Nevin's Data "Points"

  “Sure, it will probably be more work, and generate fewer clicks,” commented one industry source, “but it’s the right thing to do.” Yes, after years of relying on uninformed “guesses” from individuals ignorant of their financial needs and situation, the retirement industry, major media outlets, and a large number of academics have made a commitment to focus on actual data, rather than hypothetical extrapolations from incomplete datasets. Another explained, “we always thought that exaggerating the depth of the retirement crisis would encourage people to save more — but that turns out not to be the case.” Those projections affixed labels like “ magic ” to those extrapolated numbers based on surveys of uninformed workers, which not only ignored real differences in incomes, location and age, but were typically also averaged to further obscure accurate results. Likely fueled by previous reports of needed retirement savings,  surveys of individuals routinely exaggerated  the r...

  This past weekend most of America underwent a rather painful change — though it’s probably only just setting in. I’m talking about the legally mandated move to Daylight Saving Time (for most of us [i] ). That’s right, at 2:00 a.m. on March 9, clocks around the nation “sprang forward,” reversing course from last fall when the move was to “fall back” to standard time. It’s a “movement” laid at the feet of none other than Benjamin Franklin who, in what’s been characterized as a “satirical”  letter  to the editor of  The Journal of Paris  in 1784 pitched “the economy of using sunshine instead of candles.”  Mr. Franklin may have been satirical, but the economic rationale for this artificial time contrivance lingers on. It was certainly a factor in 1916 when Germany saw adjusting the time as helpful to its war effort. Great Britain embraced the same logic the following year, and by March 1918 [ii]  the (now at war) United States was on board — well, s...

A recent survey posed an intriguing question: Why are employees not participating in their 401(k)s? The answer(s) were jaw-dropping. Now, I’ve previously expressed skepticism regarding workers’ perception of things like retirement savings needs, much less retirement savings balances, and over the years there has been plenty of anecdotal evidence to suggest that workers think they have a pension, despite plenty of actual data to indicate that’s a misguided fantasy. In sum, it seems that many, if not most, workers have a pretty distorted view of their financial circumstances, certainly as it relates to retirement. That said, a recent  survey by Principal  takes that to a whole new level.  That survey found that more than half — 59% — of workers who were  not  saving for retirement — thought they WERE saving for retirement. Nearly half (49%) thought they had been automatically enrolled, but nearly as many (41%) thought they had signed up on their own. And three-qua...

  It’s long been noted that inertia is a powerful force regarding behavioral finance and automatic enrollment — but it may have limits, according to a new study. Coverage of the report — titled “ Smaller than We Thought?  The Effect of Automatic Savings Policies ” — focused on how job change undermines retirement savings — both because of vesting, as well as the effectiveness of automatic enrollment, and more specifically auto-escalation, since those mechanisms tend to reset with the change in employers (and payroll).    Don’t get me wrong. The report states quite clearly that these automatic mechanisms provide a positive result — the authors comment only that it’s perhaps not quite as positive as most think.  Their solution — give people less access to these monies before retirement, and require savings, rather than permitting an opt-out.  From a pure mathematical stance, there’s little argument there — making people save and prohibiting pre-retiremen...

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—and at least anecdotal evidence to support it. Human beings—including plan fiduciaries—frequently draw comfort and solace from the experience of others, and smaller programs can hardly be faulted for adopting plan designs and approaches that have been “vetted” by programs with more copious resources. Sure enough, there are areas in which larger programs once dominated—but over time those variances have disappeared. For example, according to the Plan Sponsor Council of A...

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...

 While it’s the celebration following a successful harvest held by the Pilgrims and members of the Wampanoag tribe in 1621 that provides most of the imagery around the holiday, Thanksgiving didn’t become a national observance until much later. Incredibly, it wasn’t marked as a national observance until 1863—right in the middle of this nation’s Civil War, and at a time when, arguably, there was little for which to be thankful. Indeed, President Abraham Lincoln, in his proclamation regarding the observance, called on all Americans to ask God to “commend to his tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife” and to “heal the wounds of the nation.”  We could surely stand to have some of that these days.    Thanksgiving has been called a “uniquely American” holiday—and so, even in a year in which there has been what seems to be an unprecedented amount of disruption, frustration, st...

Which is more powerful—a generous match, or a high savings rate default?  As it turns out, Christmas Eve brought us a new white paper with the fairly innocuous title, “ The Impact of Employer Defaults and Match Rates on Retirement Saving .” Indeed, there have been plenty of surveys (and tons of data) that speak to this issue (many of which are cited as references in the paper)—but underneath that bland title the authors take on an intriguing question, specifically how, and how differently, the deployment of specific plan design features—the employer match, or default enrollment—impact retirement savings.  With regard to the former, there’s been plenty of real data to buttress the notion that the employer match acts as a virtual target for retirement savings—with employee contributions clustering around those like moths to a flame, regardless of the savings needs or income wherewithal of the participant. Similarly, we’ve long—but even more so since the advent of t...

The Plan Sponsor Council of America recently released its 62nd   Annual Survey of Profit-Sharing and 401(k) Plans ,  documenting a record high rate of savings, alongside an uptick in Roth contributions and other trends. However, sometimes the things that  don’t  change can be just as telling… Target-date trends (still) dominate, but…  Let’s face it – target-date funds are one of the most common items on a plan investment menu today ( the PSCA survey  noted that it’s the option in which assets are most frequently invested) and – in no small part due to their prevalence as a default investment alternative – continue to garner a lion’s share of new contribution dollars, if older savers (perhaps more precisely, longer-tenured savers) haven’t embraced (or more accurately, been defaulted into) the option with as much enthusiasm. That said, while more than two-thirds (68.6%) of respondents offer a target-date fund option, that’s actually down 5% in ...

A recent headline screamed that 401(k) savings rates have “stagnated” – but that’s missing the point. Several of them, actually. “Stagnated” in this case apparently means that the average savings rate in 2018 — both employee and employer contributions — was 10.6%, roughly the same as the 10.4% rate reported in the survey in 2004. The point seems to be that, despite roughly a decade of automatic enrollment and other plan design enhancements, Americans aren’t saving any more. That’s a perfectly obvious point to draw from those two datapoints – in this case from the recent 2019 How America Saves report from Vanguard which, while it only covers plans recordkept by Vanguard, the experience of 1,900 plans and 5 million participants in the survey always provides some interesting insights. First a couple of basics; what do you suppose the odds are that we have the same plans (and participants) in the 2004 and 2019 surveys? Exactly. So, while it may not be apples to or...

Thanksgiving has been called a “uniquely American” holiday, and though that is perhaps something of an overstatement, it is unquestionably a special holiday, and one on which it seems appropriate to reflect on all for which we should be thankful. And so… I’m thankful that participants, by and large, continue to hang in there with their commitment to retirement savings, despite lingering economic uncertainty and competing financial priorities, such as rising health care costs and college debt. I’m thankful that so many employers voluntarily choose to offer a workplace retirement plan – and that so many workers, when given an opportunity to participate, do. I’m thankful that figuring out ways to expand that access remains, even now, a bipartisan concern – even if the ways to address it aren’t always. I’m thankful that so many employers choose to match contributions or to make profit-sharing contributions (or both), for without those matching dollars, many work...