Nevin's Data "Points"

  Editor’s Note: To his credit, Shlomo Benartzi took the time to respond to my recent  column  on his Wall Street Journal op-ed on LinkedIn (you can read it  here ) — though to my read, the concerns expressed on where such a proposal could lead remain. Consider this a brief follow-up.      Shlomo, Whew! I can’t tell you how relieved I am/was to have you clarify that you are NOT advocating a government-run retirement plan system. I guess you referring to three specific government-run systems as models to be considered persuaded me that you thought those were good examples for us. You’ve  now  pointed more specifically to the Australian model where “workers remain by default with their first plan provider, even if they change jobs.” But as I am sure you know, there are some significant differences between that system and ours — differences that, to my eye, wind up being significant.  First and foremost , that system is funded primarily by ...

   As Halloween approaches, a leading behavioral science academic has embraced a truly scary idea that involves your 401(k) account. That academic, as you might deduce from the title, is none other than Shlomo Benartzi, professor emeritus at UCLA Anderson School of Management — and more specifically a champion of the application of behavioral finance concepts to retirement plans, notably automatic enrollment and contribution acceleration. As for that scary recommendation, Benartzi has — in a Wall Street Journal op-ed — effectively backed the notion of creating big government-run pools of retirement savings — where ALL retirement savings would be put. “We no longer have jobs for life” he rationalizes, though employment tenure in the private sector has been pretty consistent going all the way back to the 1940s. What HAS changed is the predominance of defined contribution savings plans and — ironically — that system’s increasing reliance on the behavioral science designs that ...

Our industry often seems to treat participants like children who can’t make big decisions—but a recent research paper suggests they might make better choices  if  we expanded their perspective. The paper, intriguingly titled “ Financial Wellness Meets Behavioral Economics ,” highlights a behavioral tendency known as “narrow framing”—basically a tendency to focus on one complex choice, or one element of a complex choice, at a time.  Now, at first blush this seems rational, and perhaps even prudent—but the paper suggests that this kind of linear thinking means that people are inclined to overlook real-life disruptions like financial emergencies—which are not only uncertain with regard to amount or timing, but even in terms of whether they will occur at all. Little wonder, therefore,  that  studies   routinely find that workers say they are ill prepared to come up with the funds to cover some kind of short-term emergency o...