Nevin's Data "Points"

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...

 There’s nothing like a global pandemic to fuel interest in, if not the need for, emergency savings. Indeed, there are a half dozen provisions [i] in the new SECURE 2.0 designed to make it easier for workers to tap into their retirement savings—two aimed specifically at emergency savings. Though the financial impact of the pandemic (not to mention a series of natural disasters) has arguably been uneven, a report from Vanguard [ii] highlighted the longer-term impacts of the economic slowdown and inflation’s growing bite of the household budget. It's also widely acknowledged that concerns about the inability to fund an unexpected financial emergency is a source of stress for workers, undermining financial wellness.    All that said, well before COVID-19, there have been concerns about Americans’ lack of emergency savings [iii] and, perhaps more broadly, that they were using their retirement savings accounts as that resource. Behavioral finance-types have ...

Our industry often seems to treat participants like children who can’t make big decisions—but a recent research paper suggests they might make better choices  if  we expanded their perspective. The paper, intriguingly titled “ Financial Wellness Meets Behavioral Economics ,” highlights a behavioral tendency known as “narrow framing”—basically a tendency to focus on one complex choice, or one element of a complex choice, at a time.  Now, at first blush this seems rational, and perhaps even prudent—but the paper suggests that this kind of linear thinking means that people are inclined to overlook real-life disruptions like financial emergencies—which are not only uncertain with regard to amount or timing, but even in terms of whether they will occur at all. Little wonder, therefore,  that  studies   routinely find that workers say they are ill prepared to come up with the funds to cover some kind of short-term emergency o...

An important decision, made in minutes. No, that’s not retirement plan savings—though various consumer surveys have suggested that many spend more time mapping out their annual vacations than how they’ll fund their retirement needs.  Rather, that’s how a new whitepaper  by Voya’s Thought Leadership Council and SAVVI Financial LLC characterizes the 17 minutes that the average employee spends enrolling in benefits—including health plan selection, voluntary benefits and more.  Now, in fairness, health care plan choices are, in my experience, less complicated that those associated with retirement. Not that they aren’t complicated, mind you—and there’s certainly concern associated with that choice (and “do overs” are hard to come by). But I suspect for most they are really “only” choosing between two, or at most three, different options—essentially packages carefully constructed by their HR groups (likely with the assistance of a benefits broker).  When ...

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...

All too often the innovations honored with a Nobel Prize fly under the radar of “regular” Americans. But that wasn’t the case last week when the work of University of Chicago’s Richard Thaler was acknowledged. Thaler was, of course, recognized by the Royal Swedish Academy of Sciences, who said that his focus on limited rationality, social preferences and lack of self-control has “built a bridge between the economic and psychological analyses of individual decision-making.” More plainly, to my reading, Thaler (finally) managed to prove to economists that human beings don’t (always) act rationally and/or in their own self-interest. Now, anybody who has ever actually interacted with human beings knows this. Indeed, in some ways the most amazing thing about Thaler’s insights of this reality is that it is seen as being innovative by economists. 1 I still remember reading the report that Thaler and Schlomo Benartzi authored way back in 2004, “ Save for Tomorrow: Using Behavioral Economi...

Automatic enrollment has long been touted – and proven – to be an effective way to overcome retirement savings inertia in 401(k) plans. But these days automatic enrollment plan design seems to be suffering from its own inertia. For all the good press and positive results that automatic enrollment gets, one might well expect that every plan would embrace it. And yet today, nearly a decade after the passage of the Pension Protection Act, many still don’t. What’s wrong with automatic enrollment? Everybody doesn’t do it. Only the most naïve industry professional ever assumed that the Pension Protection Act of 2006, even with all its incentives and encouragement (and not a few barrier removals) would transform a voluntary savings system into something that all employers everywhere would feel comfortable – or would be able to afford – automatically enrolling every eligible worker. And yet, more than a decade later, only about two-thirds of the largest employers have embraced automati...

Much is made these days of the application of behavioral finance and the implications for plan design, as well as the role of choice architecture in helping workers make “better” (if not more informed) benefit decisions.  Valuable as these insights have been, I think much of human behavior (or lack thereof) in these matters can be more simply explained. What’s at work is a concept a friend of mine described to me more than 20 years ago – something he called “the hassle factor.”  It was a philosophy he routinely applied in many aspects of his personal and professional life.  Simply stated, presented with a choice between doing something that is hard, time-consuming, complicated, or even inconvenient, and doing something else, my friend – and, in fairness, human beings generally seem to be – inclined to opt for the latter. Of course, the “hassle factor” CAN be trumped by exterior needs or forces, as anyone who has endured the long lines at the DMV or sat through the b...