Nevin's Data "Points"

   I will confess that I am (still) of a mixed mind on imbedding retirement income solutions in 401(k) plans — and a new whitepaper on the implications of the new Investment Selection rule has done little to assuage those concerns. The Morningstar paper — aptly titled “ Guaranteed Income in DC Plans: Evaluating Target-Date Funds with Built-In Annuities ” — covers a lot of ground. That said, more than half the paper is background [i] — chronicling both the trend lines to date, as well as offering a readable description of the two primary types of retirement income options that have found their way into the target-date fund framework (and yes, they’re quite different!). Those trendlines have captured the attention (and doubtless recirculation) of the paper, particularly among proponents. But the “meat” of the paper considers the implications of applying the Labor Department’s “new” Investment Selection Rule (though its official label at present remains “ Fiduciary Duties in Sel...

   Managed accounts have been praised, criticized, and litigated — often on the theory that they’re little more than expensive target-date funds. However, a recent report actually quantifies their impact — and turns out, it’s not an investment story, it’s behavioral. That report — inauspiciously titled “ The 2026 Managed Accounts Research Series: Analyzing the Value of Managed Accounts ” — was published in mid-January by Morningstar. Of course, Morningstar has a fair amount of “skin” in the managed account space — a reason, if you will, to find a favorable outcome for the design.  And, sure enough, the analysis claims that managed accounts outperform target-date funds and the efforts of so-called “do-it-yourself” investors for — well, everyone. More specifically, the report claims that MAs increase the median wealth/salary ratio at age 65 by 5.9% for TDF investors and by 11.4% for DIY investors. Across all plan participants, adopting an MA led to an overall increase of 7....

I’ve been getting a lot of … comments … of late about my version of “retirement.” I heard it both a couple of weeks back speaking at an event sponsored by The Standard—and again last week at the NAPA DC Fly-In Forum—that I was setting a poor example for retirement aspirations (all good-natured, and generally followed by a quick comment that they were glad to see me nonetheless).  So much for long walks on the beach or reading in a rocking chair, I suppose. But it’s my first “go” at retirement, after all—no practice rounds (even my vacations over the years have been a bit “busy”) beyond the “space” provided by COVID’s lockdowns. That said, my days are definitely different now. And, though it’s perhaps not apparent from the content I (still) produce in any given week (blame the plaintiffs’ bar—if they’d quit suing, I’d have less to write about), I’m pleased to report that I’m (beginning) to ease into new daily patterns; (more) time on the treadmill, actually reading boo...

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...

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...

There’s an old saying that when you assume… well, here are five assumptions that can create real headaches for retirement plan fiduciaries. Assuming that not being required to have an investment policy statement means you don’t need to have an investment policy. While plan advisers and consultants routinely counsel on the need for, and importance of, an investment policy statement (IPS), the reality is that the law does not require one, and thus, many plan sponsors — sometimes at the direction of legal counsel — choose not to put one in place. Of course, if the law does not specifically require a written IPS — think of it as investment guidelines for the plan — ERISA nonetheless basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, plan sponsors (and the advisors they work with) will find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those ...

Target-date funds continue to expand in usage and popularity – but there are some things the Labor Department wants you to know about TDFs that you may have overlooked. When the Labor Department published its “ Target Date Retirement Funds – Tips for ERISA Plan Fiduciaries ” in 2013, I was pleased to see it, and to discover that it could be read 1 (and understood) in about 15 minutes. But in preparation for a recent webcast on the topic, I took a fresh look at that document, and found some nuggets that I hadn’t really picked up on the first time around. It’s Not Just About Fees and Performance As part of a reminder about the importance of establishing a process for comparing and selecting TDFs, the Labor Department specifically references considering prospectus information, such as information about performance (investment returns) as well as investment fees and expenses. However, in that same topic point, the agency says that plan fiduciaries should consider how well the TD...

In a remarkably short period of time, target-date funds have become an integral component of the typical 401(k) menu, and a growing share of 401(k) plan assets — particularly those of newly hired 401(k) plan participants — are being directed to TDFs. Whether you are a plan fiduciary evaluating the TDF option(s) on your plan menu — or a 401(k) plan participant being defaulted into a TDF option — here are five questions to which you should know the answers about your TDF investment. 1. What is the ‘appropriate’ asset allocation? This is the million-dollar question for target-date funds. At a high level, this is no more complicated than deciding what is the right mix of stocks and bonds, international and domestic, alternative investments and/or cash for investors at every stage of their investing life — or than picking the firm(s) that you trust to know what that right mix is. 2. How much of what is on your glide path? The “glide path” sounds like a complicated concept, but it ...

Before target-date funds were “cool” (or widely available), I had steered my mother toward an asset-allocation fund as a good place to invest her retirement plan rollover balance. The logic was, I thought, impeccable: A professional money manager would be keeping an eye on and rebalancing those investments on a regular basis. The fee was reasonable, and the portfolio was split about 60/40 between stocks and bonds, which also seemed reasonable in view of her investment horizon. From time to time Mom would call and ask if we needed to rebalance that investment — and I confidently assured her that there was no need to do so, that the fund’s design took that into account. Then at some point (though definitely between 2006 and 2008) that professional manager decided that a “better” allocation was to shift the asset allocation to be invested nearly entirely in stocks. Now, knowing how such things work, I can’t imagine that a shift that dramatic wasn’t clearly and concisely communicated to...

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 ...