Nevin's Data "Points"

Looks like James LaRue will get his day in court, after all. Last week’s Supreme Court result (see Justices OK Individual ERISA Suits in Landmark Ruling) could perhaps have been anticipated – certainly there has been little of late to suggest an interest in depriving participants of their right to sue - but the margin of victory – 9-0 – was striking. The case - LaRue v. DeWolff – involved a participant that claimed he had instructed his plan administrator to transfer his balances to different funds. Those instructions were either ignored, or never presented in the first place, depending on who you choose to believe – but the lack of attention to those instructions allegedly cost James LaRue $150,000. What really happened, why LaRue chose to sue when he chose to sue, and how much damage was done as a result has yet to be established – the case was dismissed by two lower courts that, relying on an earlier Supreme Court precedents, determined that ERISA did not permit individual partic...

If you watch commercial TV (that is to say, TV with commercials), you’ve no doubt been struck by the proliferation of ads for various prescription medicines. Medicines that you generally can’t buy directly, of course - but you CAN “…ask your doctor or pharmacist about how they might work for you.” Setting aside my personal disgust at just how many (and how explicit) Via.gra ads are shown (and shown so early in the evening), I’m always struck by the length and content of the disclosures that accompany such promotions. Frankly, IMHO, by the time they’re done reeling off the potential side effects, it’s a wonder anyone actually makes an inquiry about taking them. Truly, the “cure” often sounds worse than the disease. Disclaimers are also increasingly popular in our industry. There’s the disclaimer that plan fiduciaries are asked to sign if they choose not to follow the counsel of their financial adviser, disclaimers that purport to limit the liability of providers, and exactly why do ...

One of the more well-known Aesop’s Fables is the story of “The Ant and the Grasshopper.” In the story, the ant works hard all summer long, storing up food for the winter that it surely knows is coming. The grasshopper, though he too knows that winter is coming, decides instead to fritter the summer months away—going so far as to make fun of the ant for working so diligently. Of course, winter does finally arrive, and the grasshopper finds himself stuck in the cold, and hungry. He quickly remembers his “friend” the ant—and hops over to his anthill and proceeds to ask for a handout. There have been certain animated retellings of this fable over time—in most of those, the grasshopper comes to see the error of his ways and appeals to the ant for a morsel of food in a contrite manner. And, in those “happier” versions of the fable, the ant has enough to share—and does—and everyone seems to live happily ever after. But in the original version of the story, the grasshopper approaches...

If you’ve been asked in the past two weeks what to do about the market (and who hasn’t), I’m sure your response has been something along the lines of…“Nothing.” There are, of course, more eloquent ways to express that sentiment. And, let’s face it, when it seems that everyone is asking that question – it’s generally well past the time when it is prudent to try and do something. Still, it seems that throughout my professional career, every time the market plunges (even when it stays down for an extended period), the pundits all seem to say the same thing; “the fundamentals are sound,” “we’re going through a period of short-term volatility”, sometimes even that that period of “short-term volatility” was anticipated (apparently even an innocuous footnote about the possibility of such things “counts”). Naturally, we’d all like to believe is that we don’t need to do anything in these times of - “uncertainty” - because, well ahead of the current tumult, things have already been done to p...

With lightning speed, the House managed to cobble together an economic stimulus package last week, the Senate will take it up this week, and President Bush seems anxious to sign it. Even more amazing in the current political environment (and in an election year, no less), there appears to have been true compromise on both sides of the aisle in pulling it all together. But for those of us who focus not only on the importance of saving for retirement, but on trying to remedy the inefficient (and non-existent) savings behaviors of working Americans, there were huge ironies in the logic behind this particular stimulus, IMHO. I fully appreciate the economic spiral that sometimes sets in – people get worried about their personal finances, quit spending on non-essentials, which leads to less revenues for businesses, whose employees get worried about THEIR personal finances, and who subsequently quit spending on non-essentials, which leads to…well, you get the point. I’ll also confess ...

After months of research, informal talks with vendors, and not a few inquiries to a few “trusted advisers,” just before Christmas, we finally made our decision. We bought a Blu-Ray DVD. Now, that may not mean much to many of you. However, even the most casual renter of DVDs these days is frequently subjected to a commercial for that “next level” of viewing experience. The problem, of course, is that there are two levels: HD and Blu-Ray. The former has been around longer and, at this writing, that means that there are more movies in that format. The latter, if one is to believe the research, is “better” technology (you can put five times as much content/material on a Blu-Ray as on regular DVD versus just two times as much on an HD)—but your movie selection in that format (today) is smaller (none of this matters unless you also have a high-definition TV capable of displaying all this grandeur, by the way). The other problem, of course, is HD and Blu-Ray are not compatible. You can’...

Back in 2003, when then-New York Attorney General Eliot Spitzer launched his investigation into mutual fund trading practices, two distinct areas were highlighted: late trading, which was illegal on its face (particularly so when facilitated by the fund companies themselves), and market-timing, which, as we were reminded in a parenthetical comment in nearly every story regarding the scandal, was not (though nearly every fund prospectus claimed to discourage such patterned trading and promised to take steps to deter it). That distinction was frequently glossed over in the coverage that followed—and the settlements that ensued. When all was said and done, a large number of chastened fund complexes had forked over a large amount of money (much of it to the coffers of the Empire State) and agreed to adopt new controls and procedures designed to ensure that the wrongdoing they never admitted to doing never happened again. So much commotion was raised, in fact, that the Securities and Exc...

Just after Christmas my family flew to Chicago for a surprise – my mother-in-law’s 85th birthday. It was a huge success – she wasn’t expecting us – in fact, wasn’t expecting to have all three of her children and their families in town on that day. Over the course of our time there, I heard her tell several people “I never thought I’d make it this long.” Now, my mother-in-law doesn’t look (or act) 85. Still, even by today’s lengthening longevity standards, 85 is a long time – and, even as we planned our surprise trip “home”, we couldn’t help but wonder how many more birthdays we’d have together. None of us know how many birthdays we’ll have – and how many of those will happen during retirement. Indeed, contemplation of our personal mortality is something that most, IMHO, reserve for special, isolated occasions (some not even then, of course). And yet, one of the most important aspects of planning for a financially secure retirement is making some attempt to predict just how long th...

I went to see “I Am Legend” over the weekend. It’s the third cinematic version of the post-apocalyptic story that Richard Matheson wrote in 1954. This weekend’s reviews will (rightfully) be mostly about Will Smith—but Vincent Price was the first to take on the role in 1964 (in “The Last Man on Earth”), as did Charlton Heston in 1971’s “The Omega Man.” Each film, of course, is different—and I’m not just talking about the generous application of CGI. So different, in fact, that while I had read the book and seen the prior two film interpretations (Matheson influenced the 1964 version, but had nothing to do with “Omega Man”), I was distracted by things not happening the way they were “supposed” to happen in the story. The “story” of this nation’s retirement has been similarly well-chronicled. For the very most part, the stories of late have been of the apocalyptic variety—and with some justification, IMHO. Last week, the Government Accountability Office (GAO) published the latest ve...

Having spent three days immersed in PLANSPONSOR’s second annual DB Summit, I was struck by just how relatively “easy” participant-directed plans—be they 401(k), 403(b), or 457- are. Now, I hope you picked up on the use of the word “relatively.” I wouldn’t suggest for a minute that participant-directed programs don’t have their challenges. If the concept of saving is simple enough, the science of investing, compounding, and tax-deferral presents daunting intellectual obstacles for many. Even expert practitioners struggle with notions of “reasonable” fees, appropriate glide paths for target-date funds, and the applicability of QDIA regulations in the “real world.” Over the years, our industry has worked to make participant-directed programs more accessible to participants. More recently, we have accommodated those who don’t want that access (for whatever reason)—or those who prefer to hire experts (or both)—with an assortment of automatic plan design features. Meanwhile, IMHO, defin...

The past year has brought with it an extraordinary amount of change to our industry. And yet, I have yet to meet an adviser—in any setting—who isn’t brimming (some are even bubbling) with enthusiasm for the opportunities they see for their business in all this change. That’s a very different perspective than I hear from their plan sponsor clients. Not that plan sponsors aren’t appreciative of positive change. It’s just that, as a general rule, my experience has been that plan sponsors are significantly more likely to associate change with work, rather than opportunity—and with some justification. Consider the recent finalization of regulations on the qualified default investment alternatives (QDIAs). Plan sponsors finally have some reasonably clear definition of what constitutes an appropriate default investment choice (at least according to the Department of Labor), one that provides a fair amount of flexibility for the sizeable number of plans that previously relied on a stable v...

Two years ago, I wrote about the “next level” in defined contribution designs: a growing interest on the part of plan sponsors in focusing on service elements like participation rates, deferral amounts, and appropriate asset allocation—a precursor, if you will, for the designs that would eventually come to a fuller fruition in the Pension Protection Act. Since then, there have been any number of industry surveys that tout the boom in automatic plan designs—as does ours. And yet, despite the pickup in automatic enrollment programs—23.1% of those 5,500 employers responding to PLANSPONSOR’s 2007 Defined Contribution Survey now have these programs in place compared with 17.1% a year ago—it has yet to manifest itself noticeably in participation rates. The average participation rate reported was 72.7%, and while that is higher than the 70.1% in the 2006 survey, it remains short of the 74.9% reported in 2005—before such programs were the hot trend(1). One explanation for the modest uptick...

Thanksgiving has been called a “uniquely American” holiday, and while that is perhaps something of an overstatement, it is unquestionably a special holiday, and one on which it seems a reflection on all we have to be thankful for is fitting. Here’s my list for 2007: First, I’m thankful for the voluntary nature of the defined contribution solutions in the Pension Protection Act—that plan sponsors were given guidelines and protections for adhering to specific safe harbor approaches, but were not forced to adopt those or prohibited from pursuing their own approaches to things like automatic enrollment (albeit without the regulatory protections). I’m thankful for the Department of Labor’s ongoing willingness—and enthusiasm—for soliciting and incorporating feedback on their regulations from those of us who have to work with them every day. I’m thankful that, despite the mass coverage of defined benefit plan freezes—and the new restrictions imposed on these programs by the PPA and the a...

Last week, as I was surfing the Web, I stumbled across an article titled “Time for Employers to Cut Cord to 401(k) Plans.” These days, I wouldn’t be surprised to see that kind of premise from a pro-business periodical (see “ Why Knots ”)—but the premise here was quite different. The article’s author—Bloomberg’s John Wasik—wasn’t suggesting that employers should get out of the 401(k) plan business because it made good business sense for them, but rather that “employees can benefit from having 401(k)-style plans cleft from their employers because the programs would cease to be a black box of excessive middlemen and management expenses.” The article points to the recent round of hearings on the issue in Congress, “several government reports,” and a recent survey by AARP as proof that employers are not fully disclosing and reducing fees in these retirement programs. And thus, Wasik argues, “[G]iving you more control over your 401(k) will also give you the chance to find the best provid...

I was having coffee with a buddy of mine a couple of weeks back, and before long the discussion turned to music; specifically the new Bruce Springsteen CD. Suffice it to say that he had just acquired it, and was enjoying it immensely. As it turned out, I had had a chance to listen to the album (yes, I’m old enough to still refer to them as albums) online – and had ordered it. I had not, however, received it in the mail yet. My friend – who had picked up his copy at a Starbucks – hesitated – then asked me how much I paid. I then told him (about $10) – and, almost as a courtesy (after all, money had already changed hands) asked how much he had paid. Well, I never did find out – though it was pretty clear he paid more than I did. In fact, I’ve seen the prices that Starbucks charges on the few CDs they stock there, and it may well have been a LOT more. Now, I’m sure the Bruce Springsteen album that was delivered to my house (that very afternoon, as it turned out) was identical in ev...

It may have lacked the hoopla of a midnight Harry Potter release, but in retirement industry circles, last week’s publication of the Department of Labor’s final regulations on qualified default investment alternatives (QDIAs) was nearly as eagerly anticipated. And, like the speculation as to which Potter character would survive the latest saga, the early betting had been that stable value would not make the QDIA cut—and, in large part, that turned out to be the case. Instead, stable-value (or more precisely, capital preservation) vehicle proponents had to content themselves with a sanction as a short-term repository for contributions (up to 120 days—long enough to accommodate the 90-day period that defaulted participants have to opt out), and the assurances from the DoL that they were sure that those vehicles would find a home alongside other options in the time-focused asset-allocation products that were accorded QDIA status (ironically, IMHO, in that regard, capital preservation veh...

I was at a conference a couple of weeks ago, when the CEO of a large, national consulting firm stood up and commented on the increased fiduciary burden that the Pension Protection Act had placed on plan sponsors – an obligation to ensure that participants’ savings are sufficient to provide an adequate retirement. Now, in fairness, I wasn’t paying a LOT of attention to him when he stood up. He wasn’t on the panel, and I was trying to finish taking down some notes from the comments of someone who was. Nonetheless, I think I got the essence of his perspective—that PPA has created a new level of fiduciary responsibility for plan sponsors—correct. Even if I missed some nuance in that particular instance (and I wasn’t the only one to hear it that way), I’m hearing that sentiment more and more these days—at least from the provider community. Now, there are a lot of troubling things in the PPA for defined benefit plan sponsors, though not as bad as many feared, and certainly not as bad now t...

We spend a fair amount of time worrying about the relatively small percentage of workers who choose not to participate—at all, fully, or effectively—in their workplace savings plan. Well that we should, because for a myriad of reasons, they are letting a great opportunity pass them by. However, the real crisis, IMHO, is not about the minority that we hope to stir to action with devices like automatic enrollment, tailored communications, and personal advice. Rather, the real crisis is the majority of American workers who lack even the opportunity to participate in a workplace retirement plan. Certainly, those people are on politicians’ minds, as evidenced by last week’s proposal by Senator Hillary Clinton that purports to provide "universal access to a generous 401(k) for all Americans.” Now, you can argue whether tax credits for the middle- and lower-income workers targeted will be enough to motivate them to take action, and you can certainly take issue with the price tag (and...

The testimony presented at last week’s hearing by the House Education and Labor Committee on the issue of 401(k) fees (see 401(k) Fee Disclosure Proposal Draws Industry Criticism at Committee Hearing ) was remarkably consistent, IMHO, certainly compared with the last time the Committee took up the issue (see Congressional Committee Hears 401(k) Fee Disclosure Testimony ). At a minimum, we seem to have moved past the question of whether more fee disclosure is needed to what kind of disclosures are needed, and how we can make them. At the risk of over-generalizing the perspectives of the individuals (and individuals on behalf of groups) who shared their experience/expertise with the House Committee, it seems to me that everyone supports the following conclusions: (1) We need a better understanding of 401(k) fees. (2) We need more disclosure about what 401(k) fees are. (3) We should let the Department of Labor finish their regulations on fee disclosure before doing anything legislatively...

Despite the variety of advisers, practices, business models, and broker-dealer affiliations at our recent PLANADVISER National Conference, there was a remarkable degree of convergence of purpose in evidence. That was perhaps to have been expected—after all, this was a group of some of the most successful retirement plan advisers in the country. There were, however, a couple of points where perspectives diverged—most intriguingly, IMHO, on the subject of participant advice. Not on whether or not participant advice is needed, of course—mostly on whether or not they should provide advice as a fiduciary adviser. Both National Retirement Partners (NRP) and LPL have signed on with DALBAR’S Fiduciary Adviser Network (FAN), positioning their advisers to be classified as fiduciary advisers under the Pension Protection Act (see “ The Future of the Independent Adviser ” at ). Meanwhile, firms like Merrill Lynch, Raymond James, and Principal have taken a different stance; generally either find...