Nevin's Data "Points"

A recent Wall Street Journal (WSJ) article asked what I view as a rhetorical question; “Do you really know what’s inside your 401(k)?” Rhetorical in that I suspect the answer from most people — certainly if they’re honest — is “no.” Now there are many aspects to a 401(k) that bear scrutiny, but the  article  was focused on target-date funds (TDFs) — a mechanism that I think has been a boon for most of the novice investors (and savers) that I suspect most 401(k) participants (still) are. You check one box (heck, these days that box is checked for you) and tap into the expertise — and ongoing expertise at that — of professional money managers to provide your retirement savings with a diversified portfolio mix. No longer do you have to concern yourself with weightings of stocks and bonds, value versus growth, domestic versus international — just leave it to the experts.  But the WSJ article’s focus was a cautionary note — mostly concerned at the unexpected things that a coll...

  Did you hear the one about how nearly all U.S. retirement plans have “at least one regulatory or fiduciary ‘red flag’ violation”? Well, here’s hoping you haven’t. Because this so-called “analysis” of Form 5500 filings claims to have discovered that 84% of all (that’s right ALL) retirement plans in the United States have “at least one likely Employee Retirement Income Security Act (ERISA) red flag from a regulatory and/or fiduciary violation.” Now, having grabbed your attention, you probably won’t be surprised to find in the fine print of the press release an opportunity to “schedule a cost-free benchmarking audit.” But before you do so, you might want to take a look at the criteria this firm designates as a “red flag.” From their  press release , “Abernathy-Daley defines red flag violations as either ‘infractions, fineable offenses, fiduciary failure, or plan malpractice’ and are separated into two main categories: Regulatory Infraction Red Flags (RIRF) and Egregious Plan Mi...

A recent report—and a new wave of litigation—reminds us that all target-date funds are not designed the same.  We all know that target-date funds are different, even if their names sometimes suggest otherwise.  Different management teams both set and monitor asset allocations—allocations that can vary widely with regard to the type and quantity of underlying assets. Fees can certainly be different, and some favor a reliance on passive investing versus an active engagement. But the difference that can often account for many of the other differences is the glide path, and more specifically the glide path’s “goal”—and here I am referring to the difference between funds that opt for a “to” retirement versus a “through” retirement focus.  Now, admittedly it’s a “target date” fund, not necessarily a retirement date fund—and indeed if those were once upon a time considered one and the same, that’s apparently no longer the case. Indeed, and as a recent stream of li...

The flurry of lawsuits unleashed on holders of the BlackRock LifePath target-date funds is not without precedent—but it’s surely a head scratcher. I’m referring, of course, to the recent  swarm of lawsuits  challenging nearly a dozen of the nation’s largest 401(k) plans and their decision(s) to select, and hold, on their investment menu the BlackRock LifePath target-date fund suite. It’s a decision that the Shah Miller law firm (on behalf of multiple ex-participant plaintiffs) says was the result of fiduciaries who “chased low fees” over performance. [i] Of course, it’s not unusual for these types of lawsuits cite obscure articles as authority, rely on Form 5500 data that often doesn’t tell the whole story, state as fact things that are really only theories (or opinions), lean on averages, or base comparative conclusions on surveys distorted by sampling size or content.  But in a characterization straight out of George Orwell’s  1984 , this one draws...

It’s hard to believe, but the Pension Protection Act of 2006 will be a decade old next month. And it’s probably done more good for the nation’s retirement security than most realize. The PPA drew its name from the portions targeted at shoring up defined benefit plans (and PBGC funding, I suppose), though at the time I remember most people thinking it was an ironic name, in that it may have been intended to secure the pensions that were already in existence, but might well accelerate the demise of some on the cusp, and in any event was unlikely to help spur any new growth in that area. Some went so far as to call it the Pension Destruction Act. Indeed, at a recent panel session featuring the perspectives of a number of the Hill staffers who shepherded the at times controversial legislation through its passage, the emphasis was largely on the DB aspects that, though well-intentioned, had been overwhelmed (if not undermined) by the onset of the 2008 financial crisis and the “histor...

RFPs, or requests for proposals, come in all shapes and sizes. Mostly they are long, drawn out affairs, frequently copied from templates drawn up to capture a broad sense of capabilities. The problem is, for most plan sponsors it’s akin to going shopping for a car armed with Chilton’s auto repair manual (that said, if you need one, a quick Google search on “401k RFP” will turn up plenty). So, aside from all the general information that you’ll want to get from every provider during the RFP process – the size of their business, the quality, tenure and turnover of their key staff, their capabilities, service structure, years and investment in “the business,” fees, services offered and references, there are some questions that aren’t in every RFP — but to which the answers can be enlightening. 1. What plan design changes would you recommend, and why? This question has two payoffs. First, in order to recommend changes, they have to know what your current plan looks like. Secondly, it...

At a recent event, one of the speakers was taking our industry to task for expecting too much from participants. “We don’t expect individuals to diagnose and treat their own illness,” he said, going on to note that with 401(k)s we expect people who don’t have any knowledge or training in investments to decide how to invest those balances. Admittedly, those 401(k) investment decisions can be complicated for some — and, since it (mostly) is their money, after all, most do give individual participants the ability to decide how it will be invested. As nice as it would be if individuals were exposed to the basics of finance — saving, budgeting, investments — sometime in their lives ahead of that workplace plan enrollment meeting, or the pages of that 401(k) enrollment kit, that’s not the current system’s fault. In reality, individuals are routinely asked to make decisions on things in which they have no real knowledge or training. On numerous occasions, I’ve had plumbers and mechanics ...

On more than a few occasions in my youth, I would misplace some object of importance. Generally it was just something I set aside for just a moment in pursuit of some more interesting endeavor—and sometimes it was something I set down and forgot about until much later. Regardless, being unsuccessful in locating the object, I was frequently inclined to suspect that the culprit responsible for the disappearance was my mother, who—as mothers do, spent more than a little of her existence picking up objects that had been left unattended in unsuitable places. There were, however, times when she had played no role in the “disappearance,” and she’d admonish me to look more diligently—that “it didn’t just get up and walk away on its own…” Now, while there were times when I was certain that the object in question had done just that, once I was able to retrace my steps, to recall where I had been and when—and, inevitably, there it was. That said, I wasn’t always happy to find things where I ...

You may remember little else about the 1989 film “Field of Dreams,” but odds are you have invoked a version of what is likely its most famous quote, “If you build it, they will come.” Unfortunately, for many, building retirement savings is more complicated than constructing a baseball diamond in the middle of an Iowa cornfield. Most experts will tell you that the most important decision in retirement saving is deciding how much to save, not how those savings will be invested―and yet, for years, much of the education and discussion about retirement saving has been focused on investing. Enter the target-date fund (TDF), a type of investment fund apportioned according to what investment professionals deem to be an appropriate age-based blend of stocks, bonds, and other asset classes for an individual within a particular target-date of his or her retirement. Perhaps more importantly, that apportioning is automatically rebalanced over time, as the target date approaches, becoming less f...