Nevin's Data "Points"

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...

Retirement seems a long time off — particularly when you’re young. However, Millennials — generally defined as those born between 1978 and 2004 — are living longer, and many will have to finance retirements that are actually longer than their working careers. So, while it can hardly be expected to be top-of-mind for most of this group, here are five things worth knowing about saving for retirement — now. 1. Social Security won’t be as much as you think it will be. Okay, some of you don’t think it will be anything at all, certainly not by the time that you are old enough to collect. But set aside for a moment the questions you may have as to whether or not Social Security is financially viable without reform, or if you should even count on it at all. Your parents — who are either now, or soon hope to be, collecting Social Security — had the same concerns, after all. However, even if you assume that the program remains largely unchanged from what it pays today, if you retire at...

Over the years, I’ve seen some convoluted ways to rationalize undermining the tax preferences of workplace retirement plans and substituting government tax credits — but a new one just may take the cake. “ A Behavioral Contract Theory Perspective on Retirement Savings ,” authored by Ryan Bubb and Patrick Corrigan from the New York University School of Law and Patrick L. Warren from Clemson University’s John E. Walker Department of Economics, starts off by assuming that workers are rational, though perhaps not rational in the way you or I might consider to be rational. However, I’ll accept as logical their assertion that rational workers will prefer saving through an employer-provided plan, rather than accepting a job that does not provide such a plan. They also claim to provide an analysis that “provides novel explanations for the use of low default contribution rates in automatic enrollment plans, the shift away from defined benefit annuities toward lump sum distributions in defin...

A research paper finds that introducing a Roth 401(k) option doesn’t have much impact on current plan savings rates — but what does that have to do with their preference for tax preferences? Well, according to “Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions,” governments could actually increase private savings by taxing savings up front, rather than in retirement. This conclusion basically suggests that taking away the current 401(k) pre-tax contribution and replacing it with a Roth assumption would not only not decrease, but it might actually increase , retirement savings, and with no additional cost to the government. For years a key education element touted about 401(k) plan participation has been the ability of the individual to put off paying taxes on their contributions and on the earnings attributable to those contributions (and those of their employer, if any) until retirement, at which point they would ostensibly find themselves in a...

Last week I highlighted three “myths” about the retirement system that will not die — all the more distressing because they are perpetuated by retirement industry pundits. Here are three more that (mostly) aren’t perpetuated by those who actually work with retirement plans, but by academics.  Academics who, sadly, are often listened to, and cited by those who regulate and legislate these programs. The Match Doesn’t Matter This doubtless comes as a surprise to those of us who work with retirement plans and retirement plan participants. More precisely, there are a few studies out there that suggest that a matching contribution doesn’t have a very strong impact on participation . The study that is cited most often in support of this one is one conducted several years ago in conjunction with H&R Block, where individuals were offered a financial incentive to take their tax refund and deposit it in an IRA . Most didn’t — and thus the notion that the promise of the match doesn’t...

Our industry spends a lot of time and money educating workers about the advantages and mechanics of saving for retirement. But here are six things I think too often go unsaid. Your 401(k) isn’t free. That’s right, it isn’t free. It may be heavily subsidized by your employer, and you’re likely paying a lot less for the fund(s) and features you have access to than if you were to try and buy them on your own (say, via an IRA or brokerage account) — but even then, it’s probably not “free,” nor should you expect it to be. But if you don’t know how much you are paying, you should find out. You’ve probably been provided some information about your 401(k) plan fees already. You can find out how to use that information here . More information about 401(k) fees is available here .    That employer match isn’t “free” either. You may have heard that you should save enough to receive the full employer match — that “you don’t want to leave that free money on the table.” It is,...