Nevin's Data "Points"

Before target-date funds were “cool” (or widely available), I had steered my mother toward an asset-allocation fund as a good place to invest her retirement plan rollover balance. The logic was, I thought, impeccable: A professional money manager would be keeping an eye on and rebalancing those investments on a regular basis. The fee was reasonable, and the portfolio was split about 60/40 between stocks and bonds, which also seemed reasonable in view of her investment horizon. From time to time Mom would call and ask if we needed to rebalance that investment — and I confidently assured her that there was no need to do so, that the fund’s design took that into account. Then at some point (though definitely between 2006 and 2008) that professional manager decided that a “better” allocation was to shift the asset allocation to be invested nearly entirely in stocks. Now, knowing how such things work, I can’t imagine that a shift that dramatic wasn’t clearly and concisely communicated to...

I was in London for a few days last week, and while it afforded a good opportunity to visit with a number of providers in the European retirement plan market, the primary purpose of my trip was to acknowledge the fund manager and consultant standouts recognized by PLANSPONSOR Europe (which has just celebrated its one-year anniversary). The luncheon itself was fascinating: As is often the case with such gatherings here, many of the attendees were well-acquainted with each other, a number had common employment histories and, as in the U.S., even those who worked for competing firms at the moment seemed to sense that it could change at any time. Once we got past the potential impact of the latest Icelandic volcanic ash cloud, the traffic disruptions attendant with President Obama’s visit (which, of course, had been impacted by the latest Icelandic volcanic ash cloud), and the beautiful weather (which, fortunately, was apparently completely unaffected by the latest Icelandic volcanic ash c...

Last week the Government Accountability Office (GAO) issued two reports focused on 401(k) plans: one on target-date funds, the other on potential conflicts of interest. As seems to be its custom in such reports, the GAO communicates its conclusion in the titles: “Key Information on Target Date Funds as Default Investments Should Be Provided to Plan Sponsors and Participants” and “Improved Regulation Could Better Protect Participants from Conflicts of Interest”—and, IMHO, there’s little controversy in those statements. The reports themselves offer a great informational primer on target-date fund designs and issues (you’d be surprised how many plan sponsors still don’t quite grasp the concept of “glide path”) as well as the fee structures and revenue-sharing components that underlie the 401(k) retirement savings system. Both reports acknowledge that efforts are already under way to remedy the shortfalls the reports identified in both, while at the same time promoting solutions to those...

As I was listening to, and participating in, panels at our Future of Asset Allocated Funds conference in California this past week, I was struck again by how much things have changed in the past year. For example, at this conference a year ago, when we broached the notion of marrying a risk-based approach with a target-date offering, the general feeling seemed to be that that would be tantamount to taking a perfectly good, clean, and simple concept—and ruining it. This year, the room was not only ready for the idea, there was widespread enthusiasm for it. Similarly, a year ago, when we asked folks about the wisdom of putting a family of risk-based and date-based funds on the same retirement plan menu, well, the consensus would have been that you would be playing with fire in terms of confusing participants. This year, the notion not only seemed to be that it could be managed—but that it would be a real enhancement to the program. A year ago, the importance of understanding and being...

Asset-allocation fund solutions have, to put it mildly, exploded on the retirement plan scene—aided in no small measure by the sanction of the Department of Labor’s final regulations regarding qualified default investment alternatives (QDIA). However, the recent market turmoil has drawn a fresh, heightened scrutiny to the philosophy and structure of these popular defined contribution choices and, certainly for plan sponsors, reminded us all that there are differences—significant differences, in fact—in how these vehicles are constructed, how they are managed, and even the philosophies underpinning those designs. Now, the “right” answer for your program will, in many respects, be unique to your program. On the other hand, there are certain basic questions that plan sponsors should know the answers to in choosing an asset-allocation solution. Getting Started 1. Are we talking about lifestyle or lifecycle funds? The terms are used interchangeably all too often. However, funds that stru...

Somewhere in the course of your professional life, you have no doubt heard (or used) the expression about what happens when you assume (1) . Well, over the past couple of weeks, I’ve heard a lot of discussion around target-date funds, most recently at the PLANADVISER National Conference (PANC). Without question, plan sponsors and participants—and perhaps not a few retirement plan advisers—were caught off-guard by the varied designs and resulting experiences of these popular investment offerings in recent months (2) . That many participants assumed these offerings were a no-maintenance solution to their retirement security is understandable, IMHO, certainly in view of how they were promoted by their manufacturers, sanctioned (from a design standpoint, anyway) by regulators, and positioned on retirement plan menus. But let’s face it, what happened in the markets last fall happened pretty much everywhere and to everyone (at least everyone who was invested in the markets). And, while the...

Several years back, after a day of meetings in Manhattan, I caught the train home. I wound up on one of those “milk run” trains that makes every stop along the way—and, trust me, there are a lot of stops between Manhattan and “home.” To make a long story short, I decided to take a short nap…and woke up just as the train was pulling away from my station. It wasn’t a big “miss,” mind you. But that 15-minute nap cost me about two hours of time and a lot of aggravation…and, of course, it could have been a lot worse. It seems that many things long taken for granted in our business are today being subjected to a whole new level of scrutiny, including the very efficacy of the 401(k). The most recent “target” is, of course, target-date funds—and the examiners no less than the U.S. Senate, the Securities and Exchange Commission, and the Department of Labor (see More Details Given on EBSA/SEC Hearing on Target-dates , Senate Committee Takes Aim at Target-Dates ) . That examination is not ne...

There was an intriguing survey published last week, but one that, IMHO, generates as many questions as answers. The online survey (accurately, if somewhat inelegantly, titled “Investors’ Beliefs about the Role of Target-Date Funds in Retirement Planning”—see Workers Might Have Wrong Idea about Target-Date Funds ) captured the sense of 251 respondents, most (55%) of whom were earning less than $50,000/year, but many (75%) of whom were saving for retirement. A full third were age 55 or older, and none was younger than 25. Consequently, while we know nothing about how they are saving, or the size of the programs in which they participate, one might well expect that they have at least a passing familiarity with one of the most popular and powerful 401(k) investment tools—target-date funds. Not so. Only 16% said they had even heard of target-date funds prior to reading the description in the survey, and apparently even among those, 63% weren’t able to explain the concept. From the respo...

There was a time when Christmas shopping for my nieces and nephews was a relatively straightforward process. Simply put, we’d spend a day or two at the mall, looking for things that we thought would be genuinely fun (in my case) in a generic sort of way—some flavor of electronic car, legos, dolls, etc. Of course, as our family has grown ever more extended—and my nieces and nephews older—it became very nearly impossible to keep up with their various and sundry interests—and to a point where the only practical solution was a gift card (even then, pains must be taken to make sure it’s from a store at which they shop). Nonetheless, and in the spirit of the holiday season, here are some “presents” that I hope participants find on their retirement plan menus during the next year: (1) A workplace retirement plan. It’s easy to overlook this one, particularly for those of us who work with these programs on an ongoing basis. The sad fact is that roughly half of working Americans still don’t...

One of my favorite quotations is George Santayana’s, “Those who cannot remember the past are doomed to repeat it.” It is also, unfortunately, one of the most overused quotations, generally during times when we are in the middle of repeating an unremembered mistake. The current financial mess on Wall Street is the most recent example, of course. The problem—like the tech bubble that preceded it, the derivatives mess in the mid-1980s, the junk bond blow-up before that—is not that we don’t see it coming. It’s that we don’t do a very good job of knowing when it will hit. That, and nobody wants to leave the “party” before it’s over. And then we all wind up with hangovers. On the plan sponsor side, it was interesting to see the encouraging words of a number of public pension plans this week (see " Public Pension Groups: We’re Still OK ". Most spoke to the long-term nature of their investments, and the short-term security that comfortable funding levels provided. Some offered...

Having just spent most of the past week in Chicago at our annual Plan Designs conference (bigger and better than ever, I might add!), my head is still swimming with new ideas, modifications of existing “assumptions,” and the occasional validation of the “tried and true.” I’m dedicating this week’s IMHO to a rough summary of some notes I took during that time (in some cases, I have “refined” statements to be more declarative than they were presented to make a stronger point): • A prudent process helps you win in court; a good result keeps you out of court in the first place. • Lots of people have already decided who they are going to vote for in November. • Automatic enrollment (still) isn’t for everyone. • Some people who nod their head knowingly when you start talking about glide paths don’t have a clue what you are talking about. • In an era where asset-allocation solutions dominate, you’re better off picking the best target-date fund(s)—and then finding a recordkeeper that can/will...

More than a decade ago, my mom was getting her finances ready for retirement. A schoolteacher her whole life (except for that swathe of time when she set that aside to be at home with her brood during their formative years), there weren’t a lot of varied sources and complicated tax planning to worry about. The most significant component was the balance she had accumulated in her 403(b) plan. Then, as now, I fancied that I had at least enough investment savvy to make reasonable investment decisions for myself–and I’ve never been shy about offering my sense of the markets to anyone willing to listen (and worth every penny they paid for that advice, I might add). But this was my mother’s money–and a significant component of what she would need to live on for the rest of her life. Frankly, I was nervous about making a decision that would wipe out her years of savings. Fortunately, I had the presence of mind to recommend an asset-allocation fund. Nothing too fancy, certainly in hindsi...