2020 "Hindsight"

At the end of every year, and as we approach a new one, it’s natural to look back at experiences and lessons learned—and to ponder ways to apply them productively going forward.
Here’s some thoughts from 2020 that I hope will help you do just that.

3 Things That (Seem to) Scare Plan Sponsors

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. And sometimes it’s just a good time to think about the things that give us pause—that cause a chill to run down our spine. In that category, here are three things to ponder…

3 Retirement Income Impacts That Can Impact Retirement Income 

Most of the focus on retirement savings is on those who haven’t saved enough, or who lack access to the platforms to make saving enough easy. But even those that have done the “right” things can nonetheless have their retirement planning realities tripped up. Here are three retirement income impacts of which (even) “good” retirement savers should be aware.

5 Things People Miss (or Get Wrong) About the CARES Act 

Written when the legislation was less than a week old, and amidst the scramble for answers and action(s)—well, it’s inevitable that some things will get overlooked, and other important things will be misconstrued. Here are five things you’ll (still) want to keep straight. 

5 Steps to Cyber Security 

Recent reports of 401(k) thefts and an ongoing concern about cyber security (should) have everybody on the alert. Here’s some things you, your plan sponsor clients, and their participants should check out—now. 

The Best Defense(s)

In a year full of challenges for plans and plan sponsors alike, we’ve seen a spate of litigation against retirement programs like none in recent memory. So, what’s a plan fiduciary to do? 

10 Things You Might Have Missed About E-Delivery 

The long Memorial Day weekend notwithstanding, many hadn’t yet delved deeply into the Labor Department’s final rule on default electronic disclosure. Regardless, here are some things you might (still) have missed. 

5 Ways to a ‘Better’ HSA

There are lessons in positioning and behavioral finance that we “learned” years ago with 401(k)s that might still be holding back the effective utilization of health savings accounts. 

The Next Chapter

Life has many lessons to teach us, some more painful than others—and some we’d just as soon be spared. But for the graduates of 2020—well, theirs is surely a unique time. So, if you have a graduate—or if you are a graduate—or if you have been a graduate—here are some thoughts…

Wishing you all a very happy, prosperous, and (at some point) “normal” New Year!

 - Nevin E. Adams, JD

A Retirement Savings Santa?

Once upon a time, as Christmas neared, it was not uncommon for my wife and I to caution our occasionally misbehaving brood that they had best be attentive to how their (not uncommon) misbehavior might be viewed by the big guy at the North Pole.

In support of that notion, a few years back—well, now it’s quite a few years back—when my kids still believed in the (SPOILER ALERT) reality of Santa Claus, we discovered an ingenious website that purported to offer a real-time assessment of their “naughty or nice” status.

No amount of threats or admonishments—in fact, nothing we ever said or did—ever managed to have the impact of that website—if not on their behaviors (they were kids, after all), then certainly on the level of their concern about the consequences. In fact, in one of his final years as a “believer,” my son (who, it must be acknowledged, had been particularly “naughty” that year) was on the verge of tears, panic-stricken– following a particularly worrisome “reading”—not that he’d misbehaved, and certainly not that he’d disappointed his parents—but that he'd find nothing under the Christmas tree but the lumps of coal[i] he so surely “deserved.”

Every year about this time we read survey after survey recounting the “bad” savings behaviors of American workers. And, despite the regularity of these findings, must of those responding to the ubiquitous surveys about their (lack of) retirement confidence and (lack of) preparations don’t offer much, if anything, in the way of rational responses to those shortcomings (even) they (apparently) see the connection between their retirement needs and their savings behaviors. 

Now, arguably in this pandemic-driven year those pressures have been magnified—but this is not a new concern. Indeed, the reality has long been that a significant number will, when asked to assess their retirement confidence, generally acknowledge that there are things they could—and know they should have—done differently. 

So if they know they’ve been “bad”—why don’t they do anything about it? Well, some certainly can’t—or can’t for a time—but most who respond to these surveys seem to fall in another category. It’s not that they actually believe in a retirement version of St. Nick, though that’s essentially how they seem to (mis)behave. They carry on as though, somehow, these “naughty” savings behaviors throughout the year(s) notwithstanding, they'll be able to pull the wool over the eyes of a myopic, portly old gentleman in a red snowsuit—that at their retirement date, despite their lack of attentiveness during the year(s), a benevolent elf will descend their chimneys with a bag full of cold cash from the North Pole.

Unfortunately, like my son in that week before Christmas, many worry too late to influence the outcome.

The volume of presents under our Christmas tree never really had anything to do with our kids’ behavior, of course. As parents, we nurtured their belief in Santa Claus as long as we thought we could (without subjecting them to the ridicule of their classmates), not because we truly expected it to modify their behavior (though we hoped, from time to time), but because we believed that children should have a chance to believe, if only for a little while, in those kinds of possibilities.

We all live in a world of possibilities, of course. But as adults we realize—or should—that those possibilities are frequently bounded in by the reality of our behaviors, as well as our circumstances. And while this is a season of giving, of coming together, of sharing with others, it is also a time of year when we should all be making a list and checking it twice—taking note, and making changes to what is “naughty and nice” about our personal behaviors—including our savings behaviors.

Yes, Virginia,[ii] as it turns out, there is a retirement savings Santa Claus—but he looks a lot like you, assisted by “helpers” like your workplace retirement plan, your employer’s matching contributions—and your trusted retirement plan advisors and providers.

Happy Holidays!

- Nevin E. Adams, JD

P.S.: Believe it or not, the Naughty or Nice website is still online, at http://www.claus.com/naughtyornice/index.php.htm. Maybe it can help with your kids!

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[i] In case you’re curious about that reference… https://abc7chicago.com/st-nicholas-day-saint-lumps-of-coal/4846172/

[ii] In case you’re curious as to that reference… https://www.newseum.org/exhibits/online/yes-virginia-there-is-a-santa-claus/

The 'Terror' of 401(k) Litigation

So much of our lives have been disrupted by the COVID-19 pandemic—but the pace of 401(k) litigation, it seems, has, if anything, accelerated.

Now, some may find the label “terror” in the title extreme. In fact, it hadn’t really occurred to me until I read the response of defendants to a suit slapped on Genentech Inc. and the plan fiduciaries of its $7.6 billion 401(k) plan in early October. In a response to that excessive fee suit, the defendants’ attorneys referred to this suit—and others like it—as “an in terrorem attack on fiduciaries and employers seeking sweeping monetary and injunctive relief geared toward disrupting employee benefit relationships and causing protracted, expensive litigation.” 

“In terrorem,” Latin for “into/about fear,” has a legal context—a legal threat, really—one generally voiced in hope of compelling an action (or lack of action) without resorting to a lawsuit or criminal prosecution. It normally arises in regard to a provision in a will which threatens that if anyone challenges the legality of the will or any part of it, then that person will be cut off or given only a dollar, rather than what is left to them in the will. 

While that may (or may not) be an accurate characterization of that particular litigation, the motivations of the plaintiffs’ bar on these matters are surely as diverse as the plans and plan designs they challenge, if not the experience, expertise and expectations of the individual firms themselves. Indeed, having had the opportunity to discuss these matters with a few over the years, I am persuaded that some at least are indeed fighting what they honestly believe is the “good fight.”[i] They see evidence of inattentive fiduciaries manipulated (or motivated) by unscrupulous providers, sometimes over a period of years, if not decades, all to the financial detriment of participants who must work (and save) all the more to compensate for the “theft.”  

However, in the process they have sought to create presumptions of imprudence that (IMO) aren’t. They’d have us (or more precisely, a judge) believe that active management is not only inherently inferior to passive approaches, but unacceptable, that RFPs not only must be conducted, but at a minimum must be conducted on a 3-year cycle, to accept that recordkeeping fees are prudent only if assessed as a function of participant count (as though size and complexity of the plan’s investments and design shouldn’t be a consideration), that extrapolated averages of published plan fees are sufficient to set a benchmark of reasonability, that a stable value option is superior to money market, except when money market is better than stable value, that they provide too many options for participants to choose from… or too few. Indeed, as the defendants in the Genentech response note, “Fiduciaries that manage 401(k) plans are getting sued no matter what they do.”  

When the dust “settles” in these cases—sometimes over decades, but of late more rapidly—most still produce nothing but a monetary “arrangement”—the amount nearly always significantly less than the damages alleged, and the per participant recovery relatively small.[ii] The plaintiffs’ attorneys get somewhere between 25% and a third of that recovery—which is deemed reasonable[iii] since they often labor long and without compensation until a settlement or adjudication is reached, though it is often tens of millions of dollars when it happens. 

Those suits that do go to trial generally seem to turn out in favor of the plan fiduciary(ies), either because the substance behind the plaintiffs’ claims is found to be insufficient, or the actions of the plan fiduciaries are determined to clear the admittedly high bar of ERISA’s prudence. It’s easy to overlook that result because, as human beings, we are inclined to see a settlement in manners as heinous as those alleged as an admission of culpability, if not guilt, whatever the legal disclaimers. Regardless, while the proceeds that flow to the plaintiffs’ counsel surely offset the investment of time and effort getting to that point, there’s little question that some of it simply goes to funding the next suit… 

As with any apparently profitable enterprise, this current wave of 401(k) litigation has attracted new entrants—and copycats—not only in actions, but in the very language employed in their filings. Based on their record to date, it’s doubtful that they will enjoy much success under the full scrutiny of adjudication—but then, that may not be their objective.  

Ultimately it takes time, patience—and yes, money—to stand up to this threat. 

But here’s hoping that, knowing the threat exists, plan fiduciaries continue to take the time to be thoughtful, deliberate and, yes, prudent in the exercise of their critical duties, that they take the time to document that work—that they do so with the involvement and engagement of wise counsel—that they find ways to share the fruits of that diligence with those they serve—and that in so doing, they deprive the plaintiffs’ bar of any rational basis upon which to bring, much less prevail in, these pursuits.

- Nevin E. Adams, JD

 

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[i] There’s no question that 401(k) fees have declined over the years—and while the plaintiffs’ bar would surely like—and some are, perhaps entitled—to claim credit for at least some of that, fees decline for any number of reasons, though plan fiduciaries, writ large, are more sensitive to the issue these days. Then again, the costs of this litigation are being paid by someone, and insurers have not traditionally been known to long absorb the impact of such things to their bottom line—indeed, some have already taken to asking pointed questions of employers in the course of questionnaires that would seem to have little to do directly with the insurance coverage sought. 

[ii] The named plaintiff(s) generally are accorded $10,000 to $25,000 each for their time and trouble in representing the class.

[iii] Though that never takes into account the time, effort, expense and opportunity costs for the employers that must devote time and treasure to the litigation.

Thanks, Giving

Thanksgiving has been called a “uniquely American” holiday —and so, even in a year in which there has been an unprecedented amount of disruption, stress, discomfort, and loss—there remains so much for which to be thankful. 

I’m thankful that so many employers (still) voluntarily choose to offer a workplace retirement plan—and, particularly in this extraordinary year, that so many have remained committed to that promise.

I’m thankful that the vast majority of workers defaulted into retirement savings programs tend to remain there—and that there are mechanisms (automatic enrollment, contribution acceleration and qualified default investment alternatives) in place to help them save and invest better than they might otherwise.

I continue to be thankful that participants, by and large, continue to hang in there with their commitment to retirement savings, despite lingering economic uncertainty and competing financial priorities, such as rising health care costs and college debt—and the consequences of the pandemic.

I’m thankful for the strong savings and investment behaviors emerging among younger workers—and for the innovations in plan design and employer support that foster them. I’m thankful that, as powerful as those mechanisms are in encouraging positive savings behavior, we continue to look for ways to improve and enhance their influence(s).

I’m thankful for qualified default investment alternatives that make it easy for participants to benefit from well-diversified and regularly rebalanced investment portfolios—and for the thoughtful and ongoing review of those options by prudent plan fiduciaries. I’m hopeful that the nuances of those glidepaths have been adequately explained to those who invest in them, and that those nearing retirement will be better served by those devices than many were a decade ago.

I’m thankful that so many workers, given an opportunity to participate, (still) do. I’m particularly thankful this year that so many were able to do so without taking advantage of the expanded access to those accounts via the provisions of the CARES Act.

I’m thankful that those on Capitol Hill were able to (mostly) set aside partisan differences long enough to pass the CARES act, including those expanded access provisions and the Payroll Protection Program, which likely helped many avoid having to tap into their retirement savings.

I’m thankful for the hard work of so many recordkeepers, TPAs, accountants, advisors and attorneys who—under strained and stressful conditions of their own—worked through and helped their plan sponsor clients and participants work through—the provisions and practical implications of the CARES Act (and just mere weeks after having done so for the SECURE Act).  

I’m thankful that figuring out ways to expand access to workplace retirement plans remains, even now, a bipartisan focus—even if the ways to address it aren’t always.

I’m thankful that the ongoing “plot” to kill the 401(k)… (still) hasn’t. Yet.

I’m thankful for the opportunity to acknowledge so many outstanding professionals in our industry through our Top Women Advisors, Top Young Retirement Plan Advisors (“Aces”), Top DC Wholesaler (Advisor Allies), and Top DC Advisor Team lists. I am thankful for the blue-ribbon panels of judges that volunteer their time, perspective and expertise to those evaluations.

I’m thankful that those who regulate our industry continue to seek the input of those in the industry—and that so many, particularly those among our membership, take the time and energy to provide that input.

I’m thankful to be part of a team that champions retirement savings—and to be a part of helping improve and enhance that system.

I’m thankful for all of you who have supported—and I hope benefited from—our various conferences, education programs and communications throughout the year—particularly in a year like this, when it has been so difficult to undertake, and participate in, those activities. I’m hopeful that at some point in the near future we’ll be able to do so… together.

I’m thankful for the involvement, engagement, and commitment of our various member committees that magnify and enhance the quality and impact of our events, education, and advocacy efforts.

I’m thankful for the constant—and enthusiastic—support of our event sponsors and advertisers—again, particularly in a year when so many adjustments have had to be made.

I’m thankful for the warmth, engagement and encouragement with which readers and members, both old and new, continue to embrace the work we do here.

I’m thankful for the team here at NAPA, ASPPA, NTSA, ASEA, PSCA (and the American Retirement Association, generally, as well as all the sister associations), and for the strength, commitment and diversity of the membership. I’m thankful to be part of a growing organization in an important industry at a critical time. I’m thankful to be able, in some small way, to make a difference.

But most of all, I’m once again thankful for the unconditional love and patience of my family, the camaraderie of an expanding circle of dear friends and colleagues, the opportunity to write and share these thoughts—and for the ongoing support and appreciation of readers… like you.

Wishing you and yours a very happy Thanksgiving!

- Nevin E. Adams, JD

Game Changers or (Just) Rearrangers?

In these extraordinary times, there’s a lot of change in the mix—and new legislative and regulatory developments that could be “game changers”—or perhaps not-so-much.

Even in the most normal of times, it’s customary for businesses in evaluating future prospects to consider/identify elements under a “SWOT” analysis: strengths, weaknesses, opportunities or threats—and the recent Summit Insider gave us a chance to see what is on advisor minds now—and for the days ahead.

For this year’s Summit Insider, we asked respondents[i] to weigh in on how they saw various portents of change: as a game changer, for good or ill, something about which much ado had been made without justification (those that are mere “rearrangers”)—or was it simply too soon to say? 

Here’s what they thought about: 

1. MEPs/PEPs (Multiple Employer Plans/Pooled Employer Plans)

40% - Too Soon to Say

38% - Positive Game Changer

20% - Much Ado About Not Much

12% - Negative Game Changer

Arguably one of the most-anticipated changes from the SECURE Act was the advent of (truly) “open” multiple employer plans (MEPs), rebranded and somewhat refined to what the legislation calls pooled employer plans, or “PEPs.” Long championed as a means to help close the coverage gap, particularly among smaller employers, by providing certain structural and cost efficiencies of scale—there are some details yet to be worked out by regulators (they aren’t effective until Jan. 1, 2021). 

More recently, MEPs have found themselves in the crosshairs of litigators who allege that, despite those efficiency claims, some providers have charged that some have charged excessive fees and not fulfilled their fiduciary obligations. All of which may, despite a minority view as a game changer, left a slim plurality calling it “too soon to say.”  

2. DOL’s Fiduciary Reproposal

37% - Too Soon to Say

26% - Much Ado About Not Much

26% - Positive Game Changer

11% - Negative Game Changer

Perhaps no regulatory undertaking in recent memory has occupied the focus of advisors—and advisor organizations—as the reconsiderations of the fiduciary rule. First in 2011, and then again in 2015, the Labor Department saw fit to reconfigure both ERISA’s fiduciary standard, the conditions under which a prohibited transaction exemption would be granted, and the type of retirement accounts to which those standards would be applied. 

Ultimately upended by the Fifth Circuit Court of Appeals with the plaintiffs’ challenge led by a legal team led by the man who would eventually become Secretary of Labor of an administration that would repropose a different version—one that, unsurprisingly, struck advocates of the prior administration’s efforts as “inadequate” to say the least. Regardless, the proposal, which by title anyway, purports to be “Improving Investment Advice for Workers & Retirees,” not only “restored” the 1975 five-part test’s standards on the conditions for advice to constitute “investment advice,” as well as a new prohibited transaction exemption allowing investment advice fiduciaries under ERISA to receive compensation, including as a result of advice to roll over assets from a plan to an IRA.

Whatever lies ahead for the proposal in the comment period and reconsideration—it’s doubtful that it would last long in its current form following a change in administrations. That, if nothing else, might explain the stance of respondents to this year’s Summit Insider—a plurality of which say it’s “too soon to say” what kind of impact it might have—or if it comes to life at all.

3. SECURE Act’s Expansion of Retirement Income Safe Harbor

54% - Positive Game Changer

27% - Too Soon to Say

15% - Much Ado About Not Much

3% - Negative Game Changer 

Among its many changes, the SECURE Act contains three sections that, taken together, are expected to have a positive impact on the provision of retirement income products in defined contribution plans: the reporting of a monthly lifetime income amount on participant statements, allowing for the portability of “in-plan” lifetime income benefits, and an expansion of the safe harbor for the prudent selection of lifetime income providers. 

The first is already in place among many providers (albeit not necessarily using the DOL’s proscribed method), the second kicks in only after an in-plan option is in place—but the third—additional insulation against what many see as the biggest stumbling block to plan sponsor adoption of these options—well, could that be a game-changer? Summit Insiders seem to think so.

4. E-delivery 

86% - Positive Game Changer

4% - Much Ado About Not Much

3% - Too Soon to Say

1% - Negative Game Changer

When the Labor Department unveiled the final e-delivery rule in May, it was the culmination of years of hard work of advocacy. The timing was precipitous, coming in the midst of the COVID crisis that separated so many workers—and recordkeepers—from their offices. That timing may slow the full impact out of the blocks, but over a decade the Labor Department anticipated that the new safe harbor will save plans approximately $3.2 billion net, annualized to $349 million per year (using a 3% discount rate)—money that could well be better spent on retirement savings. That has the makings of a positive game changer—and that seems to be just how the Summit Insiders see it.

6. Printing/Showing Lifetime Income Disclosures on Statements 

52% - Positive Game Changer

26% - Much Ado About Not Much

15% - Too Soon to Say

6% - Negative Game Changer 

We’ve already noted the three lifetime income enhancements in the SECURE Act, and if this one is already in play with many recordkeepers (and therefore, perhaps explains why a quarter of Summit Insider respondents say it’s “not much”), it’s potential to help shift the focus from accumulation to decumulation is largely unquestioned. 

Of course it remains to be seen what might emerge when the (still) interim final rule is finalized—and what changes recordkeepers that have already made the move to produce such illustrations on their own might have to embrace, and when. Still, there’s something to be said for consistency of approach—and universality of availability. 

Said another way—it’s “show” time.

- Nevin E. Adams, JD

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[i] Who Are the Summit Insiders?

Just over 400 advisor and home office “attendees” of the 2020 NAPA 401(k) Cyber Summit responded to this year’s Summit Insider. Just under a third (32%) had been a retirement plan advisor for more than 20 years, and a quarter had been for 15-20 years. There were, however, 14% who had less than 5 years experience in that role, and a nearly equal number (13%) that had been in the role for 5-10 years. 

Their target markets were similarly diverse. About a quarter each targeted plans with less than $5 million in assets, between $5 million and $10 million, and between $10 million and $25 million. The remaining quarter were divided between market segments ranging from $25 million to more than $41 billion in assets.    

5 Steps to Cyber Security

Recent reports of 401(k) thefts and an ongoing concern about cybersecurity (should) have everybody on the alert. Here’s some things you, your plan sponsor clients, and their participants should check out—now.

Find Your Account(s)

It may have been a while since you checked out your 401(k) balance—indeed, many may not have ever  checked it out online. Start by tracking down the website, your user id, your password. If you haven’t done so in a while, you may have lost those credentials—or your access may have been disabled. Even if those credentials are still valid, it’s probably a good time to change them. Make sure you remember those account(s) at previous employers’ 401(k)s that you may have left “behind.” 

Oh, and it will be less frustrating if you don’t do this on the weekend. In my experience, few offer customer service support then, and if you need help getting on, you’ll need some help.

You might also find that it’s a good time to consolidate those 401(k) accounts so that your “check up” can be a bit less burdensome in the future.

Make Sure ‘They’ Can Find You, Too

Addresses change, phone numbers too. You’ll want to make sure that your contact information is up to date. That old work email address probably doesn’t work anymore, either—make sure those “old” 401(k) accounts know where you are.

Change the ‘Locks’

Chances are the last time you logged into your 401(k) account, you were told to come up with a password that was a combination of so many letters and characters you lost count. You may have been prompted to come up with answers to a handful of seemingly random “security” questions (what was  your first concert, after all?). You may have been asked if you wanted something called “multi-factor” authentication (for example, you might be asked to enter a code that is sent to a phone or email account that you have previously authorized). And, if you logged in from a different device (smartphone, or even a different browser), you may well have been asked to confirm that as well.

Frustrating as that series of hurdles can be if you are in a hurry, they’re all designed to stop, or at least slow, someone hacking your account. So, change your password regularly, use a password manager to help you keep up with passwords no human brain could possibly be expected to retain, and definitely go with multi-factor—because when someone who isn’t you accesses your account, you want to know it before  they get in. 

Check Your Beneficiaries

One of the most common areas overlooked is that of beneficiaries—the folks that you want to receive your account balance if you’re no longer “here” the receive them. This is so critical that the Plan Sponsor Council of America focused its recent 401(k) Day campaign on the topic. 

The default assumption if you’re married is your spouse (if you want to designate someone else you’ll need their acquiescence), but—like addresses, spouses have been known to change, children have been known to come along, children have been known to marry individuals that wouldn’t be your first choice, and life situations change. I actually had a situation where my beneficiary designation was (apparently) “lost” during a provider change.  

You’ll want to make sure that who’s on record as your beneficiary is current because things change—and the plan administrator will almost certainly distribute benefits to the person(s) you’ve designated—regardless of “circumstances.” 

Get a ‘Ready’ Read

Oh, and while you’re at it—you might want to check out your retirement readiness—how much you’ll need to retire comfortably, and how close your savings and other assets are to making that a reality. 

That might, in turn, not only provide you with good insights as to how much you need to be setting aside—but provide a sense of comfort as you work with your advisor/investment professional. 

It’s important that your savings be secure, after all—but ultimately you need them to be… enough.

- Nevin E. Adams, JD

Polling "Places"

If you have turned on a TV, walked by a radio, driven down a residential street, or answered a phone (or more likely let it go unanswered) in the past month, you will, of course, be aware that our nation will officially go to the polls today. 

Of course, our nation has been “going” to the polls—or at least casting votes—for several weeks now. And while some states (and voters) have done so in elections past, a combination of factors (not the least, concerns about the current pandemic) means that the process of voting, like so much of our lives this year, is going to be “unprecedented,” both in terms of the breadth and volume of votes cast prior to election “day”—and perhaps on that day itself.

And yes, it’s been a particularly nasty—one feels compelled to say “unprecedented”—election cycle. 

In that regard, I recently came across this: 

“Certainly, politics has never been a pretty business, but I doubt that I would get much argument in stating that this particular political season has been as nasty, vitriolic, and personal as any in recent memory—including not a few of those ads where the candidate’s visage appears to say that he or she “approved this message.” Like a couple of bickering siblings, both sides protest either that they didn’t start it, or that it is the other side’s fault. Lowered to levels of political discourse that once would have gotten your mouth washed out with soap, the verbal free-for-all threatens to obfuscate not only the real issues in this election, but the truth itself. We’re all sick and tired of it—even when they’re dishing the dirt on the candidate we’re hoping is forced to slink off the public stage in disgrace come Tuesday.”

While the sentiment is real and current, I actually wrote those words nearly 15 years ago, just ahead of the 2006 mid-terms. I wouldn’t say that things haven’t gotten (even) worse since then, but I was surprised at how apropos those words remain even in the context of the election before us. 

Indeed, while much is made of what appears to be an extraordinary level of polarization in perspectives, the pernicious influences of social media, and the pervasive editorializing of the “news,” it remains my sense that our nation is not so cleanly demarcated into “blue” and “red” as pundits would have us believe. Moreover, while we surely have our individual differences, I suspect at most levels the voting public is not as polarized in their opinions on key issues as are the individuals seeking their vote, or the process that produces those individuals. 

The issues that confront our industry—and the nation’s retirement—important though they surely are, are unlikely to be the issues that motivate your choices on the ballot this year. That said, it’s worth remembering that elections matter there as well—that the “sweep” of control often creates the biggest issues for retirement policy, be it the tumult of the Tax Reform Act of 1986, the flirtation with Rothification, the ardor for financial transaction taxes that make no allowance for retirement savings, and “equalization” of tax treatment that might well discourage plan formation. And just how powerful bipartisanship (still) can be in terms of producing thoughtful, meaningful legislation like the SECURE Act.   

As I write these  words, it’s hard to imagine that we’ll know how it will all turn out by Election Day’s close. The good news, whether it be a result, or in spite of, the current level of vitriol, the American public’s interest in expressing its opinion by actually taking the time to go to the polls—or in pursuing an absentee ballot—appears to be surging. Elections do have consequences, after all—and, if the last several elections have taught us nothing else, we now know that votes—even a single vote—can matter.

Here’s hoping that—whatever your position on the issues—you take the time to vote this election. It is not only a right, after all, it is a privilege—and a responsibility. 

And let’s hope that those that find themselves in office as a result conduct themselves accordingly.

- Nevin E. Adams, JD

3 Things That (Seem to) Scare Plan Sponsors

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. And sometimes it’s just a good time to think about the things that give us pause—that cause a chill to run down our spine. 

In that category, here are three things to ponder…

Getting Sued

Plan sponsors will often mention their fear of getting sued (actually, their advisors frequently broach the topic), and little wonder. The headlines are (still) full of multi-million dollar lawsuits against multi-billion dollar plans—the pandemic has, if anything, seemed to accelerate the pace. If relatively few seem to actually get to a judge (and those that do have—to date—largely been decided in the plan fiduciaries’ favor), they nonetheless seem to result in multi-million dollar settlements. Oh, and not only has this been going on for more than a decade, the issues raised are evolving as well.

It's not that the fear is unfounded—plan fiduciaries certainly can be sued, and that includes responsibility for the acts of co-fiduciaries, and liability that is personal, to boot (see 7 Things an ERISA Fiduciary Should Know).

Of course, most plan sponsors won’t ever get sued, much less get into trouble with regulators. And those who do are much more likely to drift into trouble for things like late deposit of contributions, errors in nondiscrimination testing, or not following the terms of the plan.

Still worried about getting sued? As one famous ERISA attorney once told me, you might as well worry about getting hit by a meteor. Unless, of course, you have more than $1 billion in plan assets.

ESG

In fairness, it’s not ESG—environmental, social & governance—investing per se that seems to “scare” plan sponsors from offering these options, but rather concerns as to their level of accountability for choosing to do so. Indeed, there’s plenty of survey data to suggest that workers want these options, particularly younger workers. That said, workable, consistent definitions of ESG remain fluid, and perhaps as a result, the adoption rate among defined contribution plans has been tepid—and the take-up rate among participants even lower. Fewer than 3% of plans offer an ESG option, according to the 62^nd annual Plan Sponsor Council of America survey, and less than 0.2% of plan assets have been invested in those options. 

Many think the hesitancy comes from confusion about how the Labor Department views these options, or more precisely the prudence of including them as a participant investment option. For a long time there had “only” been Interpretive Bulletins (IBs) (in 1994, 2008 and 2016) and, more recently, a 2018 Field Assistance Bulletin (FAB) on this subject. And while the 2016 IB was read as encouraging consideration of ESG factors (or at least discouraging the discouraging), the 2018 FAB was widely viewed as pulling back on that stance, in the process establishing what had been called the “all things equal” standard, which meant that so long as two otherwise identical investments met all the requisite prudence standards, a fiduciary could (prudently) pick the one that (also) had ESG attributes. 

And then in June, noting its concern “that the growing emphasis on ESG investing may be prompting ERISA plan fiduciaries to make investment decisions for purposes distinct from providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the plan,” the Labor Department proposed a new rule to “clarify” things.

Now the rule itself is pretty standard stuff—but the Labor Department wrapped that in about 60 pages worth of preamble and impact analysis that conveyed what many (including this writer) saw as a clear sense of skepticism about the prudence of those options, or at least a concern that plan fiduciaries might be inclined to lower the prudence bar in order to accommodate the inclusion of these options. And if there was any doubt as to the concerns of the Trump administration, the rule specifically calls out ESG as unsuitable as a focus in qualified default investment alternatives (QDIA) (not that I am aware of any that have yet taken that step, and perhaps the rule was intended to forestall that). All this at a time when the Labor Department has made a series of (allegedly separate and unrelated) inquiries to both plan sponsors and RIAs about their current  processes regarding ESG consideration and review.

As one might expect in view of the billions of dollars (already) committed to ESG—not to mention its increasing prominence in the focus of a growing number of investment managers—that rule drew a ton  (more than 8,000) of comments (most critical), but is now back for review at the Office of Management and Budget (OMB) in a timeframe so short as to suggest to many that it didn’t undergo much change. 

All of which arguably leaves plan sponsors contemplating a shift to ESG with a great deal of uncertainty. They may not be “scared,” but one can certainly understand a bit of apprehension.

Lifetime Income Options

Speaking of apprehension, while defined contribution plan fiduciaries aren’t exactly scared  of retirement income, DC plans have long eschewed providing those options. There’s no question that participants need help structuring their income in retirement—and little doubt that a lifetime income option could help (certainly with some help from a trusted advisor). 

There are in-plan options available in the marketplace now, of course, and thus, logically, there are plan sponsors who have either derived the requisite assurances (or don’t find them necessary). Or who feel that the benefits and/or participant need for such options makes it worth the additional considerations. On the other hand, those industry surveys notwithstanding, participants don’t seem to be asking for the option (from anyone other than industry survey takers)—and when they do have access, mostly don’t take advantage. Let’s face it, even when defined benefit pension  plan participants have a choice, they opt for the lump sum. 

It’s ironic that programs designed to provide retirement income pay so little attention to the realization of that objective; only about half of defined contribution plans currently provide an option for participants to establish a systematic series of periodic payments, much less an annuity or other in-plan retirement income option, and that’s despite the 2008 Safe Harbor regulation from the Labor Department regarding the selection of annuity providers under defined contribution plans (which was designed to alleviate, though it did not eliminate, those concerns), not to mention a further attempt to close that comfort gap in 2015 (FAB 2015-02).

Proponents are hopeful that the SECURE Act’s provisions regarding lifetime income disclosures (though many recordkeepers already provide this), enhanced portability (a serious logistical challenge if you ever want to move from a recordkeeper that provides the service to one that doesn’t) and, perhaps most importantly, an expanded fiduciary safe harbor for selection of lifetime income providers, will—finally—put those “fears” to rest. We’ll see.

Don’t get me wrong—there are plenty of things for ERISA fiduciaries to be worried about. The standards to which their conduct must comply are “the highest known to law,” and with good reason. Prudence is often associated with caution, and fiduciaries generally find more comfort in the middle of the trend “pack” than on its fringes.

That said, the standard is to act (solely) in the best interests of plan participants and beneficiaries—even though it may be “scary” from time to time…

- Nevin E. Adams, JD

The Enemy of the ‘Good’

 A reader recently commented, “Nevin: You are continually berating those who question various aspects of 401(k) plans as if the current structure is ‘perfect.’ It isn’t.”

That comment was inspired by a recent column of mine critical of a proposal rumored to be under contemplation by the Biden campaign—one that would “trade” the current tax preferences of 401(k) deferrals for a flat government tax credit. It’s a proposal that is intended to direct more of the same amount of government expenditure (when the government doesn’t take money from your pay, it’s considered an expense) to lower income individuals, in that a flat dollar credit would ostensibly be worth more to lower income individuals than the deferral of taxes under the current system. 

Now that reader went on to offer a comment in support of that intent, explaining that “…one of the biggest challenges we face is getting lower paid people to participate. Credits will give bigger benefits to these people, and maybe, just maybe, spur increased participation,” closing by challenging me to “…work to make 401(k) plans BETTER, and not simply berate those who challenge the current system. It ain’t perfect, my friend. Far from it.”

Now, as it so happens I know this particular reader. And so I know that he cares deeply about retirement savings and retirement savers, that he’s one of the many out there who are truly working every day to make things “better.” 

That said, if he read my criticism of this proposal to be an assertion that the current system has no faults or shortcomings—well, that wasn’t my point. I have never said the current system was perfect, and in fact, dedicate any number of these columns to highlighting needs/opportunity to make it better.

Beyond that, my experience has been that when those kind of assertions are published[i] (even as an “op-ed”) by a reputable news organization—well, left unchallenged, the assertions are often assumed to be accurate. Indeed, every time something like this makes its way into circulation, I will hear from a half dozen different advisors (or more) telling me that the article has been passed on to them by plan sponsor clients (or participants), looking for comment, or response (and often asking me for assistance in that regard). Indeed, those are the kind of things that tend to get routed to those in academia and on Capitol Hill by those who see it as an affirmation of their notion that the current system is inadequate or biased in favor of the well-off. 

However, it’s one thing to press for change, but something else altogether to do so without fully thinking through (or at least acknowledging) the potential implications of that change—what are generously referred to as the “unintended” consequences, but sometimes seem more a willful and deliberate disregard. In this particular case a federal tax credit at the expense of having a workplace savings plan or an employer match doesn’t seem like a good trade-off to me. Moreover, making broad generalizations about fees (that don't seem supported by data) to justify a call for undermining valuable support for participants and employers doesn’t strike me as being a well-reasoned argument for change/improvement. 

To me the biggest shortfall of the current system is that too many working Americans don’t have the opportunity to take advantage of it. Oh, there are plans that still pay too much in fees, that either don’t avail themselves of the services of a plan advisor, or rely on the counsel of one that isn’t qualified, plans run by fiduciaries who either aren’t aware of that responsibility or fail to fulfill it. The system, in total, isn’t perfect—but those who pick at those imperfections to justify its wholesale demise should be challenged and held to account for misstatements and exaggerations, and they should be willing—and able—to consider and respond to questions—and data—about the ripple effect of unintended consequences. 

Never forget that “perfect” is often the enemy of the good. 

- Nevin E. Adams, JD

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[i] Warning: I’ve been at any number of symposiums or roundtables—and even read the occasional op-ed—where the words of a well-intentioned industry leader are served up as an “admission” of failure of the current system. 

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What's 'Eating" 401(k) Haters?

 Another week, another Bloomberg op-ed bashing 401(k)s—but this time the target is fees—and advisors.

The most recent “shot” is found in an article[i] titled “401(k) Fees Are Eating Your Retirement Savings.” The author, one Ethan Schwartz,[ii] without citation (beyond “various estimates”), tosses out claims as to the “average” fees in 401(k)s (and we know the value of “average” in such matters), states that those fees are “much higher” for then claims to know of “annual expenses well under 0.1%, and often near zero, offered by widely available stock and bond index funds and ETFs in many flavors and stripes outside of 401(k)s”—and then does the math to show how much it all adds to individually, and then he extrapolates it to the whole universe of 401(k) savers to assert that “more than $20 billion annually” is being “taken” from the nest eggs of retirement savers.

Better still, he cites the example of a “close friend” who asked for his help—only to find that “the plan offers a menu of high-priced (and underperforming) actively managed vehicles. Its only index-tracking choices are expensive “collective investment trusts costing about 0.5% more than index mutual funds and ETFs.” Oh, and he also cites as “even more outrageous” the reality that those trusts allow for securities lending (which doesn’t cost the plan money, and in fact probably offsets fees with income).

As unlikely as his generalizations seem to match the 401(k)s I know, it’s impossible to pick apart his portrayal of facts because—the individual situation notwithstanding—they are gross generalities. Not that that dissuades him from offering a “solution”—to “simply eliminate 401(k) intermediaries,” and to “let American workers save for retirement using their choice of designated, IRA-like accounts offering the same, cheap index-tracking funds and ETFs available outside of retirement plans.”

Unlike the other proposals cheered of late, he’s willing to leave the “other incentives that encourage Americans to save through their 401(k)s” intact, “including preferential tax status, employer matching contributions and enrolling employees by default.” He touts as “added bonus,” that “employers would no longer have to spend time and money establishing and monitoring their own, costly 401(k) plans. And employees of small businesses would no longer face a cost disadvantage vis-à-vis the plans offered by large firms, as they do today.”

Now, he anticipates “howls of opposition from the investment management industry,” and—along with a perspective of the industry that seems woefully out of date, he cites the work of none other than Yale Law School professor Ian Ayres and University of Virginia law professor Quinn Curtis. You may remember these guys—and the “love letters” from Yale. Their academic pedigree notwithstanding, these are the guys who used outdated (and limited) Form 5500 data and questionable expense assumptions to make wild accusations about 401(k) fees and the plans that offered them. Accusations that, it bears reminding, were subsequently disavowed by Yale University’s Law School. 

In fact, actual fund data continues to show declining fees among 401(k) plans. It’s not that you can’t find outliers—perhaps even this writer’s colleagues’—but that’s clearly the exception, rather than the rule. In fact, the Investment Company Institute reports in “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2019” that 401(k) plan participants investing in equity mutual funds incurred an average expense ratio of 0.39% in 2019, compared with 0.42% in 2018 and 0.77% in 2000. 

Like so many others who opine from ivory towers far removed from the front lines of workplace retirement plans, this author blithely assumes that workers don’t need the education, encouragement and financial support of employers and advisors. He ignores (or perhaps is simply unaware) of the data that shows how workers of even relatively modest means are 12 times more likely to save in their workplace retirement plan than on their own.[iii]  

Today they’re also well-served by a growing number of automatic enrollment designs to help them get started, a steady increase in the default savings rate, and acceleration in that rate over time, not to mention the expanded availability and utilization of qualified default investment alternatives—enhanced designs that are not only continually finding their way “down market,” but that it seems fair to say are largely due to the involvement and engagement of those savings “eating” intermediaries he characterizes as “largely superfluous.”

What exactly is (still) “eating” 401(k) haters?

Why, instead of looking for ways to undermine a system that works, or pushing for incentives to extend those benefits to everyone—do they seem bound and determined to put those retirement savings on a “crash” diet?

- Nevin E. Adams, JD

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[i] Bloomberg News editorials have been on something of a tear of late; you’ll also want to check out An Article that Doesn’t Make Much Sense and Chiseling Away at the 401(k)… 

[ii] According to Bloomberg, Schwartz has worked as an investment manager and financial services executive for 21 years. He was a special assistant to the deputy secretary of the Treasury in the Clinton administration.

[iii] Vanguard, How America Saves 2018 (DC plan participation), EBRI estimate based on 2014 IRS SOI tabulation (IRA-only participation).

(Let's) Never Forget

Early on a bright Tuesday morning in 2001, I was in the middle of a cross-country flight, literally running from one terminal to another in Dallas, when my cellphone rang.

It was my wife. I had been on an American Airlines flight heading for L.A., after all—and at that time, not much else was known about the first plane that struck the World Trade Center on Sept. 11. I thought she had to be misunderstanding what she had seen on TV. Would that she had…

That day, when family and friends were so dear and precious to us all, I spent in a hotel room in Dallas. It was perhaps the longest day—and loneliest night—of my life. In fact, I was to spend the next several days at that Dallas hotel. There were no planes flying, no rental cars to be had—and so I was stranded—separated from home and family by hundreds of insurmountable miles for three interminably long days. As that week drew to a close, I was finally able to get a rental car and begin a long two-day journey home. While it was a long, lonely drive, it gave me a lot of time to think, though most of that drive was a blur, just mile after endless mile of open road.

There was, however, one incident I will never forget. I was driving in a remote section of Arkansas when on that long, lonesome highway I spotted something approaching in my rearview mirror. Turns out, it was a group of Hell’s Angels bikers, what had to be a couple of dozen riders—led by a particularly “scruffy” looking guy with a long beard and lots of menacing tattoos on a big bike. We couldn’t have been more different. But as he passed, I saw unfurled behind him on that big bike—an enormous American flag. 

At that moment, for the first time in 72 hours, I felt a sense of peace—the comfort you feel inside when you know you are going home.

Without question this year has been one of extraordinary pain and suffering; one full of tensions, grief and anger that seems at times destined to pull our nation apart at the seams. 

But nearly two decades later, I still feel that ache of being kept apart from those I love as if it were yesterday—but also still remember the calm I felt when I saw that biker gang drive by me flying our nation’s flag. 

On not a few mornings since that awful September day, I’ve thought about how many went to work, how many boarded a plane, not realizing that they would not get to come home again. How many on that day sacrificed their lives so that others could go home. How many still put their lives on the line every day, here and abroad, to help keep us and our loved ones safe.

We take a lot for granted in this life, nothing more cavalierly than that there will be a tomorrow to set the record straight, to right wrongs inflicted, to tell our loved ones just how precious they are.  

This Friday, as we remember that most awful of days, and the loss of those no longer with us, let’s all take a moment—together—to treasure what we have—and those we have to share it with still.

Peace.

- Nevin E. Adams, JD

An Article That Doesn't Make Much Sense...

For reasons that elude me—other than perhaps because it has a “click bait” headline—the folks at Bloomberg recently published an “op-ed” titled, “401(k) Plans No Longer Make Much Sense for Savers.” Sadly, it’s gotten some attention, aided and abetted even by industry publications, some of which incredibly reported on it as a straight news item. 

Much as it pains me to give more “oxygen” to this, the author, a “former risk manager” (he now apparently writes books), basically makes a tax argument. His essential premise is that once upon a time, the tax benefits of 401(k) made that investment worthwhile, but that tax rates have dropped, and they’re not likely to be lower in the future, so you’d be better off taking that money and investing it elsewhere (more on that in a minute). Oh, and he wants the federal government to forego its deferred taxation on those 401(k) monies so that you can pull that money out and invest it elsewhere without pause (we’ll not hold our breath waiting for that one).

There are many issues with this former risk manager’s perspective on 401(k)s—not the least of which is that his primary argument is based on tax rate data that appears to be both flawed and skewed to exacerbate the impact (picking both the highest and lowest tax rates, depending on the point he’s trying to make). Then, as is the case with many mathematical “arguments,” having predicated his case on a flawed assumption, he “just” does the math—producing a result that is mathematically accurate but distorted. 

But, for the sake of argument, let’s concede that tax rates are lower now than in 1980, and may well be higher that they are today in the future. The true myopia in his argument lies with his apparent lack of understanding of the 401(k) he so blithely dismisses.

401(k) Fables?

Part of his purported “fix” for 401(k)s in this changed tax environment is to make new contributions and accumulated returns from them tax-free when withdrawn in retirement (albeit only by below-median-income households), ostensibly to help provide relief against fears that post-retirement tax rates will be higher than today’s—though it seems primarily designed to encourage the flow of funds from the 401(k) to IRAs. Perhaps someone should alert him to the Roth 401(k)—a feature that some two-thirds of 401(k) plans already make available to workers. 

And then he suggests that in 1980, a “typical” investor would have paid about the same whether savings were in a 401(k) or an IRA, 3.5%—which suggests to me that he had no experience with either. 

Moreover, while he (grudgingly) concedes that 401(k) fees have declined since then (though he will only admit to 1.5%, and manages, in a passing comment, to note that “others are stuck around the 3.5% level,” inferring that is still commonplace), he actually opines that a stand-alone IRA investment is a better deal, with fees of 0.5%. Again, one has to wonder where he is finding that “stuck” 401(k)—not to mention that bargain retail IRA.

Match Less?

And that’s not the only 401(k) feature of which he appears woefully ignorant. Perhaps his fixation on tax rates blinds him to a significant advantage of 401(k) plans; that while workers doubtless appreciate the ability to postpone paying taxes on the pay they’ve not yet taken, that doesn’t seem to be a primary motivation for their participation. 

More likely, and yet completely ignored in his “analysis” is the impact and incentive of the employer match. A match which, according to the most recent Plan Sponsor Council of America survey, is at record levels. Try getting that in your retail IRA. 

Moreover, his affinity for IRAs also seems woefully misplaced in view of data that has established that even modest income workers are 12 times[i] more likely to save when they have access to an employer-sponsored plan than left to their own with an IRA. 

What’s The Point?

In view of all this contradictory evidence, one might well wonder why a published author and former risk manager would choose to simply ignore it—and then, based on half-baked assessments, draw conclusions that 401(k)s have outlived their usefulness. 

It’s entirely possible, of course, that he’s been living under that proverbial rock, that he’s completely missed a generation worth of innovation, that he’s oblivious to the realities of behavioral finance, that he’s never actually participated in a 401(k) nor benefited from the encouragement of an employer match. 

Or maybe he’s one of those who would use the visibility of a posting in a reputable publication to lend credibility to an argument that is, at its heart, clearly designed to encourage hard-working Americans to pull their money out of the shelter and support of that 401(k) plan…

Regardless, it’s a non-sensical article that doesn’t make much sense for savers… or anyone else. 

- Nevin E. Adams, JD

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[i]Vanguard, How America Saves 2018 (DC plan participation), EBRI estimate based on 2014 IRS SOI tabulation (IRA-only participation).

Time That Try Men's Souls

It seems trite, almost unnecessary, to comment that we are living in and through extraordinary times. 

I’m a student of history, and I have often found comfort, if not guidance, from what has gone before. As often as not, however unique and extraordinary the times seem (or are portrayed in the headlines), there’s inevitably a comparable, and almost always, an even more extreme example, of such times in decades past.[i]

And while there’s been a renewed interest in, and awareness of, the pandemic of 1918 (though I’m told the pandemic of 1957-58 is a more apt comparison to COVID-19), as the anniversary of our nation’s declaration of independence nears, I’ve been drawn to the events of 1776.

As it turns out, the newly declared (but not yet formal) nation was confronted not only with the struggle for independence (and no small number of voices that simply wanted to preserve the status quo), but with the scourge of smallpox. Just as the close quartering and movement of troops in the first World War served to spread what is now termed the “Spanish flu,” the Continental Army was confronted with a deadly disease that was arguably a larger threat to its cause than the British army.

Indeed, General Washington once wrote to Virginia Governor Patrick Henry that smallpox “is more destructive to an Army in the Natural way, than the Enemy’s Sword." And no wonder—we’re talking about a pandemic that killed one in three in the Continental Army who contracted the virus.

We mark the Fourth of July, and indeed the year of 1776, as the birth of our nation, but it’s worth remembering that it was a year full of disappointments and near disasters for George Washington’s Continental Army. One can garner a sense for the change in tide by noting in January of that year Thomas Paine published “Common Sense,” but before the year was out had turned his pen to “The American Crisis,” fretting about “sunshine patriots” and “times that try men’s souls.” And we hadn’t yet gotten to that terrible winter at Valley Forge.

There are challenges both personal and professional confronting us every day—they were “before,” though most were individualized, personal events: a death in the family, a job lost, a flood or tornado’s impact, a wildfire’s devastation. And while the events of the past several months have imposed new burdens on us all, it’s imperative that we remind ourselves that those we support and serve are struggling as well; their retirements, their plans for retirement, indeed their retirement plans themselves, despite years of careful planning and attention, may well have been upended in ways that no one could anticipate just a few short months ago.

In the days ahead, your insights, your expertise… your empathy… are going to be called upon in ways you might never have imagined. Surely, these are, certainly in recent memory, extraordinary times—times that have, and will, in some measure, continue to try our collective “souls.”

Bleak as things may seem at times, however, this is our time to shine.    

America’s retirement is depending on us.

- Nevin E. Adams, JD

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[i]Perhaps unsurprisingly, one of my favorite quotes is George Santayana’s “Those who cannot remember the past are condemned to repeat it.”

Leaving a Legacy

As Father’s Day approaches, I’ve been thinking about my dad, the life he led, the choices he made, and the legacy he left behind.

I’m not talking about money. In fact, I didn’t learn anything about finance from my dad—he avoided big purchases with the fervor of Ebenezer Scrooge, though he’d spend that much (and more) on small things (mostly books). Like many in his generation, my dad wanted to hold the checkbook, but it was Mom who always made sure that there was money in the account. Dad tithed “biblically,” but Mom was the one who started setting aside money from her paycheck in her 403(b) plan at work—and continued to do so, even when my father was convinced they couldn’t afford it—and made no secret of that opinion. Or did until he got a glimpse of the statement that showed Mom’s retirement account growth—and then, inspired by that example—he began setting money aside for retirement as well.

My dad was a man of few words—spoken words, anyway. At 6’ 5” he was an imposing figure, all the more from the pulpit from which he did speak. He was a good speaker, but not a natural one. He worked hard at it, studied his subject matter, practiced his presentation relentlessly, each and every week. I always thought it amazing that such a quiet, introverted man would choose that career—but it was something he felt called to do at an early age, though it can’t have been easy. He had opinions, but didn’t impose them on others. Indeed, it was difficult (and sometimes frustrating) to wrest opinions from him. Significantly, he walked his “talk”—his faith, his love and respect for all people, even those with whom he disagreed—and those were attributes in short supply, even then.

Though I talked about my work any number of times over the years, for much of my working life, I don’t think my dad ever really understood what I “did.” Oh, he knew I worked for banks (when I did), figured that being a “senior vice president” had to be a good thing, knew that I had something to do with pensions, and (eventually) grasped that it also had something to do with something called a 401(k). But as for understanding what I actually did every day—well, he cared mostly that I enjoyed the work, that I found meaning in my chosen field, that I was able—or felt I was able—to make a difference.

While Dad touched a lot of people with his ministry, he touched thousands more with what was a random, almost accidental opportunity. Back in 1972 he was asked by a friend to take on the writing of 13 guest columns in a denominational paper—an “opportunity” that went on for more than three decades (alongside his “day job”). In fact, one of the great joys of my life was when, 20 years into this retirement industry career, I was also presented an “opportunity” to begin writing for a living—and my dad, though he didn’t always understand what I was writing about, could appreciate that I was—eventually—following in his (writing) footsteps.

His impact on me, and my life notwithstanding, I’m a different person than my dad, though his example is never very far from my thoughts. As a parent, I’ve tried to share with my kids the lessons I’ve learned (and continue to learn), tried to spare them the pain that came with many of those, but also tried to give them the room they need—and deserve—to learn their own on the life path(s) they chose, though that’s a life lesson of its own, and one with which I still sometimes struggle.

Along the way, I’ve tried to make a point to tell them—regularly—how proud I am of them. But mostly I try not only to tell—but to show them—how much I love them—and to do so as often as I can.

Because while there’s a lot we can leave behind—there’s nothing like a living legacy.

- Nevin E. Adams, JD

In Emergency Only...

Back when I was in school (OK, so it was way back), there were these little red fire alarm boxes strategically placed throughout the building. Their purpose was clearly indicated in big white letters… but, inevitably, as the school year wound to a close…  

Well, it seemed that someone was always pulling those levers, and no, not because of any actual fire—but rather because some hapless soul had been pressured to create a nuisance, but more commonly just because some upper classman was looking to avoid a test for which they weren’t prepared, or wanted to get outside and enjoy the fresh air.

Initially these emergency calls got the expected response, and we all dutifully filed down the stairs and out to our designated areas. And, sure enough, by the time the building was evacuated, the premises sufficiently investigated, and the student body returned to our respective classrooms—well, it left little time for actual instruction, for a period, at least. And then afterwards we’d get the loudspeaker reminder that these were “for emergency only.”

Last week the Wall Street Journal ran a piece titled, “Should You Tap Retirement Funds in a Crisis? Increasingly, People Say Yes”, and then proceeded to outline the circumstances of several individuals who have, following a variety of hardships imposed by the COVID-19 pandemic (and subsequent economic shutdown) tapped into their 401(k) for some financial sustenance. The article[ii] proceeded not only to chronicle the recent legislation that has loosened the restrictions on loans, and created a whole new category of distributions to help stave off financial catastrophe in the wake of the pandemic, but that has, ever since Hurricane Katrina, become something of a pattern of relief—well, pretty much every time there is some kind of regional calamity.

Indeed, the lowering of the barriers to a pre-retirement withdrawal of these ostensibly for retirement funds has become so routine that it seems that every time there is a wildfire, flood, tornado, hurricane, earthquake, or natural disaster that impacts more than a local neighborhood, our industry queues up for the inevitable relief announcement like a Pavlovian pack.

Don’t get me wrong. I am pleased and proud of a system that, at a time of severe and extraordinary financial hardships, can provide an essential financial lifeline. Moreover, unlike the mammoth amounts of government aid and assistance already targeted, these funds provide relief that is literally funded by the very pockets of those impacted by the disaster.[iii]

And yet, while appreciating both the need and positive potential impact that these programs can have, as we look ahead to the future they’re “borrowing” from, one can’t help but hope that most won’t be forced to. Indeed, the WSJ article notes that from late March through May 8, (just) 1.5% of eligible people with 401(k) accounts handled by Fidelity Investments took some money out, while Empower Retirement notes that (only) about 1% of 401(k) savers in plans it administers that allow the withdrawals took money out through May 31, while Alight Solutions LLC, puts the figure at 1.2%, though it notes that more than half of those withdrew $100,000 (or their whole balance if it was less than that). Similarly, a recent survey of the ASPPA TPA community suggests that loan and withdrawal volumes are, in fact, largely, in line with traditional trends.[iv]

Even now, however, there are voices encouraging and enticing ostensibly COVID-impacted individuals who don’t have a financial emergency to take advantage of this new “opportunity” to pull money out of those retirement savings accounts, doubtless preying on their concerns, and—in some cases surely—greed.

Here’s hoping that individuals remember that these accounts—as with those school building fire alarms,—should be “pulled” only “in case of emergency.”

- Nevin E. Adams, JD

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[ii]To their credit, the WSJ article includes cautionary voices, noting that pulling out retirement money now might undermine their future financial security, that pulling that money out during volatile markets might well be a “sell low” decision, and that encouraging withdrawals now is, at best, a mixed message about the retirement focus of these accounts. The title may suggest a groundswell of voices “increasingly” calling for pre-retirement access, but even those featured in the article whose hands have been forced by circumstances beyond their control largely express caution and concern at having done so—and a commitment to continued prudent preparations once their current economic turmoil ends.

[iii]Indeed, that’s quite different from the government or employer-funded international pension systems (Australia and Malaysia, of all places) cited in the WSJ article as now permitting pre-retirement access.

[iv]The WSJ article also reports that retirement savings programs sponsored by California, Oregon and Illinois reported increases in distributions following state shutdowns. As of the end of May, 13.7% of IRAs that Illinois residents funded through the state’s Illinois Secure Choice program had been fully or partially liquidated, up from 10.7% on Jan. 1.

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Uncertain Outcomes

As the nation enters its third month under the constraints of the COVID-19 pandemic, it seems a dramatic understatement to say we are living in uncertain times.

Let’s face it, even as the nation begins to (re)open, concerns about the coronavirus remain widespread, and the markets, though stabilizing, remain volatile. Unemployment rates, though optimism remains that they will be short-lived, are at levels not seen since… well, at levels never seen before. And then, in the midst of all this, as a nation, we are reeling from a fresh wound—the tragedy and implications of George Floyd’s death—and while many are hopeful that meaningful change can finally come from this, there’s sadness—and anger—that the protests calling for that change have been accompanied by acts of violence.

Amidst all this worry and uncertainty, it’s hard to believe that the CARES Act—and the Payroll Protection Program—have only just been drafted, executed, and implemented to help stave off at least some of the economic uncertainty that currently confronts many. Not to mention that we had only just begun getting our arms around the practical implications of the SECURE Act—which incorporated retirement provisions that purported to stave off future economic disaster.

The mortality and hospitalization projections related to COVID-19 have perhaps provided a fresh appreciation for both the importance, and the limitations, of models as a predictor of the future impact of current decisions. That said, those seeking to forestall problems are generally well advised to rely on something other than a “gut sense” of the potential impact.

Earlier this year the Employee Benefit Research Institute (EBRI) projected the potential impact of the key provisions[i] of the SECURE Act. EBRI projected that those projections could  reduce the U.S. retirement deficit for workers currently age 35-39 by as much as 5.3%—double that if they work for small employers (those less than 100 employees), mostly because those who are in the latter category are so much less likely to have access to a retirement savings plan at work—and, as readers of our publications know, those without access to a plan at work are significantly less likely to save for retirement—12 times less likely, in fact.

However, the overall impact of these SECURE provisions is larger; those specific projections merely quantify the reduction in shortfalls for those who otherwise wouldn’t have enough retirement income.
Among those who were already deemed to have had “enough” retirement income (and EBRI employs a fairly conservative basis for that foundation, one based on actual estimated needs, rather than an ad hoc percentage of pre-retirement income), SECURE almost certainly adds some cushion to those projections. Indeed, the EBRI report differentiates between reductions in deficit and increases in surplus.

When You Assume…

Those are encouraging numbers. But it’s worth acknowledging that there’s a healthy dose of assumptions underlying those projections, as surely there must be in anticipating future human behaviors. EBRI’s Research Director (and data modeler extraordinaire) Dr. Jack VanDerhei takes pains to outline those in the paper, but it’s worth noting that the ranges in assumptions employed are—well, they’re all over the place.

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Visit our SECURE Act resource center!

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Consider that in the EBRI report, the assumptions presented for MEP adoption range from a one-third take-up by employers with no participant opt-out to one in which two-thirds of employers who do not currently offer a plan choose to do so, with a 25% opt-out rate by workers. And, as you might imagine, the results vary widely based on the assumptions used. On the other hand, they’re arguably no different than if you were to ask a random group of advisors how many more employers will now offer plans because of changes like the greatly expanded start-up tax credit, or as a result of the efficiencies resulting from an open MEP.

Now, unlike many of the uncertainties in our lives, when it comes to retirement, advisors can make a difference—and potentially a huge difference in the SECURE Act realities, whether it’s by informing and encouraging employers to take action, nudging them toward positive and proactive plan designs, or simply working with individual workers to help them maximize the expanded opportunities. In sum, we can all have an impact far beyond our immediate circle—and beyond our lifetimes.

We live in uncertain times, after all—but the importance of the role you  play in expanding retirement opportunity and security—and our nation’s future—is anything but…

- Nevin E. Adams, JD

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[i]Specifically, the projections contemplate greater access by allowing providers to offer multiple employee plans (MEPs), and also factor in the impact of raising the cap under which plan sponsors can automatically enroll workers in “safe harbor” 401(k) plans from 10% to 15% of wages, and required coverage of long-term part-time employees.