National Treasure

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 declaration was signed by the members of that Congress (only President of Congress John Hancock and Charles Thomson, Secretary, signed it on the 4th (the former in a hand "large enough for King George to read without his spectacles"). Most delegates didn't sign it until August 2. One didn't sign until 1781. Three delegates never signed.

The signers—who stood to lose everything they possessed, including their lives—surely did so with trepidation. Indeed, Hancock reportedly said at the signing on August 2 that they must all stick together—to which Benjamin Franklin reportedly responded, "Yes, we must, indeed, all hang together, or most assuredly we shall all hang separately.” Of course, that declaration was neither the beginning nor the end. Hostilities with England had already been underway for more than a year, General Cornwallis' surrender at Yorktown was still more than five years off, and an official end to the hostilities would not come until 1783.

Invoking the Vision

Less than a hundred years later, armies were once again fighting over those principles—one side defending the same basic rights of property, and freedom to enjoy it, that their forefathers struggled to establish; the other, to extend those same rights to all Americans. In the middle of that Civil War that would threaten to rip the young country asunder—and on the Gettysburg battlefield where July 4, 1863, would forever mark the end of the bloodiest battle in American history—President Abraham Lincoln invoked the vision of the nation’s founders to launch his Gettysburg Address with the words; "Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in liberty, and dedicated to the proposition that all men are created equal."

The choices our nation faces today—on terrorism, the fighting in Iraq, health care, energy costs, the economy, and. yes, even retirement savings—seem relatively modest in scope when considered next to the daunting prospects our forefathers faced in 1776, IMHO. What they could not have had at that time—but what their vision has surely bequeathed to us—is a confidence in what we now consider American ideals, and the resilience of the American spirit.

Their sacrifices were made a long time ago—and the liberties they fought to win, and to preserve, are so interwoven into the normalcy of our day-to-day expectations that it is easy to forget just how precious they are, and how rare still in this world.

With all its faults, all its frailties, what we have here remains a special gift. A gift that young men and women are still sacrificing to extend to others today. A national treasure we should appreciate every day—even if we only celebrate it once a year.

- Nevin E. Adams, JD

'Swimming' Pool

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 accommodate that selection.

• Target-date fund benchmarks are available—but they incorporate certain beliefs/assumptions on the part of the index maker (though that’s not exactly radical, IMHO. The S&P 500 also incorporates certain beliefs/assumptions in its composition).

• Nobody (except perhaps the lawyers who wrote them and the regulators that mandated them) is actually reading all these participant notices.

• We’re getting ready to know more about fees charged than some ever thought possible—then, we’re going to have to be taught what to do about what we (now) know.

• Lots of plan sponsors are “OK” with the fees they are paying—but they aren’t sure that they are “reasonable.”

• Retirement income is an “easy” sell, but still a tough “buy.”

• Mentioning that you’re thinking about beginning a provider search (even if you’re not) is an easy way to gain a quick fee/service concession.

• Tax breaks associated with tax-deferred savings and employer-sponsored health care add up to a lot of money—and some in Washington want to spend that money other ways.

• More people (still) seem to be worried about the 25 basis points being split between the recordkeeper/TPA and adviser than the 80 basis points being spent on investment management.

• There is an inherent mismatch when revenues are based on something (assets) that has very little correlation with costs (plan structure and participant count).

• Most plan sponsors still have a better chance of being struck by a meteor than being sued by a plan participant.


- Nevin E. Adams, JD

Time Enough?

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 unnamed to us. As for Russert—well, I didn’t know him, never met him—but he spent a lot of Sunday mornings in my living room. Politics aside, his was a face and a voice that I got to know. He was older than I, but not so much so that his passing would be expected. He was, by all accounts, a loving son, husband, and father—a man in the prime of his career. That he might have gone to work Friday just like any other day—to realize that on any given day, any one of us could go to work and simply not come home…well, it reminds us just how precious and sometimes tenuous life can be.

We know that, as ironic as it sounds, death is a part of life. Thoughtful individuals prepare for the possibility of death—through faith and, with luck, sound financial planning. Most don’t dwell on those realities, and that’s doubtless a good thing, IMHO.

In this business, we spend a lot of time worrying about the risks of outliving our retirement savings. Participants increasingly seem to rely on an assumption that they will work longer, or save more later, to make up for their current shortfalls.

However, Tim Russert’s passing should remind us all again that we don’t always have as much time as we might want.

- Nevin E. Adams, JD

A “Simple” Plan

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 hindsight–just your basic 60/40 mix split between the S&P 500 and Treasury bonds, in a very reasonably priced mix. It helped that Mom had been paying attention in those education meetings over the years: She understood the importance of diversification, the balance of stocks and bonds, and was willing to have a larger exposure to stocks than many in her age cohort might have preferred. And, from the standpoint of a well-intentioned but frequently preoccupied son, it was a relief knowing that someone who actually manages money for a living would be keeping an eye on things.

About six months later, during one of our periodic calls, Mom asked if it wasn’t time to put some of that money in another fund. I was puzzled, Had she been disappointed with the fund’s performance (this at a time when one might well have wished for a higher apportionment to equities)? No, she said she had no issues there. Was it a problem with the fund company itself, I asked? Was she worried about their financial stability? After all, it was a mutual fund, not a bank; so, was she worried that it didn’t really have anything like FDIC insurance? No, she said, there was no problem there, so long as she knew. Well then, I asked, why did she want to move some of it to another fund?

“Because,” she explained patiently,“isn’t it important to diversify my investments?”

Now, I thought I had done a brilliant job of explaining the asset-allocation fund premise–how that diversification was accomplished within the fund on an ongoing basis by people who spent their working hours paying attention to such things. But to her great credit, my mom–who had no real education in investing or the market other than what she got in the workplace–may not have known what to invest in, but she did know that you shouldn’t put all your eggs in one basket.

That wasn’t the last discussion I would have with Mom on the subject (though she let a respectable amount of time pass before she brought it up again). Not because she didn’t hear and understand my explanation, but because, IMHO, after a lifetime of having to make the investment decisions herself, she just couldn’t quite believe that the “right” thing to do was to invest it in a single mutual fund.

Things are even better for participants now, of course. Asset-allocation funds have long since incorporated sophisticated risk evaluations, and target-date funds make it easy for participants to make respectable decisions without even that “bother.” Those solutions have their imperfections, of course. But I wonder how much different the focus of participant-directed savings programs might be today if those kinds of solutions (1) had been available then.

- Nevin E. Adams, JD

(1) I realize that profit-sharing programs have long operated in a “balanced account” structure that didn’t require participant-direction (or, in most cases, participant funding). On the other hand, from the very beginning, accounts funded with employee contributions have sought to give participants the opportunity to decide how to invest their own money.