Nevin's Data "Points"

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 ...

The headline in a recent  New York Times  piece cautions that “Confusing Options May Be Coming to Your 401(k). It Could Cost You.” Those “confusing options”? Retirement income. And, ironically, they might undermine support for the most significant piece of pro-retirement legislation in a decade. In fairness, the article  begins by acknowledging to its readers that there might soon be some “welcome changes to the rules governing their retirement savings plans,” but quickly moves on to take to task the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 , which not only brings with it those welcome changes, but a key element that has some consumer advocates all atwitter (literally) – a fiduciary safe harbor for the selection of a lifetime income provider. For years the retirement industry has bemoaned the lack of a lifetime income option in defined contribution plans. Indeed, for all the vaunted talk of the so-called “DB-ificat...

Academics have long agonized over something they call the annuitization puzzle. Simply stated, the thing academics can’t quite understand is the reluctance of American workers to embrace annuities as a distribution option for their retirement savings. Some of that is because they assume workers are “rational” when it comes to complex financial decisions, specifically because “rational choice theory” suggests that at the onset of retirement, individuals will be drawn to annuities because they provide a steady stream of income and address the risk of outliving their income. Compounding, if not contributing to that belief, are surveys – albeit surveys generally published , if not conducted by, annuity providers (or supporters) that consistently find support from participants for the notion of reporting benefits as a monthly payout sum, if not the notion of providing a retirement income option. And yet, despite those assertions, in the “real” world where participant...

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...

While drawing boards have been used by engineers and architects for more than two centuries, the phrase “back to the drawing board” is of much more recent origin, coined by the Peter Arno in a cartoon first published in the March 1, 1941 issue of New Yorker magazine.(1) The cartoon features a crashed plane in the background, a parachute in the distance, several military officials and rescue workers rushing to help/investigate—and one remarkably nonchalant individual, walking in the opposite direction with a rolled up document tucked under his arm as he comments, “Well, back to the old drawing board.” For all the much-deserved focus on retirement savings accumulations, a growing amount of attention is now directed to how those already in (and fast-approaching) retirement are actually investing and drawing down those savings. A recent EBRI analysis(2) found that at age 61, only 22.2 percent of households with an individual retirement account (IRA) took a withdrawal from that account...

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...

On Dec. 8, the Pension Benefit Guaranty Corporation (PBGC) convened a forum on “the Future of Pensions.” The forum was structured around two separate panels of experts (including EBRI President and CEO Dallas Salisbury) who spoke to an audience of pension industry thought leaders on the current retirement landscape, as well as potential enhancements and solutions. Among the insights/observations shared in the session: • In 1975, among those over age 65, 23 percent had pension/annuity income; in 2010, that had risen to 33 percent. • According to EBRI’s Retirement Readiness Rating (RRR) 57 percent of those under age 65 were considered to be at risk of not having sufficient retirement resources to pay for “basic” retirement expenditures and uninsured health care costs, a figure that had declined to 45 percent in 2010. • In fact, a world in which 30-year job tenure (and associated pension benefit) was never a reality for 80 percent of the nation’s workers. Rather, it was a myth...

Last week the Senate Finance Committee held a hearing on “promoting retirement security.” While options were presented to improve things (see “ Industry Groups Urge No Changes to Retirement Savings Tax Advantages ”), the discussion quickly veered toward a debate on whether and how well—or poorly—the current system is working. That said, listening to the witnesses, 1 one might well have thought they were discussing completely different systems—from one that is striking a good balance between incentivizing employers and encouraging participants to one that is all about providing tax benefits for saving to those who don’t require such enticements; from one that is putting too much responsibility on individual savers to one that has managed to, on a voluntary basis, draw the support of roughly eight in 10 workers. One that has failed, and seems unlikely to ever deliver a real retirement income solution—or one that has the potential to make that a reality. Metrics Systems As always, the...

We had wrapped up a very successful half-day adviser event ahead of our annual Awards for Excellence dinner last week. As we closed up the session, a co-worker of mine commented to me as an aside, “Nobody ever told me I needed to be saving 12% before.” Now, this co-worker has nothing to do with our magazines, or the content that fills our Web sites and newsletters. He just happens to work at a company that, among other things, publishes information about retirement plans. He’s a participant in our benefit plans, of course—and so he has probably been exposed to all the same types of education and savings materials as anyone (perhaps more). He’s a smart guy (he’s pursuing his MBA at night), tech-savvy, and he pays attention. And yet, it wasn’t till he was effectively sitting there as a fly on the wall in a room full of the nation’s best retirement plan advisers that he overheard someone put forth a specific savings-target figure. Now, like any good plan sponsor, I can explain that. ...

We’re seeing a renewed focus on retirement income of late, and for good reason. Most participants seem barely able (or willing) to deal with the most rudimentary decisions about saving, much less investing those savings; and while the industry has developed tools and approaches to better their odds, IMHO, those challenges pale before that of crafting a workable, widely accepted, and readily implemented retirement income solution. Not that retirement income solutions don’t exist for participants. Setting aside the long-standing availability (and viability) of “traditional” annuities, over the past several years, a number of innovative solutions have been brought to market. Indeed, by my count, three more were introduced just last week. Clearly the market for such offerings is large, and getting larger by the day—and yet, despite a great deal of time, energy, expense, and focus, well, let’s just say that plan sponsors (still) seem as confused by the variety of choices in that arena as...

Last week, the Treasury Department and Department of Labor held two days of joint hearings on the subject of retirement income (see Lifetime Income Hearing Witnesses Demand Fiduciary Shield ). There was discussion about the need for product design enhancement (though much of the focus seemed to be on better explaining what was already available); better (i.e. cheaper) pricing for the kinds of institutional purchases these plans might provide (though I’m hard-pressed to see how you get any kind of aggregation benefit in terms of product just because the buyers all work for the same employer); and the challenges of portability, both when a plan changes providers and a participant changes employers. There was also talk about misunderstandings about annuities that no amount of communication or education seems able to dispel (my guess is the hearings won’t alter that dynamic, either), and there was concern about differences in gender-specific annuity tables (and, let’s be honest, gender-s...

There are in this--or perhaps any—business certain moments of epiphany that shed light and clarity, Moments where complexity becomes simplicity, where the shining light of comprehension illuminates what had, until that very moment, been hopelessly “confuddled”. On the subject of retirement income, my moment of clarity came at the end of a conversation with my then soon-to-be-retiring father who was trying to sort through his options regarding his various savings programs and distribution options. At the end of what I hoped was an educational and enlightening discussion of his options and trade-offs, their upsides and potential downsides, when I was sure that I had been able to unwind and demystify the maze and presented him with a straightforward presentation of alternatives, there was this long pause—and then, he turned to me and, as politely as he could, said, “I just want to know how much money I’ll have to live on every month.” It’s been many years since that conversation, but, I...

Two weeks ago, the Department of Labor and the U.S. Treasury turned to the retirement plan community for some input on how to “enhance retirement security for workers in employer-sponsored retirement plans through lifetime annuities or other arrangements that provide a stream of income after retiring.” Now, part of what the DoL is trying to figure out (see Feds Call for Lifetime Income Product Public Comment ) is why the take-up rate on annuities (technically “lifetime annuities or other arrangements that provide a stream of income after retiring”) is so dismal—not just because many see them as a superior way to ensure that “stream of income,” but because some are hoping that, if it can be made more available as a distribution option (perhaps even a default distribution option), more participants will take advantage of it. There are good reasons for the inquiry. We all know that most participants with a non-retirement-related distributable event (such as a job termination) tend to ha...

More than the subtleties of the law, the nuances of crafting a cogent legal brief, and the humiliations that often accompany the public exercise of the Socratic method, surely the most intimidating aspect of my law school experience—certainly in the first year—was the grading. In the vast majority of my classes, there were no papers, no mid-term, no pop quizzes; in fact, no tangible means of measuring progress vis-à-vis the expectations of the course. Indeed, in the vast majority of courses, it came down to a single final exam (and an essay exam at that). Now, there were regular (and, as I recall, fairly prodigious) reading assignments—and there was the omnipresent “fear” of being called on to explain the legal intricacies of a particular case—but, for the very most part, lacking any specific interim evaluations, there were weeks when the press of external events intruded. It was, for some of my classmates, particularly in that critical first year, easy to postpone their preparatio...