Nevin's Data "Points"

   The primary difference between 403(b) plans and 401(k) plans is the type of employer offering the plan, but a couple of new surveys from the Plan Sponsor Council of America (PSCA) highlight some interesting design differences as well. Believe it or not, 403(b) plans have been around longer—since 1958. 401(k)s didn’t arrive until 1978 and really were not effective until 1981 (see  Talking Points: An ‘Unintended’ Consequence ).  Like its 401(k) cousin, it was initially created under part of the Internal Revenue Code (Section 403(b)!)., and—like the 401(k)—it was designed to allow employees of certain tax-exempt organizations, such as public schools, hospitals, and religious institutions, to contribute to retirement savings on a tax-deferred basis.  Over time, many of the things that differentiated the two (notably contribution limits) have been eliminated or at least narrowed. That said, their different histories and distinct employee populations mean that nota...

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...

 This is the time of year when resolutions for the cessation of bad behaviors and the beginning of better ones are in vogue. Here are three for plan fiduciaries for 2023. Develop a plan budget. Most financially-focused New Year’s Resolutions focus on spending (less) or saving (more)—and the really thoughtful ones do both—all tied around the development of a budget that aligns what we have to spend with what we actually spend.  Most (many?) plans have a budget when it comes to the expenditures that require corporate funding.  Less clear is how many establish some kind of budget when it comes to what participants have to spend.  Now, granted, what they pay will vary based on any number of …variables—but an essential part of ensuring that the fees paid by the plan (for the services provided to the plan) is knowing how much—and for what.  At some level that means not only keeping an eye on things like expense ratios, the options with revenue-sharin...

What’s the most important number when it comes to retirement? Once upon a time it might have been considered to be “65”—that traditional age for retirement—but even though it’s the default in many retirement calculators, until recently it hadn’t even been the most common age for actual retirement. Heck, it’s not even “good enough” for full Social Security benefits these days. [i]   Perhaps a more precise focus number in retirement planning is the one that purports to provide some level of financial security in retirement [ii] —indeed, some years back there was a commercial that prompted folks to determine their “number”—a reference to a financial result that was deemed necessary to “retire the way you want” (and perhaps when you want, though that wasn’t part of the “pitch”). But while that was (and is) “A” number, in order to get to it, for it to have any semblance of actually fulfilling that promise (premise?), you had to first get to several other numbers; how l...

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 ...

Roth 401(k)s are more prevalent—and popular—than ever. But is that good—or bad—for retirement? A recent op-ed [i]  in  The Wall Street Journal  explored the potential implications— “What ‘Rothifying’ 401(k)s Would Mean for Retirees” — (subscription required), though the focus is on tax policy as well. You’ll remember that so-called “Rothification”—essentially the elimination of the pre-tax treatment currently accorded 401(k) contributions—was quite the controversial issue back in 2017 when the Republican-controlled House of Representatives was looking for ways to raise revenue to help pay for tax cuts. [ii]  And while it’s not been an active focus of late, it seems likely to resurface as the nation’s budget deficit widens, and the field of 2020 presidential aspirants seem determined to find ways to spend more or, in the case of the incumbent, collect less in taxes. ‘Out’ Comes  As for the WSJ treatment, I’ll spare you the short read (longer ...

I’ve just passed the fifth anniversary of a small fall that took a big chunk out of my life. It was one of those little things – carrying that last box of Christmas ornaments to the basement for storage – when, just three steps from the bottom, I missed one. All I could think about in the 2 seconds it took me to tumble to the ground was trying not to fall on the ornaments (it was the last box, but who knew what precious memories were in that one?) – though that focus completely disappeared once I hit the floor. The ornaments, as it turned out, were safe. My left ankle, not so much. The next several weeks were discouragingly inconvenient when it came to navigating stairs, opening doors (even the ones that are ostensibly designed to accommodate such things), and – worst of all – showering. But perhaps the most frustrating was my rehab stint. I would not have thought it was possible in the space of just 8 weeks to forget how to walk – and yet, I found myself struggl...

Are employers necessary for a successful retirement system? A new proposal suggests that their role be “jettisoned.” Not one to simply “bash” the 401(k), and to his credit, Morningstar’s John Rekenthaler, who recently opined  that the 401(k) had outlived its usefulness, [i]  now offers an alternative that he considers to be a superior alternative, something he titles “the New American Retirement Plan.” Despite the shortfalls his previous column attributed to the 401(k), this proposal  in most of its elements seems relatively modest, at least structurally. It’s (basically – in 25 words or less), a national DC plan for all employers, probably with mandatory employee contributions, no requirement for employer contributions, and tighter restrictions on withdrawals. [ii] Make no mistake, though – the devil, and there’s mischief aplenty here – lies in the details. Rekenthaler’s basic premise – one that he describes not only as “the first,” but the “most impor...

That’s the premise behind a recent column by Morningstar’s John Rekenthaler, who writes that “the plans are as good as they can be under the current framework – and that's not good enough.” I had the pleasure of meeting John a number of years back – and I’ve been keeping up with his writing ever since. His columns are thoughtful and thought-provoking, his perspectives rational and well-reasoned, his commentary nearly always not only interesting, but entertaining. But on this one  – well, let’s just say we disagree. John acknowledges that his views on the 401(k) have “evolved,” and that while he has long been in the camp that called for improvements in the current system, a “defender” of the 401(k) – but now, apparently, he’s calling for an “overhaul.” ‘Leaky’ Assumptions He doesn’t fault the current system for its perceived shortcomings; he notes that the 401(k) wasn’t designed to be a solution for the general public’s retirement, saw the growth in the 1980s...

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 ...

Earlier this year, I commented that it would be interesting to see how expanded access to hardship withdrawals might impact that activity. Now we have some answers. There’s more than a little irony in a legislative body that has long bemoaned both the paucity of retirement savings and the nefarious impact of “leakage” (pre-retirement withdrawal of retirement savings) opening those floodgates a little wider – but mostly the new law, and clarifying regulations [i]  seemed to provide plan sponsors a bit more flexibility in administering these programs, some welcome latitude in helping their workforce navigate choppy financial waters. What remained unknown was – would participants take advantage – or, more precisely, would they abuse the privilege. The first sign – and it was a bit of an eye-opener – came from Fidelity who, in a white paper , claimed to have seen a shift in participant behavior. Not in the percentage of participants taking loans and hardships over...

I don’t know about you, but I’ve always had a certain ambivalence about what are generally termed “Hallmark holidays.” You know the ones I’m talking about – the ones that seem crafted for the sole purpose of generating sales for greeting card sellers. Of course, after a while you no longer question their existence – and if one still struggles to remember exactly when “Grandparent’s Day” is, well, we’ve pretty much got Mother’s Day, Father’s Day, and Valentine’s Day down to a science (one that might not be on your calendar is National Slap Your Irritating Co-Worker Day, October 23). Indeed, these days there are months on the calendar devoted to a whole series of acknowledgements and remembrances. There are also a number of occasions set aside to recognize the importance of saving ( America Saves Week –February ), the importance of planning for retirement (National Retirement Planning Month – July, and National Retirement Planning Week – April), and the issue of retiremen...

A recent federal court decision should remind us all of the importance of plan committee education. The case involved a suit by participants in the SunTrust 401(k) plan (see Is Fiduciary Responsibility Retroactive? ) that challenged the initial selection of, and subsequent acquiescence with, an ostensibly imprudent plan investment menu. The court’s decision focused on one aspect of the case: the liability of “new” plan committee members for actions that predated their involvement on the committee, but continued after their involvement. The court, in a decision that will likely be viewed favorably by new committee members, excluded them from liability for committee moves that predated their participation, at least to the extent they lack “actual knowledge” of imprudence. Along the way to that determination, Judge Orinda D. Evans of the U.S. District Court for the Northern District of Georgia incorporated the testimony of those new committee members as to t...