Nevin's Data "Points"

Looks like the pension crisis is finally over. Well, the funding part of the crisis, anyway. No fewer than three separate studies * were published this past week that essentially said that the pension plans of larger employers are either fully or nearly fully funded again. For several years now, we’ve been struggling with the impact of the so-called “perfect storm” on pension plans. The catchy nomenclature was borrowed from the 2000 film by the same name (which, in turn, was pulled from the 1997 book on which it was based)—a reference to the 1991 Halloween Nor’easter that resulted from the unusual combination of several forces of nature to create an exceptionally powerful storm across a very large area. A storm—nearly a hurricane—that caught many off-guard. The so-called perfect storm for pension plans also resulted from an unusual confluence of factors—a slumping investment market, the “vacation” from funding that many plans took during a period when soaring investment returns ...

This past week, we passed the “anniversary” of the commencement of bombing strikes in Operation Desert Storm (1991). Now, I was too old—and my kids too young—to have been directly impacted by that action. But I’ll always remember that night. I was living in North Carolina at the time, and had been invited by a co-worker to my first NCAA basketball game at the “Dean Dome” at the University of North Carolina. Tickets had been hard to come by, and Chapel Hill was a nearly three-hour drive from where I lived (and on a “school” night, to boot)—but I was excited at the prospect. My friend and I got there early—grabbed some refreshments, found our seats, and sat down to watch the warm-ups. We were only about 10 minutes to tip-off when they made the announcement about Desert Storm—and the resulting decision to cancel the game. Now, unless it is a playoff game, or a remarkably close contest, people have a tendency to exit such events early to “beat the rush.” In this case—and I don’t know...

A couple of weeks ago, we got a panicked call from daughter No. 1, who had, on her way home from work, gotten her first flat tire. Now, flat tires are never fun, but she was clearly unnerved. It was after dark, at the end of a full day of work for her, and even though she was less than two miles from home, and we have motor club coverage, her mother and I piled into a car to change the tire. Whilst I was attending to the changing of the tire, my wife turned her attention to gaining a better understanding of the events that had led up to the event. I thought that was odd at the time—after all, tires run over objects and go flat all the time. But gradually, and painfully, my wife—who has a mother’s knack for discerning when the kids are being less than forthcoming—wrested the truth. It turns out that daughter No. 1, in her 10-minute drive home, had been adjusting the car radio—took her eyes off the road—and struck a curb at just the right angle. Sure, the tire going flat had been u...

I’ve been in this business since before I graduated college (and that’s now been a while) – but my first interaction with a financial adviser didn’t happen until I got to PLANSPONSOR magazine. Well, sort of. It would be more accurate to say that it was my first opportunity to have an interaction. Like too many plan sponsors out there, we had years earlier been sold the 401(k) by an adviser who, at some point not too long after the sale, went “missing.” In the real world, employers – even employers that cover the retirement plan industry – have a business to run. Running the retirement plan, as important as it is, generally isn’t part of that business. That’s why, particularly for smaller employers – but increasingly for employers of all sizes – a financial adviser can be such an important addition to the “team.” That realization has been a growing component of our focus here the past several years. It was part of our decision to launch AdvisorDash in 2003, an integral aspect of the la...

As the nation mourns the passing of former President Ford this weekend, it’s been interesting to think back on that period. Most of the coverage seems to run in the vein of “He deserves more credit than history has given him”—a nice way of saying that history really hasn’t given him much credit. That’s not unusual, of course. People are often not fully appreciated until well after they have passed from this mortal coil—and the dividends of presidential policies are often long-term investments. One thing he’s not often noted for—but that we in this business benefit from every day—is his signing of the Employee Retirement Income Security Act of 1974 (ERISA), less than a month after taking office. I wasn’t paying much attention to such matters in 1974. I was more focused on beginning my college education (and paying for same), and worrying how my dating life was going to survive having to pay 55 cents/gallon for gasoline (but relieved I no longer had to wait in line to do so). As presiden...

Deals like the one announced on Friday by The 401(k) Company, Nationwide, and Schwab are the kind of thing that gives advisers—and plan sponsors—heartburn. Not that one in particular, I should hasten to add—one could have the same queasiness about the recent Great-West/US Bank deal (see Great-West Sweeps Up More 401(k) Business) , the sale of Southeastern Employee Benefit Services (see First Charter Lets Go of Recordkeeping Unit ), or just about any structural change at a 401(k) recordkeeper. The reasons for that angst are obvious, I would suspect. Change—even change for the better—is frequently disruptive to the human psyche. Most of us tend to drift into comfortable “ruts” of pattern, or perhaps habit—places where we know what to expect and, roughly anyway, when to expect it. And, at least in my experience, the more frazzled your existence, the more one pines for these oases of quiet and relative clarity. There are few things more disruptive to the peace or clarity of a 401(k) plan t...

A few years back—when my kids still believed in the reality of Santa Claus—we discovered an ingenious Web site that purported to offer a real-time assessment of their “naughty or nice” status. Now, as Christmas approached, it was not uncommon for us to caution our occasionally misbehaving brood that they had best be attentive to how those actions might be viewed by the big guy at the North Pole. But nothing ever had the impact of that Web site – if not on their behaviors (they’re kids, after all), then certainly on the level of their concern about the consequences. In fact, in one of his final years as a “believer,” my son (who, it must be acknowledged, had been PARTICULARLY naughty) was on the verge of tears, worried that he’d find nothing under the Christmas tree but the coal and bundle of switches he surely deserved. One might plausibly argue that many participants act as though some kind of benevolent elf will drop down their chimney with a bag full of cold cash from the North Po...

I was trolling around on the Internet last weekend, when I saw a story titled “ The Downsides to Your 401(k) .” Needless to say, I was intrigued by the headline (I’m sure that was the intention), which turned out to be a lead-in to an interview with Smartmoney.com Editor Ray Hennessey. There was an interesting pull quote designed to further whet the interest of the casual reader: "If your company goes belly-up, you're left with a lot of company match that you thought was automatic money, (and now) it's gone." Well, right off the bat, I’m thinking the real downside in this article is its portrayal of the truth—after all, a company’s bankruptcy doesn’t put the match at risk. So, I read on. Turns out, the pull quote was lifted out of context. The words were accurately quoted, but were presented without the benefit of an introductory sentence that clarified that the match put at risk was a match made in company stock. A situation that Hennessey said occurs “often.” ...

We got yet another call for 401(k) fee transparency last week. The latest – a report from the Government Accountability Office (GAO) at the behest of Congressman George Miller (D-California) – painted a relatively bleak picture of both the impact of fees on retirement savings, and on the ability of plan participants (not to mention plan sponsors and government regulators) to discern what they are paying for. Before the week was out, the Investment Company Institute (ICI) had published a report with a similar focus – but with a much different conclusion. For the most part, the GAO report didn’t plow any new ground. In fact, IMHO, any self-respecting retirement plan professional could have written the report (or at least bulleted its conclusions) in their sleep. The bottom line: Fees can have a huge impact on retirement savings, but few seem to know what fees they are paying, and they have to work hard to know what little they do know. In contrast, the ICI report conveyed the kind of cal...

Like many of you perhaps, I suddenly realized this past week that this week is Thanksgiving. For me, 2006 has been an extraordinary year on fronts both personal and professional: turning 50, the death of my father, my 20th wedding anniversary, sending our first kid off to college, #2 turning 16, PLANSPONSOR’s first industry conference, a new adviser magazine…oh, and a little piece of legislation called the Pension Protection Act. Still, as I sit here today preparing to pick my mother up at the airport for her first Thanksgiving visit with us in the northeast – and look ahead to picking up my eldest at college next week – I’m struck by just how much there is to be thankful for. First and foremost, I’m thankful for a loving and patient family – who must all too frequently endure the intrusions of my career-long passion for this field into our daily lives. I’m thankful for the home I have found at PLANSPONSOR , and the warmth with which its loyal readers have embraced me, as well as the ...

However you feel about the results of last week’s elections, there’s little disputing that things are going to be different in Washington. Amazingly, though perhaps not surprisingly, I’m already getting invitations to presentations, or offers to send me assessments, on what all this change will mean for benefit programs generally, and retirement savings specifically. My initial reaction was a bit like when I walked into the mall last weekend and was confronted with Christmas displays – it’s too soon for this! I doubt that many went to the polls with pensions on their minds (even those of us who make our living supporting them), and with the ink on the Pension Protection Act of 2006 still damp, one is tempted to think that we have all the regulatory help we’ll need until after the next election – at least. Personally, I’m not expecting much out of this Congress, certainly not on pensions (does anyone really think that the momentary comity displayed for the television cameras will last?...

If you have turned on a TV, walked by a radio, or driven down a residential street in the past month, you will, of course, be aware that our nation will go to the polls tomorrow. Certainly, politics has never been a pretty business, but I doubt that I would get much argument in stating that this particular political season has been as nasty, vitriolic, and personal as any in recent memory—including not a few of those ads where the candidate’s visage appears to say that he or she “approved this message.” Like a couple of bickering siblings, both sides protest either that they didn’t start it, or that it is the other side’s fault. Lowered to levels of political discourse that once would have gotten your mouth washed out with soap, the verbal free-for-all threatens to obfuscate not only the real issues in this election, but the truth itself. We’re all sick and tired of it—even when they’re dishing the dirt on the candidate we’re hoping is forced to slink off the public stage in disgrace c...

This past weekend was Parent’s Weekend at the college where my eldest has now been in residence for the last two months. We’d had a great weekend, but as we went to check out of the hotel, I noticed that the final charges were considerably more than the rate we had been quoted when we made our reservations. Setting aside for the moment concerns that my 14-year-old had discovered the wonders of pay-per-view, closer scrutiny yielded the number I had anticipated—our room charge. But also included in the charges I was now expected to pay were a room tax, a city tax, and an occupancy sales tax. I suppose one could hardly fault the hotel for those additional charges – they had, after all, provided the room and facilities to my family for the agreed upon rate. I’ll bet that somewhere on their Web site, or perhaps even on the form I signed at registration, the existence of these additional taxes was acknowledged. However, I’m reasonably certain that the hotel was happy to have me think I was g...

Last week, the elementary schools in Attleboro, Massachusetts, gained a bit of notoriety for their decision to ban kids from playing tag (more specifically, any unsupervised “chase” game). They weren’t the first to do so, but headlines like “Tag, You’re Out!” are just too tempting for journalists to turn their backs on. And, let’s face it, the notion of tag being “outlawed” is the kind of “you’ve got to be kidding me” story that people will read. The reason for the ban is simple: Recess is "a time when accidents can happen," was a quote attributed to Willett Elementary School Principal Gaylene Heppe, who approved the ban. Having had a dangerous encounter of my own on the school playground during sixth-grade recess (I still have the scars), I can attest to the veracity of the concern. Of course, no one really thinks this is about children’s safety. We all know – and, unfortunately, understand - that it’s about the lawsuits that such accidents will almost certainly engende...

Last week, participants who had brought a company stock suit against their employer won a settlement. No real surprise there, you say? Well, actually, in approving the relatively modest $11 million settlement in the case of In re: Broadwing, Inc. ERISA Litigation, the court essentially said that plaintiffs should take the money and be glad they could get it—since their odds of winning (“prevailing on the merits” in legalspeak) were uncertain.* Now, admittedly, that might be something of an overstatement. In approving the settlement, the court basically did what courts are supposed to do in approving a settlement—they ran down a checklist of things that purport to establish that the settlement is fair, particularly in a class action, where most of the plaintiffs aren’t in the courtroom. And one of the conclusions courts are basically required to draw in approving such settlements is that it represents the best deal for a plaintiff under the circumstances. In Broadwing, the action w...

Last week, another court rejected claims that a cash balance plan was age discriminatory (see “Cash Balance Plan Not in Breach of Age Discrimination Laws” ), though you could perhaps be excused for not noticing that result. In fact, my guess is that a random sampling of the adviser universe would reveal two things about cash balance plans: first, a great ignorance about what they are and how they work (see links below); and second, a general sense that they represent an illegal plan design. Over the past several years, the conversion – and litigation experience – of a single plan – IBM - has dominated the media’s coverage of these programs. Along the way, Congress has cut off funding for the Department of Labor to issue clarifying regulations on these programs (led by Congressman Bernie Saunders, I-Vermont, in whose state IBM is the largest employer), and the IRS quit issuing determination letters on these plans (basically an approval by the IRS that the plan document passes muster). T...

There are many terrifying aspects of being a parent – but perhaps none as intellectually daunting as being asked to help with your children’s homework. See, even if you did well in school once upon a time – even if you can (or think you can) still remember how to solve a certain type of problem, the only way to “know” is to see if you have the “right” answer. And thank goodness, for parents (and, no doubt, students) everywhere, most math texts still carry the answers to the odd problems in the back. Last week, the Department of Labor provided a similar service – the “right” answer to a dilemma that has plagued plan sponsors and advisers for many years: the choice of an appropriate investment fund for participants who fail to designate one. In announcing the proposed rules , the DOL threw its support behind this solution – a qualified default investment alternative - as a means to foster programs like automatic enrollment (particularly the new safe harbor version contained in the Pensio...

On September 11, 2006, while the nation was focused on the fifth anniversary of the 09/11 terrorist attacks, a St. Louis law firm launched its own “attack” on a wide array of 401(k) plan practices, primarily centered around the application, and reporting, of fees. However, unlike the terrorist attacks, this 09/11 event has been launched well below the normal media radar screens. In fact, even today, some two weeks after the complaints have been filed in court by the St. Louis-based law firm of Schlichter, Bogard & Denton, I don’t believe it has been picked up by any major media outlet. That a suit has been filed regarding revenue-sharing practices is hardly a surprise, of course – it’s not even the first (for example, see Nationwide ERISA Suit Survives Challenge ). Moreover, a number of notable ERISA litigation firms have, for some time, effectively solicited these claims from participants via postings on their respective web sites. However, what is most striking, IMHO (asid...

One of my favorite Westerns is “Butch Cassidy and the Sundance Kid,” and one of my favorite parts of that movie is the part where they are being pursued – relentlessly pursued – after a particular train robbery by an unidentified posse. As they fruitlessly try one thing after another to shake their pursuers, the two outlaws’ frustration mounts, moving from a “can you believe it?” incredulousness at their ingenuity to a “now what are we going to do?” exasperation – a range of emotions conveyed several different times – in several different ways – by the same phrase, “Who ARE those guys?” In our industry, the pursued aren’t train robbers, but participants – or more accurately workers who could be participants. The posse trying to “catch” them includes employers, providers, and, yes, financial advisers. Over the years we’ve tried many things, with varying degrees of success, to get everyone who is eligible to save via these programs to do so: the logic of tax-advantaged savings, the al...

Five years ago, I was in the middle of a cross-country flight, literally running from one terminal to another in Dallas, when my cell phone rang. It was my wife. I had been on an American Airlines flight heading for L.A., after all - and at that time, not much else was known about the first plane that struck the World Trade Center. I thought she had to be misunderstanding what she had seen on TV. Would that she had…. So that day, when family and friends were so dear and precious to us all, I spent in a hotel room in Dallas. It was perhaps the longest day - loneliest night - of my life. In fact, I was to spend the next several days in Dallas – there were no planes flying, no rental cars to be had – separated from home and family by hundreds of insurmountable miles for three interminably long days. When I finally was able to get a car and begin that two day drive home, it was a long, lonely drive, but it gave me a lot of time to think - to pray - and to treasure the things I was s...