Nevin's Data "Points"

We started setting money aside for our children’s college education relatively early, but as they began actually considering their options, it was clear that our savings wouldn’t be enough to cover the expense at some of the schools on their lists. Moreover, while all three wouldn’t all be in college at the same time, there was enough overlap to make it “complicated.” While we didn’t want to limit our kids’ college choices, we had certain real world constraints—and so we told them how much we could contribute to their college expenses, and that they were free to make up the difference between that figure and the actual expense of the college they chose through their own work, scholarships, and/or debt. As a practical matter, defining our “contribution” may have taken some options off their lists, but, certainly in hindsight, it seemed to give them focus and some real-world context—a reference point—for one of the biggest financial decisions of their lives.      Em...

It has become something of a truism in our industry that defined benefit plans are “better” than defined contribution plans. We’re told that returns are higher(1) and fees lower in the former, that employees are better served by having the investment decisions made by professionals, and that many individuals don’t save enough on their own to provide the level of retirement income that they could expect from a defined benefit pension plan. Even the recent (arguably positive) changes in defined contribution design—automatic enrollment, qualified default investment alternatives, and the expanding availability of retirement income options(2)—are often said to represent the “DB-ification” of DC plans. However, a recent analysis by EBRI reveals that DB is not always “better,” at least not defined as providing financial resources in retirement. In fact, if historical rates of return are assumed, as well as annuity purchase prices reflecting average bond rates over the last 27 years, the me...

An acquaintance of mine once remarked, “you can’t solve a savings problem with investment returns.”   Yet, participants frequently focus on the returns of their retirement savings investments. Consider that during the month of May, major stock indexes like the Dow Jones Industrial Average and the S&P 500 were off 6 percent. But, according to an EBRI analysis, the estimated average 401(k) account balance 1 was down less than 3 percent during that same month, both due to the inflow of ongoing contributions and more diversified portfolio holdings. That determination is based on estimates from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project—the largest, most representative repository of information about individual 401(k) plan participant accounts. In fact, as of December 31, 2010, the EBRI/ICI database included statistical information on about 23.4 million 401(k) plan participants, in nearly 65,000 employer-sponsored 401(k) plans, representing $1.41...

Recently, the Internal Revenue Service (IRS) announced that it was sending a questionnaire out to about a thousand 401(k) plan sponsors. The IRS said it developed the questionnaire because of the “critical role 401(k) plans play in our private retirement system” (see “ IRS Provides 401(k) Questionnaire Details ”). Make no mistake: It’s going to take some effort to respond to the questionnaire—and respond you must. Described as a “compliance check,” the IRS notes that “failure to complete the Questionnaire will result in further enforcement action.” So, what does the IRS want to know? Well, there’s a lot of information to be gathered about the plan from plan years going back to 2006: the number of employees, participants, their deferral levels, eligibility standards, service and age requirements, the existence and administration of loans and hardship withdrawals, the results of nondiscrimination tests, the determination of top-heavy status, the level(s) of match, and any changes to t...

A year ago, with the financial world feeling still very much on the precipice, and with the 2008 election results still ringing in our ears, I noted that “the impact on much-improved defined benefit plan funding levels—and on the confidence of retirement savings plan participants—has been severe, and potentially serious. We are all inclined to wonder (hope?) if, like 1987, the market will find its way back to solid footing before year-end—and worried that 1929 will be the better analogy.” Well, as we head into 2010, it seems fair to say that this is not a repeat of 1987 and—not yet, anyway—a second Great Depression. Here’s a look at the trends that were on our mind this past year – and are just over the horizon. Doctor Bill? Curing Health Care Where we are : Aside from the financial crisis and unemployment, health care has been the great issue of the past year and remains so as we go to press. That the current system needs reform is scarcely an issue for debate anymore—but what c...