Nevin's Data "Points"

I once spent a very uncomfortable period of time stuck in one of those carnival rides that, for brief periods of time, spins riders in a circle as the cab you are in also twirls. As uncomfortable as the ride was, the “stuck” part came while my cab was high in the air—and turned upside down. In no time at all, it was obvious that this extended “upside down” state wasn’t contemplated by those who designed the seating compartment (nor, apparently, had they considered that my compartment “mate” would find it exciting to rock our stuck cab during our brief “internment”). One of the comments you hear from time to time is that the tax incentives for 401(k)s are “upside down,” that they go primarily to those at higher income levels, those who perhaps don’t need the encouragement to save. And from a pure financial economics perspective, those who pay taxes at higher rates might reasonably be seen as receiving a greater benefit from the deferral of those taxes. Indeed, if those “upside-down i...

Behavioral finance drives much of the discussion around retirement plan design innovations these days, for the very simple reason that it seems to help explain what might otherwise be viewed as irrational behaviors. For example, human beings are prone to something that behaviorists call “confirmation bias,” a tendency to favor information that confirms what we already believe. While doing so generally contributes to quicker assessments of information, there are some obvious shortcomings to that approach in terms of critically evaluating new information, particularly information that contradicts what we have already chosen (rightly or wrongly) to accept as reality. Last month EBRI published an analysis of a direct comparison of the likely benefits under specific types of 401(k) plans and defined benefit (DB) pension plans.(1) As anyone who has worked with employment-based retirement plans knows, individual participant outcomes can vary widely based on a complex combination of decisio...

In about a month my eldest will be setting up a new home in a different state. It won’t be her first time living in another state, and it won’t be her first apartment. It will, however, be her first apartment as an entrant into the full-time career workforce, and so the criteria—and budget—are quite different than our past experience(s). And while she’s done a great job of constructing a budget (including savings), I can’t help but notice that she also spends “her” money a little differently than when Dad was footing the bill. My daughter’s spending inclinations aren’t unusual, of course. As parents we tried to give our kids a sense of the cost of things, certainly as they grew older. There were, however, plenty of times over the years we didn’t share that information, either because it wasn’t important, or, in some cases, because we didn’t want them to make a decision based solely on price. There’s a similar logic afoot with consumer-driven health plans (CDHPs). Advocates of these...

Major League Baseball recently showcased its best and most popular in the “Midsummer Classic,” better known as the All-Star Game. Purists can (and have) taken issue with the involvement of the fan vote, the intermittence of the designated hitter rule, and the impact that this contest can eventually have on the home field advantage in the World Series. Still, even casual fans of the game can relish the opportunity to see so many great players together on the field for one special night (those who don’t care about baseball can perhaps relish the fact that for a couple of days, there won’t be any baseball games or scores with which to contend). It has been my good fortune to have had the opportunity to spend my entire career working with employee benefits, in a widely varied range of capacities. It has also been my great pleasure over those years to meet, and in some cases, work directly with, some truly talented people—who care deeply, passionately, about helping others enjoy bette...

It has become something of a truism in our industry that defined benefit plans are “better” than defined contribution plans. We’re told that returns are higher(1) and fees lower in the former, that employees are better served by having the investment decisions made by professionals, and that many individuals don’t save enough on their own to provide the level of retirement income that they could expect from a defined benefit pension plan. Even the recent (arguably positive) changes in defined contribution design—automatic enrollment, qualified default investment alternatives, and the expanding availability of retirement income options(2)—are often said to represent the “DB-ification” of DC plans. However, a recent analysis by EBRI reveals that DB is not always “better,” at least not defined as providing financial resources in retirement. In fact, if historical rates of return are assumed, as well as annuity purchase prices reflecting average bond rates over the last 27 years, the me...

Having just concluded a long driving trip, I was reminded again just how helpful the technology under the hood of today’s automobiles can be: the warning lights when you’ve still got enough gas left to find a gas station, the low tire pressure light that tells you of a slow leak before you have a flat tire, the binging that lets you know you’ve left your headlights on (again), and my personal favorite, the klaxon-like bell that alerts you that your parking brake is still engaged (since that red “brake” light on the dashboard clearly wasn’t sufficient notice). Before such warning signs were standard features, I’ve had the decidedly unpleasant experience of running out of gas in the middle of nowhere, finding myself driving on (two) flat tires, and—many years ago—I’m pretty sure I was responsible for ruining the brakes on my Dad’s car simply because I didn’t realize that the smell of burning rubber was coming from the car I was driving. For some time now, the Federal Reserve has held...

Last week we looked at how the trends in employment-based retirement plans and employment-based health plans seem to be heading in opposite directions: fewer choices for workers to make in the former, more in the latter (see Consumer “Driven,” online here.  Recent EBRI research suggests a potential divergence in other areas as well. According to the EBRI/MGA Consumer Engagement in Health Care Survey, 26–40 percent of respondents reported some type of access-to-health-care issue for either themselves or family members last year. “Access” in this case refers not to availability, per se, but is broadly defined as not filling prescriptions due to cost, skipping doses to make medication last longer, or delaying or avoiding getting health care due to cost. Not surprisingly, access is more of a problem among those with lower incomes, who appear to be forgoing spending on health care. In fact, regardless of health plan type, individuals in households with less than $50,000 in annual ...

Over the last several years, the trend in employment-based retirement plans has been to put in place structures to make more decisions for workers through the expansion of automatic enrollment plan designs.(1) At the same time, the trend in employment-based health plans has been to look for ways to better manage costs, while providing workers more choice, and flexibility in those choices, by looking to so-called consumer-driven health plans, or CDHPs.(2) In the case of the former, the shift has been to help workers make better decisions, to boost savings by not only increasing plan participation, but to direct contributions to more diversified investment options than many seem to choose on their own accord. In the case of healthcare plan designs, the expansion of choice is similarly rooted in a desire to help workers make “better” decisions, albeit with a slightly different emphasis. The addition of CDHP designs (and in many cases it is an addition, rather than a replacement for, t...

While drawing boards have been used by engineers and architects for more than two centuries, the phrase “back to the drawing board” is of much more recent origin, coined by the Peter Arno in a cartoon first published in the March 1, 1941 issue of New Yorker magazine.(1) The cartoon features a crashed plane in the background, a parachute in the distance, several military officials and rescue workers rushing to help/investigate—and one remarkably nonchalant individual, walking in the opposite direction with a rolled up document tucked under his arm as he comments, “Well, back to the old drawing board.” For all the much-deserved focus on retirement savings accumulations, a growing amount of attention is now directed to how those already in (and fast-approaching) retirement are actually investing and drawing down those savings. A recent EBRI analysis(2) found that at age 61, only 22.2 percent of households with an individual retirement account (IRA) took a withdrawal from that account...

I’ve never been much good in the kitchen.  I’ve neither the patience/discipline to follow most recipes, nor the innate sense for the right balance of ingredients that those with culinary talent seem to have.  That said, I learned the hard way years ago that if you mix the right items in the wrong order, or the wrong amounts of the right items, leave something to bake too long – or not long enough – the results can be disastrous. A recent report by the Pew Charitable Trusts posed the question, “ Are Americans Prepared for Their Golden Years? ”  Perhaps not surprisingly, the report indicated that many are not.  What was surprising, however,  was the assertion that Gen-Xers (those born between 1966 and 1975), in the Pew analysis, looked to be in even worse shape than either early or late Boomers. Previous EBRI research has found that approximately 44 percent of simulated lifepaths for Baby Boomer and Gen-Xer households are projected to run short of money in r...

Several weeks back, my wife and I sat down with a financial planner to review and update our financial plans. Doing so brought with it a bit of personal trepidation since, being “in the business” I not only had a working knowledge of what needed to be done, I also had a pretty good sense of what hadn’t been done, and what hadn’t been done the way it should have been done in some time. As I surrendered copies of the statements from my three separate 401(k) accounts, rollover IRA, traditional IRA, and SEP-IRA, I found myself wondering (again) why I hadn’t gotten around to consolidating some of those accounts. More and more Americans are finding themselves with multiple savings accounts, not only because of the relatively consistent pattern of job change in the American economy (see “Tenure, Tracked” ), but because those job changes frequently result in rollovers to individual retirement accounts. On the other hand, in recent years, it has gotten easier to simply leave your 401(k) with ...

Earlier this week, the Wall Street Journal’s Anne Tergesen wrote a story titled “Mixed bag for auto-enrollment.” Citing data presented at last week’s EBRI policy forum,¹ the article  claimed “employees who are automatically enrolled in their workplace savings plans save less than those who sign up on their own initiative.” She then proceeded to cite Aon Hewitt data presented at the policy forum that illustrated how workers at various salary levels at plans that offered automatic enrollment saved at a lower rate, on average, than workers at the same salary levels at plans that didn’t offer automatic enrollment. The article then went on to note that “The data confirms an analysis EBRI performed for The Wall Street Journal in 2011.” Well, not exactly. In a response to an article titled “401(k) Law Suppresses Saving for Retirement” that Tergesen wrote in 2011,  EBRI Research Director Jack VanDerhei challenged the premise behind the headline of that article, explainin...

This past weekend I joined the throngs of humanity that went to the theaters to see Iron Man 3. I grew up reading Marvel Comics, and, for the very most part, seeing those characters brought to life on the big screen has been a real treat. I had been curious about the new Iron Man movie for some time, but wasn’t sure if it could live up to expectations based on the prior films. It’s hard to escape the endless promotions for these summer blockbusters, but I made a conscious effort to do so, and even avoided reading the reviews of the film until after I had had a chance to see it for myself. That decision involved some financial “risk” as anyone who has taken a family to the theater recently can attest. There have, however, been disappointments along the way―sometimes the acting was bad, sometimes the storyline was (unintentionally) laughable, and sometimes the movie fell short of what I had anticipated simply because my expectations were set so high. Over the years, the Retiremen...

There’s a saying that “the best laid plans of mice and men often go astray,” and one need look no further than the experience of a morning commute to see the principle in action. While we all head to different places from different places, most head out for work at what for each of us is likely a consistent, regular time. That timing may be driven by external or internal factors: a mass transit schedule, by our desire to avoid traffic congestion, the constraints of fellow passengers, or simply by a need to arrive at our place of work at a specific time. But for most of us, on most days, the regularity of that schedule provides a certain dependable start to our days. It doesn’t take much to disrupt that start, unfortunately—as anyone who has ever awakened to an unexpected snowfall, encountered the impact of a traffic accident on a major thoroughfare, or slept through a snooze alarm can attest. Sometimes we can make up the time loss imposed on our commute, sometimes we simply have to...

This past week PBS’ Frontline ran a segment on retirement titled “The Retirement Gamble.” During that broadcast several individual cases were profiled—a single mother who lost her job (and a lot of money that she had apparently overinvested in company stock); a middle-aged couple whose husband had lost his job (and a big chunk of their 401(k) investment in the 2008 financial crisis); a couple of teachers who had seen their retirement plan investments do quite well (before the 2008 financial crisis); a 32-year-old teacher who had lost money in the markets and found herself in an annuity investment that she apparently didn’t understand, but was continuing to save; and a 67-year-old semi-retiree who had managed to set aside enough to sustain a middle-class lifestyle. The current income and/or working status of each was presented, along with their current retirement savings balance. Much of the promotional materials around the program focused on fees, and doctoral candidate Robert H...

I was a late convert to the convenience of NetFlix, and while I appreciated the convenience of delivery, when they expanded the offering to include online movie viewing “at no additional charge,” I didn’t really “get” it. Aside from the fact that, at that time, my DVD player wasn’t wireless compatible, the selection (certainly in those early days) was unremarkable at best. In fact, I remember telling a friend once that the online movies were free, and worth every penny. The quality and breadth of selection improved over time, until of course, there came that fateful decision to charge a fee for that online movie access separate and apart from the home DVD delivery. All of a sudden, a service that had been a nice-to-have “at no additional charge” had to be viewed through a whole new prism―it was now a benefit with a cost. Under the Patient Protection and Affordable Care Act (PPACA), group health plans that offer dependent coverage are required to extend coverage to workers’ children...

One of my favorite short stories is Ray Bradbury’s “ A Sound of Thunder .” The story takes place in the future when, having figured out time travel, mankind has found a way to commercialize it by selling safaris back in time to hunt dinosaurs. Not just random dinosaurs, mind you—cognizant of the potential implications that a change in the past can ripple through and affect future events, the safari organizers take care to target only those that are destined to die in short order of natural causes. Further, participants are cautioned to stay on a special artificial path designed to preclude interaction with the local flora and fauna. Until, of course, one of the hunters panics and stumbles off the path—and the group finds that, upon returning to their own time, subtle (and not so subtle) changes have occurred. Apparently because in leaving the path, the hunter stepped on a butterfly—whose untimely demise, magnified by the passage of time produced changes much larger than one might have ...