Nevin's Data "Points"

 Our industry has long fretted over how 401(k) participants will respond to volatile markets. And perhaps not surprisingly, these days the headlines are, generally speaking, full of “stay the course” assurances.    That said, as recently as a month ago the headlines—even OUR headlines read things like “Light 401(k) Trades in July Even as Wall Street Posts Strong Month, Hot July Brought Cool 401(k) Traders , July Brings Much-Needed Calm to 401k Trading Activity, 401(k) Trading Light in July Despite Market Gains.” As though this is a surprising result. In fact, as long as I can remember, our industry (or at least its headline writers) has long been somewhat amazed that participants have been as “resilient” in the face of volatile markets as they have—consistently—been over time. We’ve rationalized that ostensibly rational behavior in different ways, at different times. In 1987 (before there was daily trading in 401(k)s) it was said that the markets had ...

There’s an old saying that when you assume… well, here are some assumptions that can create real headaches for retirement plan fiduciaries. Assuming that the worst-case deadline for depositing participant contributions IS the deadline for depositing participant contributions. The legal requirements for depositing contributions to the plan are perhaps the most widely misunderstood elements of plan administration. A delay in contribution deposits is also one of the most common signs that an employer is in financial trouble—and that the Labor Department is likely to investigate. Note that the law requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. If employers can reasonably make the deposits sooner, they need to do so. Many have read the worst-case situation (the 15th business day of the month following...

A recent report—and a new wave of litigation—reminds us that all target-date funds are not designed the same.  We all know that target-date funds are different, even if their names sometimes suggest otherwise.  Different management teams both set and monitor asset allocations—allocations that can vary widely with regard to the type and quantity of underlying assets. Fees can certainly be different, and some favor a reliance on passive investing versus an active engagement. But the difference that can often account for many of the other differences is the glide path, and more specifically the glide path’s “goal”—and here I am referring to the difference between funds that opt for a “to” retirement versus a “through” retirement focus.  Now, admittedly it’s a “target date” fund, not necessarily a retirement date fund—and indeed if those were once upon a time considered one and the same, that’s apparently no longer the case. Indeed, and as a recent stream of li...

The flurry of lawsuits unleashed on holders of the BlackRock LifePath target-date funds is not without precedent—but it’s surely a head scratcher. I’m referring, of course, to the recent  swarm of lawsuits  challenging nearly a dozen of the nation’s largest 401(k) plans and their decision(s) to select, and hold, on their investment menu the BlackRock LifePath target-date fund suite. It’s a decision that the Shah Miller law firm (on behalf of multiple ex-participant plaintiffs) says was the result of fiduciaries who “chased low fees” over performance. [i] Of course, it’s not unusual for these types of lawsuits cite obscure articles as authority, rely on Form 5500 data that often doesn’t tell the whole story, state as fact things that are really only theories (or opinions), lean on averages, or base comparative conclusions on surveys distorted by sampling size or content.  But in a characterization straight out of George Orwell’s  1984 , this one draws...

 Despite surveys to the contrary, a new study finds that overall interest in ESG strategies by participants is “relatively weak” and “driven by naïve diversification.” The difference may, of course, be attributed to the difference between what individuals say—and what they actually do. Unlike surveys that purport to capture participant (and plan sponsor) sentiments, the research by David Blanchett of PGIM and Zhikun Liu of the Employee Benefit Research Institute (EBRI) looks at the actual allocation decisions of 9,324 [i]  newly enrolled DC participants who are self-directing their accounts in a DC plan that offers at least one ESG fund.  ‘Weak Preferences’ They do so in a paper titled “ ESG Fund Allocations Among New, Do-It-Yourself Defined Contribution Plan Participants ,” they claim to find that overall interest in ESG strategies among these participants is “relatively weak,” with only 8.9% of participants having  any  allocation to an ESG fund...

As if there wasn’t enough to worry about regarding retirement—a new research paper suggests we’re not worrying about the “right” things. More precisely, that paper, published by the Center for Retirement Research at Boston College, was titled, “ How Well Do Retirees Assess the Risks They Face in Retirement? ” And, as you might suppose, the answer provided at the conclusion of the paper is—“not very well.”  The premise of the paper relies on the author’s identification of five major risks in retirement, which turn out to be: Longevity risk (the risk of outliving one’s resources) Market risk (the financial risk not only from the markets, but from things like the housing market) Health risk (the risk of unexpected medical and long-term care expenses) Family risk (the risks arising from divorce, death, or the unexpected illness of an adult child) Policy risk (notably the sustainability at current benefit levels of Social Security) Arguably, all of these are legitimate risks tha...

By some accounts, I just spent the past week in “retirement”—driving around sightseeing, reading some good books, hanging out with family, and yes—even walking 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. [i]  And it served as a stark reminder that while 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. That said, when those actually  in  retirement are asked about their retirement confidence—well, it’s pretty high. According to the Employee Benefit Research Institute/Greenwald Associates annual  Retirement Confidence Survey , 77% of current retirees report feeling eit...

Things are—slowly—getting back to normal. Planes are filling up, commutes are slowing with increased traffic volumes, and in-person meetings are back underway.  And while for many readers things have been back to “normal” for some time, I’ve had the opportunity over the past two months to participate in three separate advisor events that were the first such in-person gatherings since the onset of the pandemic. We’ve learned not only how to navigate things like virtual committee meetings and education sessions, but found that in many cases those platforms could be even more effective in extending our reach to individuals who might not have made it to an in-person session, or who might have been more receptive to those messages in the wake of COVID concerns about health and job security.  While we’re not quite “done” with COVID (and perhaps we never will be), we’ve learned a lot of valuable lessons. The notion that we have to be in a physical office to be produc...

As new rules about rollover disclosures kick in, a new report highlights an often unacknowledged risk of rollovers—high(er) fees. That’s right—a new report from Pew Trusts seems to have stirred up a new awareness of that issue—all this attention just as PTE 2020-02 brings the  written requirement  of why a rollover is in the best interests of participants into play. That difference shouldn’t come as a surprise to anyone who has ever compared the fees in their 401(k) to an IRA. Most 401(k)s benefit from institutional pricing, and if the menu of available investment options isn’t quite as broad as that in an IRA, they benefit from the selection and monitoring by ERISA fiduciaries. Yes, IRAs are just that— individual  retirement accounts—smaller, generally speaking with more options—and yes, much more likely to be charged retail mutual fund fees—more expensive. In that sense the report—though it’s garnered headlines of...

 It’s been said that there remains more that unites us than divides us—but that’s not how it feels most days.  However, such times are not all that unusual for this diverse nation. Indeed, if today’s battle lines do seem harsher and more extreme, my sense is that it’s only because they are magnified by media and social media, transported to us every minute of the day and night by devices we dare not relinquish any longer than to recharge the battery. Consider the nation’s declaration of independence which we will commemorate on Monday. Students of history—not to mention aficionados of the musical 1776 or   readers of David McCullough’s John Adams  or viewers of its HBO miniseries adaptation—know that the decision to declare independence was no easy matter. Indeed, the political bartering and frustrations 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....

So, how many 401(k) accounts do  you  have? At the moment, I have four—one from each of the employers in my career (including this one), all except the first one (that one went for law school and a house downpayment). Apparently I’m not alone. A recent  survey  of Plan Sponsor Council of America members found that only 18% of respondents had a single 401(k) account. Nearly as many (14.3%) had five. As it turns out, three was the most common response. I joke that it’s just “market research”—after all, what better way to assess the quality of various retirement plan offerings than to have your own 401(k) supported by some of the best? Sure, there’s been institutional pricing at one that I’d hate to lose, access to a specific managed account platform that I value, and a really cool online platform at another—and then, in the back of my mind, is a concern that the taxability detail might get “jostled” in the process—in short, plenty of reasons to rational...

This weekend is, of course, Father’s Day—but my dad’s decision to retire was driven more by time than timing.  Like many of his generation, once he got to 65, it was time to “retire.” He didn’t have a pension (fortunately for him, my mother did), though he had Social Security, and savings in a 403(b) plan that he contributed to later in life—reluctantly—once he saw Mom’s modest savings in her 403(b) account grow.   My dad was a man of (very) few words—at least spoken words. Conversations with him generally required… effort. Oh, he’d respond to direct questions, but his answers tended to be short and—well, direct. Again, like many of his generation, mostly he was content to let my mother be the conversationalist in family settings.    So, when Dad turned to me one weekend afternoon for some input on his retirement planning—well, I was surprised. Not that it didn’t warrant a discussion, mind you—but it was not something we had ever discussed—an...

Last week the Treasury Department’s Social Security Board of Trustees released its annual report in a classic case of good news, bad news. The  good news , of a sort, was that the date through which Social Security will be able to pay scheduled benefits was projected to be 2034—and while that’s not very far away, it was a year later than the prior year’s report had indicated. The  bad news , of course, is that without some kind of adjustment the program won’t be able to pay those scheduled benefits beyond 2034. [i] Now, that’s not the same as “going broke” or running out of money—but, as things stand now—assuming no adjustment is made—a possible outcome would be that the scheduled benefits paid would only be about three-fourths of “scheduled.” [ii] What’s weird is that it’s hard to find anybody who seems to think the problem  won’t  get fixed at some point—though the definitions of “fixed” vary—and  nobody  is willing to hazard a guess on who’s...

 A new report entitled “The Missing Middle” by the National Institute on Retirement Security (NIRS) treads some all-too-familiar ground, myopically focusing on one element of the nation’s private retirement system. The articulated concern is, of course, the “middle”—an income grouping for which Social Security’s progressive structure doesn’t reach high enough to provide an adequate replacement income, but that lacks the more expansive financial wherewithal of those at the upper end of the income strata. According to the paper, the tax incentives that arguably existed at the birth of the 401(k) have been muted due to lower marginal tax rates and the expansion of the standard deduction—both of which serve to mitigate the tax burden on lower-income individuals—but in the process also arguably lessen the financial incentive for deferring taxes. And if that were not enough, the authors also argue that the “…tax benefits relating to investment returns may be less in a ma...

 The latest academic “dig” against 401(k) plans? Vesting schedules. More specifically, firms with a combination of high turnover and vesting schedules, which means that workers are leaving behind employer contributions. Or, in the parlance of these new critics, being “robbed.”  I stumbled across this “scandal” in an op-ed provocatively titled, “ This giant pension scandal is hiding in plain sight ,” which, in turn, drew from the points made in an academic paper titled, “ Megacompany Employee Churn Meets 401(k) Vesting Schedules: A Sabotage on Workers’ Retirement Wealth .” The “scandal” is the legal vesting schedules under ERISA, notably the three-year variety in place at certain large, high-turnover employers. The MarketWatch article [i] —and, more significantly, the academic paper [ii]  upon which it is based, see the vesting schedule as part of some orchestrated conspiracy deliberately crafted to “rob” [iii]  individuals of benefits/compensation to ...