: a mass transit schedule, by our desire to avoid traffic congestion, the constraints of fellow passengers, or simply by a need to arrive at our place of work at a specific time. But for most of us, on most days, the regularity of that schedule provides a certain dependable start to our days. It doesn’t take much to disrupt that start, unfortunately—as anyone who has ever awakened to an unexpected snowfall, encountered the impact of a traffic accident on a major thoroughfare, or slept through a snooze alarm can attest. Sometimes we can make up the time loss imposed on our commute, sometimes we simply have to...

One of my favorite memories of visiting my grandparents over the holidays was working on jigsaw puzzles. These were generally large, complicated affairs—whose construction was spread over days, as various family members would stop by to work on a section, to build on a border, or sometimes contribute a single piece they would spot as they drifted by on their way to another activity. Perched in a prominent place throughout would be the puzzle lid with that all-important picture of what we were working toward to help keep all those individual, and sometimes fleeting, efforts in the proper perspective, that made it possible to differentiate the blue of what would appear to be sky from what would turn out to be an important, but obscure section of mountain stream. In retirement plans, one of the more intransigent concerns for policy makers, providers, and plan sponsors alike is what has been called the “annuity puzzle”—the reluctance of American workers to embrace annuities as a distr...

Last week we published 1 the results of an update of EBRI’s Retirement Readiness Rating from the Retirement Security Projection Model® (RSPM). That model, which has been modified over the years to take into account certain structural and market changes, 2 projects that more than half (56 percent) of Boomers and Gen Xers will be able to retire with enough money to cover the cost of basic retirement needs as well as uninsured health care costs, including stochastic expenses from nursing home and home health care. 3 On the other hand, that same model projects that about 44 percent won’t have “enough” to cover those expenses. It’s worth noting that the trends are positive. Even after the toll of the 2008 financial crisis, the 2012 number of those at risk of running short is some 5−8 percentage points “better” than what was found in 2003. Moreover, the analysis is able to point to some important trends; eligibility for a workplace retirement plan remains a significant factor in reduci...