Graduation “Exhortations”

This past week, my son graduated from high school. It was a big deal for our family, as any graduation would be. However, this was in some ways a particularly special night, since my son is our youngest, and thus—well, it will be our last high school graduation (until grandchildren come along, anyway). The weather chased us inside for the ceremony, which also afforded us one more time to walk the halls that my kids had gotten so familiar with (and which still seem like a maze to me).

Mostly, it was an occasion to look back one more time before turning our attention to the future. For me, it was a chance to look back and try to bring to mind my own high school graduation—and all the things that have happened in my life since then.


So, for my son—and all the other graduates out there—here are some things I wish I had known when I was your age:


If you don’t speak up, people will assume you’re happy with the way things are.

If you don’t love yourself, nobody else will.

If you wouldn’t want your mother to learn about it, don’t do it.

Paying the minimum due on your credit cards is dumb.

High school ISN’T the best time in your life.

Never miss a chance to tell someone “thank you.”

You’ll fall in love more than once—or at least think you have.

Never assume that your employer (or your boss) is looking out for your best interests.

You can be liked AND respected.

Sometimes the questions are complicated and the answers—aren’t.

Hug your parents—often.

Know at least a little about sports and the weather.

“What do you think?” is a great response when you don’t know the answer.

The hardest thing to do is quit while you’re ahead.

The second hardest thing to do is to keep your mouth shut.

Never assume that “senior management” knows what they’re doing.

“Have you been working out?” is the best thing you can say to someone. The second best is, “Have you lost weight?”

People notice people who don’t swear.

Breaking up IS hard to do.

Listen.

Smile.

Read.

That 401(k) match is not “free” money—but it doesn’t cost you anything.

Start saving for retirement—now!

—Nevin E. Adams, JD

All for One?

The underlying theme of last week’s PLANSPONSOR National Conference was “measuring up,” a reference not only to the need to measure the performance and outputs of a retirement plan’s designs, but also to the opportunity to increase and enhance it in the process.

Of late, fees are very much on everyone’s mind, as we all prepare for a new series of plan, and ultimately, participant, disclosures. Just ahead of those disclosures, the industry has launched a new generation of plan fee benchmarking services. Each looks at different things, each has its own set of weightings and assumptions, and each draws from a different source.

But for my money, here are 10 things you should know about any service that purports to help you benchmark your plan:

What is the source of the database that serves as a point of comparison?

Is the database itself large enough to be relevant? Does it include relevant points of comparison with your program in terms of plan size, industry, and/or geographic location?

How old is the data on which comparisons are made?

Is the data on which comparisons are made accurate?


Are the comparisons valid? Do they offer an apples-to-apples comparison?

What assumptions are incorporated in the results?

How are the results of the comparison scored?

What are the credentials of the firm/principals behind the service and/or methodology?

Is the benchmark itself relevant to your needs? Does the comparison help you improve your program?

Is the fee paid for the benchmarking service reasonable, and in the best interests of participants?

There are, admittedly, any number of measures of success for a retirement plan—and while some may be “better” than others, and some surely easier to establish, in my experience, the mere process of measuring brings benefits.

That said, there was a moment at last week’s conference where one of our speakers asked a telling question: not if attendees benchmarked their programs (a surprising number were doing so), nor if they were benchmarking against a variety of criteria (most of those in attendance had moved well beyond the standard of “participation rate” as a metric).

No, the question that gave me pause—as well as a good number of the attendees—was, If the individual members of your retirement plan committee were asked “What do you benchmark your plan against?” what would they say?

Because, if you don’t agree on that answer, the rest of the questions may not matter.

—Nevin E. Adams, JD

You may find useful the cover story of the June issue of PLANSPONSOR, which deals with this new generation of fee benchmarking services, HERE

Chances Are...

I’ve long adhered to the wisdom of having a “Plan B,” a fallback position if the things you hope will work out—don’t. Now, sometimes those fallbacks aren’t completely well-formed (ask my wife), but to my way of thinking, assuming that everything will work out “according to plan” is just tempting fate.

When it comes to saving for retirement—or, more accurately, to having enough saved for retirement—workers have long had a set of “Plan Bs,” though not always completely well-formed, to put it mildly. They have assumed that if they weren’t saving enough at present, they would “catch up” by saving more “later”; they have assumed market returns to grow their accounts that defied reality (if not common sense); and some have gone so far as to assume they had a pension coming in situations where it was clear that no such safety net would be present.1

And then, this past week, a study published by the Employee Benefit Research Institute (EBRI) threw cold water on what has, IMHO, been a “best case” assumption by a growing number of workers: that they would close any retirement savings gap…by simply working longer (see Delaying Retirement no Guarantee of Being Able to Afford Retirement).

Now, real-world data has shown (and shown for some time now) that the median retirement age for Americans is not even as old 65 (it’s been 62). Still, the headline to the EBRI press release conveyed a much starker message: “Delaying Retirement Past 65 No Guarantee of Households Being Able to Afford Retirement.” In fact, the study says that, even if a worker delays his or her retirement into their 80s, “there is still a chance the household will be “at risk” of running short of money in retirement.”2


Well, the truth is, there’s also a chance that a meteor will land on your head on the way to work—though it’s a small one. And though actuarial tables and the like purport to provide some kind of statistical certainty to an assessment of how long we’ll have on this “mortal coil,” the reality is more complicated. People defy those odds every day, both by living well beyond projected life expectancies, and sometimes by—well, life is sometimes shorter than we think it will be.

That said, EBRI noted that how workers fare financially after retirement is directly tied to three factors: their salary level at retirement, how long they work beyond 65, and how much they save in a defined contribution retirement plan during their working lifetime. In fact, the EBRI researchers cited that “a major factor that makes a difference” in their ability to meet basic and uninsured health-care costs in retirement is “whether they are still participating in a defined contribution plan after the age of 65.” The researchers said that factor “makes at least a 10 percentage point difference” in the majority of the retirement age/income combinations.3 In fact, for those “Generation X” workers, those who have been—and continue—saving in a defined contribution account could basically decrease their “at risk” probability by a third.

Ultimately, the research should remind us of a couple of things, IMHO: first, that the assumption that we’ll be able to work past “normal” retirement age is just that—an assumption. Second, and more important, that even if that assumption pans out, it cannot be assumed that that, in and of itself, will prove to be sufficient.

But finally, and I think most important, is that one thing individuals can exercise some control over in the “here and now” is their current—and continued—participation in defined contribution plans. And that’s also something that can directly—and significantly—improve their chances of a financially viable retirement.

—Nevin E. Adams, JD

The EBRI Issue Brief is HERE

1 Indeed, those are all assumptions that, dutifully plugged into a retirement planning calculator, can “solve” many projected retirement savings gaps. However, human nature (and the markets) being what they are, in real life, they tend to be little more than wishful thinking.

2Admittedly, determinations of retirement security are best done at an individual level, though our industry (and those who occasionally write about it) is frequently inclined to take the easy way around these issues. But, as the EBRI researchers noted, “a retirement target based on averages (such as average life expectancy, average investment experience, average health care expenditures in retirement) would, in essence, provide the appropriate target only if one was willing to settle for a retirement planning procedure with approximately a 50 percent “failure” rate.” In other words, as the researchers noted, “the problem with using a 50 percent probability of success, of course, is that the household is in a position where they will “run short of money” in retirement one chance out of two”—a clear problem if you happen to be one of those who run short.

3 Now, you can’t make those kinds of projections without some assumptions, and EBRI has outlined a number that it made in its calculations, not insignificantly that there is no job change and/or disability prior to age 64, that wage growth continues at average national wage growth after age 64, that contribution acceleration stops at age 65, and that Social Security is deferred until the earlier of retirement age or 70, among other things. That said, the researchers cautioned that “[g]iven the paucity of data with respect to many wage and benefit conditions for workers beyond age 65, several assumptions with little empirical verification were needed to produce the initial results. In most cases, the assumptions made were optimistic in terms of their impact on the value of deferring retirement age. Therefore, the percentages of households with adequate retirement income...should be seen as a best-case estimate, especially at the more advanced retirement ages.” To their credit, the EBRI researchers upgraded their modeling to take into account recent trends in automatic enrollment, contribution acceleration, and target-date fund defaults.

Commit, Meant

Much to my surprise, my son went to prom this weekend.

Now, I realize that a lot of kids go to prom—and I also realize that more don’t go than is generally appreciated by those who do. But my son, who at present isn’t in a relationship (and certainly not one serious enough to make prom attendance a “requirement”), has long been of the mindset that prom was just a lot of “bother,” and an expensive bother at that.

Having committed himself to this event, however, we of course had to contend with all those things that constitute that “bother”: renting a tux, selecting flowers for his date, etc. Later there emerged items like the expectations around the table at which (and with whom) he and his date would sit and the gathering(s) beforehand—and afterwards. For the very most part, he dealt with each new “decision” calmly, though as time went on, you could see him taking deep breaths as he contemplated just how much more of this “bother” he would have to endure (girls seem to have a lot more tolerance, if not enthusiasm, for the social “nuances” of such occasions). As for his Dad, I wondered if he would have gone along with the idea in the first place had he known just how “complicated” the process would become.

Setting up a retirement plan is not, generally speaking, a front-burner item for most employers, particularly among those at the smaller end of the market. They have their hands full just staying in business and making a profit. It’s not that establishing a workplace retirement plan is a “bother” exactly, but it’s one of those decisions that brings with it a series of other, related decisions—decisions
that have to be made not just once, but reviewed and remade on an ongoing basis. In my experience, this is not always fully appreciated by employers (many of whom it would seem would really just like to set it (up) and forget it). Little wonder, then, that those who work with them to help them fulfill those responsibilities and make those decisions frequently wind up feeling like some kind of glorified “nag,” constantly prodding and reminding plan fiduciaries of the things to which they need to attend.

Ultimately, the decisions required for my son’s prom could only be postponed and/or ignored for so long. At a certain point, it was simply too late to worry any more about tux and/or tie color, corsages, and/or driving arrangements. And, as it turned out, doubtless in no small part because there was a date certain, all of the necessary decisions got made in time (though a couple seemed more or less ad hoc and at the last minute).

For plan sponsors, the issues are generally more complex: Suboptimal fund menus can live on almost indefinitely, plan design changes can nearly always be put off in perpetuity, and as for fee and/or provider reviews—well, unless there’s a fire, the intermittent “smoke” is fairly easily ignored. There is, after all, no prom night, no single date on the calendar by which everything needs to be in order. Plan sponsors inclined to put off till another day those hard and/or complicated decisions can often do so (and do so often).

However, those who choose not to “bother” with such decisions probably shouldn’t have bothered with setting up the plan in the first place.

—Nevin E. Adams, JD