Nevin's Data "Points"

Twenty years ago, I authored [i] a cover story about the then-newly enacted Pension Protection Act of 2006 with an ambitious headline: “The Pension Protection Act: This Changes Everything.”   Twenty years later, it seems like a reasonable time to ask: Did It? The short answer, I think, is yes — though probably not quite in the ways we expected in 2006. The PPA was a sweeping piece of bipartisan legislation, addressing among other things defined benefit funding, pension accounting, and cash balance plans — it was titled the PENSION Protection Act, after all.  And it was, for the benefits promised by those plans, an important defensive measure. [ii]    However, to my eyes then — and now — the most lasting influence of the PPA was on the defined contribution side, where it helped change not just plan design, but the industry's thinking about participant behavior. To Appreciate 2006, Go Back to 1986 Twenty years earlier, the Tax Reform Act of 1986 had significantly tigh...

  Last week a reader brought to my attention an episode of Jim Cramer’s “Mad Money” — an episode wherein he referred to the 401(k) as a “mixed” bag.  In  it , he acknowledged the benefits of tax deferral, the benefit of compounding on returns, and — where it’s found, anyway — the “free” money of an employer match. In that, he was at least more honest about such things than many [i]  who make their living offering investment advice (generally accompanied by a subscription fee to their services — which, to be fair, Mr. Cramer has and mentions in this show).  In point of fact, Mr. Cramer would clearly prefer an IRA option — if the contribution limits were equal to the 401(k) — though they’re not even close (not to worry — he says he’s going to continue to fight to remedy that situation). Indeed, Mr. Cramer counsels that once you’ve gotten the full match in your 401(k), you should just put everything else into an IRA (though he doesn’t get into the “nuances” of cont...

  Thanksgiving has been called a “uniquely American” holiday — and as we approach the holiday season, it seems appropriate to take a moment to reflect upon, and acknowledge — to give thanks, if you will. While it’s the celebration following a successful harvest held by the group we now call “Pilgrims” and members of the Wampanoag tribe in 1621 that provides most of the imagery around the holiday, Thanksgiving didn’t become a national observance until much later. On Oct. 3, 1789, George Washington issued his Thanksgiving proclamation, designating for “the People of the United States a day of public thanks-giving” to be held on “Thursday the 26th day of November,” 1789, marking the first national celebration of the holiday. However, subsequent presidents failed to carry forward this tradition.      Incredibly, it wasn’t marked as a national observance until 1863 — right in the middle of the Civil War, (also on Oct. 3) and at a time when, arguably, there was l...

An interesting—and somewhat counterintuitive—report came out last week, one that cast doubt on the “common wisdom” regarding Roth versus traditional pre-tax savings. The assumption underlying the research [i] was that those who had not yet paid taxes on their savings (the traditional pre-tax savings) would be hesitant to tap into those savings and trigger taxes, certainly more so that individuals that had already paid those taxes. Instead, the research suggested that the opposite occurred; that individuals who had saved on a pre-tax basis actually withdrew more/sooner—but with a twist.  This they hailed as good news. They noted that the research suggests investing in a CT (current-taxed, or Roth) plan could help ease concerns about outliving funds—because they spend at a lower rate (though they saw this as a negative for those who saved on a deferred tax (DT) basis).  They even managed to find a silver lining in the “cloud” of faster spending by the pre-tax c...

Perhaps because of the recent full moon, the nation’s 401(k) “haters” were out in force. Yes, last week we were “treated” to a  Bloomberg op-ed  with ideas on how to “fix” America’s broken retirement savings system, a back-handed compliment (of sorts) on SECURE 2.0 in  Forbes  from Teresa Ghilarducci, and the trifecta was completed with an academics op-ed in the  Washington Post  alleging that the current retirement system is “built for the rich.”  Most of the criticism was focused on the same old myopic view on taxes and tax preferences—all flavored through the prism of a highly biased preference for the involvement of the federal government in such matters, rather than the private sector. Key Points So, let me take a couple of minutes to make a few points that always seem to be glossed over: Tax deferral is not tax avoidance. Those contributions and earnings will be taxed (though generally outside the 10-year budget scoring window Congr...

 Sometimes the motivations of those attacking the 401(k) are pretty obvious. The most recent was an article by a Maurie Backman at the Motley Fool titled, “ Why a 401(k) isn’t the wonderful savings tool you think it is. ” I tried to ignore it when it first (to my eyes) appeared on Forbes (which seems to have a pretty low threshold for contributions these days), and I was no more inclined to read it when it showed up a couple of days later on Fox News. But then folks started sharing it on both LinkedIn and Twitter—some ostensibly to hold it up for ridicule, [i]  others as an affirmation—and, with some reluctance, I finally clicked on the article.  Oddly, considering the title (and, in fairness, editors  have  been known to tweak headlines such that they bear little resemblance to the article they are attached to), the article spent almost as much space outlining the virtues of the 401(k)—specifically that they are “easier to sign up for” than an IRA, ...