Nevin's Data "Points"

Last week, the LA Times ran a three-part series on 401(k) fees. The headline, “Fees Eat Away at Employees' 401(k) Nest Eggs,” didn’t seem to be a harbinger of real news. I figured it was just another one of those moments of journalistic “awakening” to things those of us in this business are already well aware of. But as I skimmed the story, I realized that this was not just a story about outrageous 401(k) fees per se. While acknowledging that “Mutual fund management fees are the biggest expense,” the authors gave them a quick pass, noting that they are “prominently disclosed, have attracted wide publicity, and have been declining as fund providers compete for customers.” Well, they surely are the largest expense, they have been attracting publicity, and they surely are disclosed (“prominently” is another matter, IMHO). As for fees declining, well personally, I don’t see much evidence that most are, but that’s a point for another column. So, if those mutual fund fees that are t...

For several years now, the Employee Benefit Research Institute (EBRI) has been publishing its Retirement Confidence Index. This year, as in years past, the index painted a relatively rosy picture from the standpoint of workers – with sizeable minorities and/or majorities feeling pretty good about their retirement living prospects despite having no real idea how much they were going to need, alongside an optimistic sense of how long they would live in retirement, and how much of their pre-retirement income they would need to live on. A sizeable minority also appears to be counting on receiving a pension to supplement those needs – and they also seem to be counting on the help of employer-provided retiree health-care insurance, though both are in increasingly short supply these days. In fact, based on its findings, one is tempted to retitle it the Retirement Over-Confidence Index. What’s interesting to me, however, is not the respondents’ blithe assumptions about their prospects for a...

Apparently, the nation’s savings problem is even worse than we think: Not only are we not saving enough, we’re spending more than we make. The Commerce Department's Bureau of Economic Analysis monthly report of the National Income and Product Accounts (NIPA) personal savings rate was a negative 0.5% recently. In fact, media coverage of the report noted that, in the course of 2005, Americans spent more than they earned for the first time since the Great Depression. As it is currently defined, NIPA’s definition of personal saving is simply the difference between personal disposable income and personal spending. Personal income includes wages, asset income (dividends and interest), rental income, and supplements to wages, including those pension and 401(k) contributions. And yes, it counts those pension contributions made by employers to traditional defined benefit plans as though they were individual income – but not the subsequent gains (or losses) they might incur. NIPA’s exclu...

I had just wrapped up last week’s column when I got a call from my sister. My father, who had been battling cancer for several years now, had suffered a series of heart attacks. By the end of the day, he had passed. As the family converged, my siblings and I tried as best as we could, together with Mom, to deal with the tasks that required our attention, and divvied up the ones that seemed to call out for individual attention. Having spent my entire professional career in financial services, and having picked up a law degree along the way, my “job” was to organize the will and assets. My parents each chose careers of service to others; Dad as a minister, and then a director of missions where he helped other ministers until his “official” retirement several years ago (far as I could tell, Dad’s only retirement was from the receipt of a regular paycheck), while Mom was a school teacher – a teacher who took a fairly significant “sabbatical” so that she could stay at home with her four ...

I know it isn’t for everyone, but the NCAA tournament (and, without meaning to give offense to to those who are adherents of other college sports, the Division 1 men’s basketball tournament has to be considered THE NCAA tournament) has always found a way to creep into the workplace. Not just the ubiquitous grid sheets, but even – in pre-Internet days – with folks importing tiny black and white TVs, or listening to the games on those little transistor radios. It’s much easier to stay up-to-date these days, of course (unless your workplace blocks access to such things). Ultimately, the “magic” of the contest lies in the basic premise that on any night any team can beat any team in the nation – and you need look no further than George Mason University’s toppling of UConn last week to see that principle in action. The tournament itself is a marvel of design, IMHO (for those who are interested in how this process works, it is outlined at http://www.ncaasports.com/basketball/mens/story/91...

Revenue-sharing has become an integral part of the business of serving retirement plans and, while a growing number of advisors have moved (or are rapidly moving) to a fee-based model, many have clung to the former. And let’s be honest here – a large number of plan sponsors still prefer that model for the simple reason that it is easy (no invoices, no checks to write) and seems, on the surface, anyway – cheap (not physically writing a check always seems less expensive). However, the revenue-sharing model is coming under heightened scrutiny – because it does tend to obscure the actual fees paid from the oversight of plan fiduciaries, because its basis of calculation – plan assets – does not always comport equitably with services rendered in exchange for those revenues (and sometimes that means it undercompensates for the services rendered) and because, when you take money from someone other than the person you are providing services to for providing those services, it can look like a b...

I may come to regret it – but we have decided to pass on the sixth season of the HBO “family” crime drama, The Sopranos. This decision was not taken lightly in our household, where, since its January 10, 1999, debut, my wife and I sent the kids out of the room every Sunday night at 9 p.m. so that we could enjoy the “antics” of the “family” crime drama. I actually still have recordings of the first three seasons on VHS tape – before I realized that it wasn’t really the kind of thing you would watch over and over again (let’s face it, some story lines are more compelling than others). A lot has changed since then (our kids no longer have to be sent out of the room, for one thing). But as season five drew to a close, two things became obvious – our cable bill was out of control (I have long had a fondness for multiple premium channels), and the only real reason we were still paying for all those premium channels was The Sopranos. And the fact was that, as the “sabbaticals” between Sopr...

Last week, a provider was perusing our editorial calendar, saw that we were covering automatic enrollment in our March issue, and volunteered their expertise on the issue. Well, it was too late for that issue – but they sent along a research paper on “quick” enrollment that had some interesting findings (see Plan Design below) – interesting enough that we wrote up a brief news item on it for www.plansponsor.com , and in the NewsDash. Next day, I get e-mails from three different providers – all picking up on the quick enrollment issue – and all, in slightly different ways, sharing their very positive experiences with the concept. What I found particularly interesting was that they all basically said, “Our plan sponsor clients have been slow to adopt auto-enrollment because of fiduciary and cost concerns…” so voila, “quick” enrollment, or “easy” enrollment, had been introduced – and was working quite well, without running afoul of the fiduciary concerns attendant with automatic enrollm...

Benjamin Franklin once suggested that the definition of insanity is doing the same thing over and over and expecting different results. Our household was treated to a real live example of that over the weekend when our beagle/German shepherd mix got it into his head - - - and, I might add, for the second time in six months - - - that chasing a skunk was a smart thing to do. What troubles me most about the event (and there are MANY troubling aspects) is that at some level, I think, he actually LIKES his new smell! Last week I was talking to a group of plan sponsors about strategies for boosting participation in their plans, and I was struck by how “traditional” our perspectives on saving for retirement were. Sure, we’re talking in a new way about some old ideas (like automatic enrollment), and we’ve reworked some old ideas so that they seem to be more effective (like lifecycle funds), and while we have added some new thinking to some of those old ideas (like contribution acceleration...

Benjamin Franklin once observed that in this world, nothing is certain but death and taxes – and, certainly at this time of year, we’re all reminded in an up-close and all-too-personal way of the certainty of taxes. What we’re not as certain about, of course, is the rate of taxation, and how it will be applied to our individual situation(s). And unfortunately, certainly for those of us who work with qualified retirement plans, we’re also increasingly uncertain about the prospects for the key provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 – EGTRRA. The impact of that legislation on our business can hardly be overstated. In a single stroke, it boosted stifling contribution limits for defined contribution programs, lifted arcane limits on compensation and benefits, provided economic incentives for lower income workers to participate in these programs, and gave older workers a chance to “catch up” on missed opportunities to save for retirement. EGTRRA levele...

A couple of weeks ago, Fidelity put out a press release highlighting the fact that Boomers turning 60 this year surpassed the $100,000 mark in average account balance, a figure based on Fidelity recordkeeping data. While there was something almost celebratory about that headline, I couldn’t help but be disappointed by that figure. Sixty-years-old and only $100,000 in their 401(k)? I’ve played with enough retirement planning calculators in my time to know that the odds of that sum providing a comfortable retirement – even with another five to 10 years of accumulation – weren’t very good. Of course, the balance ($112,000, actually) was an average – and one ought always to be cautious in extrapolating too much from those combinations. Still, in the very next sentence, Fidelity projected that the older Boomers (those age 50-59, including those in the aforementioned average) are on track to replace 60% of their pre-retirement income. And while there was a cautionary tone in the press r...

This week, Congress may well turn its attention to pension reform (or it may not; there are other issues looming, not the least of which is the scramble to fill the House Majority Leader opening). Nonetheless, it seems reasonable to anticipate some kind of action on the legislative front, at least by April. Most of the focus has been on reforms targeted at defined benefit plans, and that's reasonable in view of the very serious issues regarding pension funding and the apparently precarious funding situation of the Pension Benefit Guaranty Corporation (PBGC, which insures those precariously funded programs (as well as the not-so-precariously funded ones). Additionally, there are several items in bills pending in both the House and Senate that could have a tremendous impact on defined contribution plans, including new rules regarding company stock (in the Senate bill), participant education (Senate), automatic enrollment safe harbor (House and Senate), and advice (House and Senate)...

As I noted last week, a growing number of employers are taking a fresh look at their plans’ default options. Sometimes that fresh look is a function of regular, on-going due diligence (ok, maybe that’s not as frequently the reason as we might hope); sometimes the addition of a new plan feature (such as automatic enrollment) provides that impetus; no doubt, sometimes it is the result of a financial advisor’s recommendation. Regardless of the reason, in those situations where a plan has had a default option in place and then, decides to make a change, the plan sponsor is presented with a choice: What do you do with participants where the “old” default choice was applied? In fact, I recently heard from a reader who said she was seeing a variety of responses: (1) new contributions go to the new default fund, with previous defaults remaining in place, (2) only new participants, and their contributions, directed to the new default fund, with previously defaulted participant elections rema...

Whether it’s a function of the growing infatuation with automatic enrollment features, a consequence of the growing popularity of lifestyle/lifecycle offerings, or the guiding influence of financial advisors, a growing number of plan sponsors appear to be taking a fresh look at their plans’ default options – the investment choices made for participants who fail to make one. This is a prerequisite for automatic enrollment designs, of course, but plans also have long provided for an interim instruction for that participant who fills out the enrollment form but, for some reason, forgets to make an investment fund selection. Traditionally, these default choices have been “conservative,” generally some flavor of stable value/money market fund, chosen primarily to serve as a temporary repository for the money until the participant gets around to filling out the proper form. However, the growing application of automatic enrollment features, as well as emerging statistical evidence regarding...

I was on the phone late last Thursday afternoon with the folks at IBM just before they made their big announcement about changes to their retirement programs. That timing was highly coincidental – and more than a bit ironic, since one of the things I had called to chat with them about was the impact of their last big retirement plan changes, which they unveiled almost exactly a year ago this week. This time, they announced the freezing of their current pension plans and a significant enhancement of the matching formulas for what they now term their 401(k) Plus plan – changes that would not, however, be effective until 2008 – and changes that would not apply to current retirees (see IBM Beefs Up 401(k), Backs Off DB – Come 2008 ). A lot has happened in the past year on the pension front, and yet nothing that really needed to happen. We’re still dealing with a “temporary” replacement for the 30-year Treasury bond in pension calculations (even though the Treasury plans to begin reissui...

Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the last of this series, IMHO takes a look at what seems to be the underlying logic behind the automatic alternatives – that participants don’t, or won’t, “get it.” As always, I would appreciate your reactions, comments, and suggestions. One of the more pervasive themes about retirement plan investors is that they don’t know what they’re doing, generally accompanied by some sort of subtextual survey that purports to prove the point; workers don’t participate as they should, participants don’t save enough, don’t allocate their retirement plan investments sufficiently or regularly. In sum, retirement plan participants just don’t get it. As easy as it seems sometimes to find fault with how particip...

Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the fifth in this series, IMHO offers another non-automatic alternative to help involve and engage participants. As always, I would appreciate your reactions, comments, and suggestions. == (5) Set up regular checkups When it comes to going to the doctor, I’ve always adhered to a very simple standard – if it ain’t broke, don’t. Of course, as one gets older, gains a family, and has greater responsibilities, one can – with the prodding of a caring wife, anyway – make exceptions to the strictest of rules. It was during one of those not-so-regular “regular” checkups years ago that I discovered that age, heredity, a bad diet, a busy/stressful occupation, and a relatively sedentary lifestyle can contribut...

Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the fourth in this series, IMHO offers another non-automatic alternative to help involve and engage participants. As always, I would appreciate your reactions, comments, and suggestions. (4) Once you’ve built it, make them come. I spent most of my career working for companies that, once a year, put a hard push behind the support of a certain charitable campaign. That hard push included times when we were required to turn in pledge cards and, while the amount wasn’t mandatory, let’s just say it was pretty clear what the “right” amount was. However, adding insult to injury, either to reinforce our sense of charity or to create it, we also had to go to a meeting where we would have to watch a video...

Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the third in this series, IMHO offers another non-automatic alternative to help involve and engage participants. As always, I would appreciate your reactions, comments, and suggestions. (3) Eliminate Self-administered “Risk Tolerance” Questionnaires A number of years ago at an offsite management meeting, I was introduced to the Myers Briggs Type Indicator. For those not familiar with MBTI, it is a personality inventory–-based on the theory that how we behave as individuals is due to basic differences in the way we, as individuals, prefer to rely on our perception and judgment. There are more than a dozen types, combinations that supposedly not only help you better understand yourself, but also the ...

. Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the second in a series, IMHO offers another non-automatic alternative to help involve and engage participants. As always, I would appreciate your reactions, comments, and suggestions. (2) More is Less – Put that Fund Menu on a Diet Remember the first time you walked into Starbucks looking for coffee? Well, I do – and I was awfully glad that the line was so long that I had a chance to try and figure out something to order without sounding like a total idiot. I’m sure you’ve seen those studies about participant choice and inertia – the studies about how people given 24 jellies to choose from chose to buy none, while those with a mere six flavors were significantly more likely to actually buy one...