Nevin's Data "Points"

Last week, the Department of Labor’s Employee Benefits Security Administration (EBSA) released its much-anticipated proposal regarding participant fee disclosures (see " EBSA Finishes Regulatory Package with Participant Disclosure Proposal ". The industry’s response, by and large, has been positive (a notable exception: Congressman George Miller, author and sponsor of the 401(k) Fair Disclosure for Retirement Security Act of 2007—see “ Miller Fee Bill Cruises through House Committee ”), though one got a sense that there would be a LOT of comments forthcoming on the proposal, not the least of which was timing. After all, the DoL is soliciting comments through September 8 (so much for vacation), and says it plans to have the new rules in place by January 1. My first thoughts on opening the proposal doubtless mirrored many of yours—“Holy cow, 103 pages!” And then, also perhaps like many of you, I set it aside for a time when my brain could handle 103 pages of proposed governme...

By some accounts, I just spent the past week in “retirement”—driving around sightseeing, reading some good books, and yes—even sitting on a beach. And I have to tell you—if that was retirement, I don’t know how I’m going to afford it. Now, I realize that isn’t the stuff of most “real” retirements, though it is frequently the stuff of retirement planning brochures. My week was a family vacation, and it was spent doing the things that families do on vacations. And it served as a stark reminder that, whereas sitting on a beach doesn’t cost much, making arrangements to stay—and eat—in proximity to the aforementioned beach is a whole other financial consideration. Having said that, there were plenty of older folks sunning themselves out there—and most had the equipment and tan lines that suggested they got to do this kind of thing more often than yours truly (in fact, an entire busload descended on our hotel at 6 a.m. one morning, making the kind and volume of noise generally associated w...

As anyone who has (or has been) a teenager can attest, motivation is a tricky business. Once upon a time, it took little more than a smile or a “good girl” to motivate my children to do the right things (alongside the occasional threat to rely on corporal punishment). But as they have grown older, the “motivations” have become more “challenging” (and, unfortunately, frequently louder); not because they are not interested in doing the right things—it’s just that they have other priorities. Of course, teenagers are really just human beings (despite the occasional rumor to the contrary), and as such, they don’t always do the right thing, or do it as soon as a parent might prefer. So it also goes for adults—specifically, adults in the context of saving for retirement. Realizing that, we have long used certain subtle means of encouraging them to do the right things. We impose vesting schedules to encourage their continued employment, we offer “free money” in the form of company matches...

Over the past several years, it has become “fashionable” in some quarters to bash the workplace retirement savings plan; most frequently, the 401(k). Critics have long bemoaned “anemic” participation rates as a sign that the programs aren’t working, faulted what were perceived as inadequate savings rates as an indication that participants didn’t grasp the need, and pointed to less-than-optimal investment allocations as proof that those who did save were not capable of, or not interested in, making those decisions. In fairness, much of that “criticism” has been of a constructive nature—from professionals who care about retirement savings adequacy, who believe strongly in the support of the employer-sponsored system, and who truly want to see people have the opportunity to do the right thing, and to do the right thing with that opportunity. However, those well-intentioned voices were sometimes employed in contexts that, over time, have hinted (and sometimes done so more overtly) that ...

This coming Friday, the nation will, in large part, set aside its normal business for a three-day weekend filled with cookouts and fireworks displays, as we commemorate the birthday of our nation. Despite those “distractions,” some will think back on the courage of the nation’s founders and their vision in crafting a structure of government that remains a unique role model for the world—and well they should. Still, students of history—and even aficionados of the musical 1776 , readers of David McCullough’s John Adams , or its recent HBO miniseries adaptation—know that the decision to declare independence was no easy matter. Indeed, the political bartering involved in getting to a “ unanimous Declaration of the thirteen united States of America ” would have been all-too familiar to the legislators of today. While we celebrate the Fourth of July as Independence Day, that is neither the day on which the Continental Congress passed the resolution (July 2), nor the day on which the decl...

Having just spent most of the past week in Chicago at our annual Plan Designs conference (bigger and better than ever, I might add!), my head is still swimming with new ideas, modifications of existing “assumptions,” and the occasional validation of the “tried and true.” I’m dedicating this week’s IMHO to a rough summary of some notes I took during that time (in some cases, I have “refined” statements to be more declarative than they were presented to make a stronger point): • A prudent process helps you win in court; a good result keeps you out of court in the first place. • Lots of people have already decided who they are going to vote for in November. • Automatic enrollment (still) isn’t for everyone. • Some people who nod their head knowingly when you start talking about glide paths don’t have a clue what you are talking about. • In an era where asset-allocation solutions dominate, you’re better off picking the best target-date fund(s)—and then finding a recordkeeper that can/will...

My dad has been on my mind a lot of late—for no particular reason that I’ve been able to identify. The anniversary of his passing was several weeks ago—his birthday not until October. The approach of Father’s Day is the most obvious explanation—but the truth is, Father’s Day with my dad was never a particularly memorable occasion (Dad always liked his Sunday afternoon naps). He was a man of few words (outside his pulpit, anyway) and, like many men of his time, wasn’t inclined toward big shows of emotion. Ultimately, he was with us longer than he expected to be—but a lot less time than I ever anticipated. Perhaps because I’ve been in that frame of mind—perhaps because of his closeness with his father, and his books that shared that relationship with the rest of us—the news of Tim Russert’s untimely passing Friday really stuck with me this Father’s Day weekend. People die tragically and prematurely every day, of course. However, most of them are unknown to us, and nearly all are unn...

More than a decade ago, my mom was getting her finances ready for retirement. A schoolteacher her whole life (except for that swathe of time when she set that aside to be at home with her brood during their formative years), there weren’t a lot of varied sources and complicated tax planning to worry about. The most significant component was the balance she had accumulated in her 403(b) plan. Then, as now, I fancied that I had at least enough investment savvy to make reasonable investment decisions for myself–and I’ve never been shy about offering my sense of the markets to anyone willing to listen (and worth every penny they paid for that advice, I might add). But this was my mother’s money–and a significant component of what she would need to live on for the rest of her life. Frankly, I was nervous about making a decision that would wipe out her years of savings. Fortunately, I had the presence of mind to recommend an asset-allocation fund. Nothing too fancy, certainly in hindsi...

Participant education meetings have long touted the “magic” of compounding; that apparent miracle of finance whereby income earned on investments becomes part of an account balance, and earns more income that in turn adds to the account balance, which earns more income, and so on. The net result, of course, is that at the end of a savings career, you wind up with a lot more money than you ever thought possible. The funny thing is, I’ve known about this magic for so long, I had almost forgotten how impressive the results could be. Or had, until Russell Investments published a short paper with a long title— “ The 10/30/60 Rule: Where Do Defined Contribution (DC) Plan Benefits Come From? It’s Not Where You Think .” This paper wasn’t about compounding per se—if it had been, I doubt that I would have taken the time to read it. In fact, now that I’ve brought up the subject of compounding, you may have already gone on to other things—but stick around. We all know that compounding is a go...

I spent some of my precious three-day weekend perusing Teresa Ghilarducci’s When I’m Sixty-Four, an intriguing title for a book about pensions–or, as the subtitle suggests, “The Plot against Pensions and the Plan to Save Them.” To her credit, Ghilarducci, an economics professor at Notre Dame, actually offers a serious proposal to provide a more secure retirement income stream for Americans, certainly for lower-income individuals. It is unfortunate, IMHO, that she devotes but a single chapter of the 300-page book to exploring the “plan to save them,” leaving the bulk to “the plot.” A “plot” that includes the complicity and outright scheming of employers, advisers, providers, and even the federal government (well, at least the Bush Administration). The plan? Well, she gets there by imposing a mandatory 5% FICA-like withholding (yes, in addition to the current one) into a “Guaranteed Retirement Account (GRA),” imposing mandatory annuitization of those benefits (no lump sums, and no abi...

Last week, AARP published a report on how economic worries are impacting Americans. The report, aptly titled “ The Economic Slowdown’s Impact on Middle-Aged and Older Americans" , "revealed” what seems obvious to most—that a large majority of Americans think the economy is in trouble (even though most respondents’ personal lives seem largely unaffected) and that, as a result, some are making adjustments in lifestyle (things like vacations and eating out), saving, investing, and retirement plans. In fact, the headlines—including ours—tended to focus on the fact that more than one out of four (27%) workers age 45-64 say they postponed plans to retire, and nearly as many reported they are prematurely taking money out of their 401(k)s and other investments (see “ Delayed Retirement, Early Withdrawals Result from Economic Downturn ”). Another interesting data point was that 27% said that recent stock market losses had led them to start putting less in their retirement accounts. ...

Last week, the Connecticut legislature didn’t get around to voting on a bill that would have effectively set up a state-sponsored 401(k) plan for small businesses (see CT State 401(k) Plan Proposal Dies as Session Ends ). Proponents—which included AARP—claimed that the legislation would save businesses with fewer than 100 workers a lot of money, basically by allowing them to pool their plan investments—a pool large enough to provide the negotiating power that small businesses generally lack on their own (workers would have individual accounts and be able to choose from various investment options, while employers could contribute a percentage or set up a program to which employees would contribute). Opponents—which included the Connecticut Business and Industry Association (CBIA), the Connecticut Bankers Association, the Insurance Association of Connecticut, the American Society of Pension Professionals and Actuaries (ASPPA), the Council of Independent 401(k) Recordkeepers (CIKR), and ...

There’s been a lot of talk about tax policy of late. It’s an election year, after all—and while most of the rhetoric revolves around targeting only “the wealthiest Americans,” it’s hard to shake a sense that the impact will be less than precisely targeted. There’s talk of raising the tax rate on capital gains and dividends, for example—as though only the rich invest in stocks and mutual funds. A prominent presidential candidate talks openly about the fairness of increasing the amount of income subject to FICA withholding, and while it certainly sounds “fair,” that could represent a pretty big tax increase for some decidedly unwealthy families (worse, unless the benefit calculations are adjusted—and it would certainly be most unfair to do so—the move won’t even help the Social Security deficit; we’ll just pay out more in benefits to the people from whom we have now taken more FICA). Another prominent presidential candidate wants to sever the tie between employment and health insurance...

I was discussing the subject of retirement the other day with a friend. We decided we weren’t sure when that would happen, we weren’t even positive that it would happen—and we really didn’t know what “it” would be like if and when it did happen. Finally—it had been a pretty hectic week, after all—I somewhat playfully suggested that the best definition of retirement would be the absence of time-critical deadlines. Ah, now that’s something to look forward to! Retirement has its own pressures. But the “difficulty” that my friend and I had actually describing what we would “do” is a real problem in retirement planning. If you don’t know what you are saving for, after all, it’s difficult to be very effective in your planning. The things we are accustomed to saving for—a car, a house, the kids’ college tuition, a vacation trip—generally are not only things we can envision, they have a very specific price tag. Now, I know you’re thinking that retirement—more precisely, living in retire...

Last week, the House Committee on Education and Labor passed the 401(k) Fair Disclosure for Retirement Security Act (H.R. 3185) . That it passed was no surprise (it did so along party lines, and it is, after all, a bill sponsored by the chairman of that committee, Congressman George Miller (D-California)). The issue that seems to loom largest in the minds of those paying attention is the requirement that all service providers break down their charges into four specific categories: administrative fees, investment management fees, transaction fees, and other fees. This isn’t a big deal for many, perhaps most—and it’s a lot simpler than the first version of the bill. Still, a number of bundled providers are claiming that it will be a burden for them to determine what that breakdown is, that the process of discovering—and communicating—those figures will cost money, and, at some point, that it doesn’t make sense because those services aren’t available from them at an à la carte pricing...

I hate going to the doctor for a checkup. Or the dentist, for that matter. I don’t even like to take my car in for “scheduled maintenance.” Granted, for the most part, it’s no big deal—just a minor inconvenience of time, setting aside that gentle comment from the doctor about how I need to lose some weight, to get some more exercise. Or that somewhat incredulous tone from the dental hygienist as she says, “How long HAS it been since you flossed?” Still, I hate going and will put it off just as long as humanly possible—not because the process itself is particularly painful or arduous, but because I am always nervous that there will come a time when they will find something that requires a more significant change in my lifestyle. There is, of course, the chance that they might find something at a stage that allows for plenty of time for treatment—and I know that those regular checkups provide the best opportunity to head off something truly calamitous. I know this—rationally—but so...

Ours is an industry of fairly recent invention–one that is, in many respects, only just beginning to emerge from the growth pangs of adolescence. Ours is an industry constantly and dramatically evolving–and one that all too often seems relentlessly driven to push us forward to the next challenge, through the next legislative overhaul, and onto the next wave of tumult in the markets, sometimes in the same six-month period. For plan sponsors, change is not only the order of the day, it is the day. That certainly has been true for the 15 years during which PLANSPONSOR has been published. But if the pace is relentlessly forward, there are nonetheless those among us who have a vision that stands out from the crush of the day, who provide a better way for the rest of us, either through thoughts or deeds, to succeed in helping bring about a more secure future for those who depend on us. As our 15th anniversary approached, we began thinking about those individuals--individuals who have mad...

An early “win” for plan sponsors (perhaps more accurately, a win for a plan sponsor) was Hecker v. Deere & Co. That’s the case where, last June, U.S. District Judge John Shabaz tossed “with prejudice and costs” allegations that the plan had incurred excessive fees and had violated its fiduciary obligations by not disclosing revenue-sharing relationships to participants (see “ Fighting Words ”). It was, many experts said at the time (including this writer), a correct decision, but bad law, with Shabaz too broadly (IMHO) applying the shield of ERISA 404c to excuse an entire series of fiduciary responsibilities not encompassed by that statute. Not surprisingly, that decision has been appealed—and this time, the Department of Labor has offered its opinion as a “friend of the court” (see “ DoL: ERISA Fiduciaries Could Have Disclosure Mandate Not Specified in Law ”). And perhaps not surprisingly, the DoL also seems to think that Judge Shabaz missed the boat on a number of his conclusi...

Over the past several weeks, I’ve gotten a lot of calls from reporters across the country looking to understand more about what appears to be a recent uptick in the volume of loan and hardship withdrawals from 401(k) plans. By most accounts, those volumes are up—in some cases, perhaps, up by a factor of two—from a year ago. The natural assumption is that some combination of the subprime crisis, the struggling investment markets, and/or just general economic stress is forcing participants to tap into their 401(k)s. Of course, pretty much year-in and year-out, somewhere between 10% and 12% of participants have loans outstanding (though a huge database maintained by the Employee Benefit Research Institute (EBRI) indicates that the percentage with loans outstanding has been in the high teens for a number of years, certainly among larger plans). Still, there is clearly movement afoot. The question, of course, is what should be done about it? If savings rates and accumulated balances ar...

When a co-worker forwarded to me an e-mail about Eliot Spitzer’s alleged tie with a prostitution ring last week, I thought it was a joke. It was no joke, of course—though, in incredibly short order, it became something of a circus (one can only hope that with Spitzer’s resignation, we’ll be spared the tiresome details about the personal life of the prostitute(s) whose services he engaged). Spitzer was touted as a crusader by some—but like the crusaders of old, his motives and actions surely weren’t always pure. And though he reportedly embraced the image of a sheriff, he more accurately brought to mind Henry Fonda’s gunslinger marshal Clay Blaisdell in “Warlock” who, hired to rid the town of terrorizing bandits, soon became an even more ominous threat to the peace and well-being of the citizenry. Spitzer made a lot of enemies during his career—IMHO, not so much because of what he did, but how he chose to do it. He was, of course, challenging large and powerful interests, but he freq...