"Certain" Circumstances

 My wife and I recently celebrated our wedding anniversary—it was a “big” one, one of those that almost takes your breath away thinking about how rich your life together has been.

If someone had asked on my wedding day if I thought I’d still be alive and married this many years hence, I’m sure that I would have expressed confidence, likely strong confidence, in both outcomes. However, if someone on that same day had asked me to guess then where I would be living now, what I would be doing for a living, or what my income would be (or need to be)—well, my responses would likely have been much less certain—and trust me, I would have been… wrong.

Not that there haven’t been bumps along the road—life is a series of zig-zags, after all—and no matter how carefully you try to plan—well, life is what happens to you while you’re making other plans, right? There was the wedding limo with faulty air conditioning on the hottest July day in history, the flat tire in the middle of nowhere with a packed family van (not the best time or place to learn where the “new” jack was located), the emergency appendectomy of a child halfway across the world (not to mention that of another child several hundred miles away at college), the cross-country trip where the rental vehicle had been chosen with an eye toward the size of the family—without taking into account the luggage said family would require for that trip, the “discovery” while trying to rush for a late flight that (apparently) my son’s relatively common name had flagged him for special scrutiny by TSA—and the night spent sleeping in the family van near the Grand Canyon because—sometimes and someplaces you really can’t find a hotel room at the very last minute without a reservation.

As uncertain as life’s paths can be, there is at least some rational science to retirement planning, but even then there’s the unknown as to the “when” you’ll retire, the how much you’ll want—or need—not to mention the “what” you’ll need/want to be able to afford once you’ve crossed that threshold. Not that there aren’t those kind of decisions throughout one’s career—but once that post-work threshold has been crossed—what we still tend to think of as “retirement” (though some might have another word for it these days)—well, it feels like one’s options are fewer, even if they needn’t be.

“Disruptions” are the bane of a fixed income, of course. Just when you think you have it all balanced out, you have to spend (a lot) more for gasoline, pay a higher real estate tax bill, scrape up some money for a new prescription drug, deal with the financial consequences of an unexpected medical emergency. That—despite the experience of the past several months—this can happen at the same time that your investment portfolio is taking a sustained “hit,” or that you are told the house you are living in is worth a lot less than it was (on paper, anyway) a year ago—and all of a “sudden” inflation raises its ugly head—well, it all contributes to a sense of economic uncertainty.

Throw in the gyrations of a global pandemic that can impact not only your employment options, but your portfolio value, and your longevity… well, it’s an environment that can leave one feeling that the notion of living on a “fixed” income might not be up to the task over the next couple of decades—and with some justification.

It’s been said that the only sure things are death and taxes—but the lesson for those of us still drawing a paycheck—and planning for the time when we won’t—is the importance of preparing for that third “sure” thing: uncertainty.

- Nevin E. Adams, JD

Where’s Waldo? (and Mary…and Joe…and Pat)

Every plan has participants—and, sooner or later, will therefore have “ex” participants—and sometimes those participants go…missing. And that can be a real problem for retirement plan fiduciaries.

While most are likely aware of the fiduciary obligation to keep accurate records, many are less aware that there is also an obligation to take “appropriate steps” to ensure that the participants and beneficiaries are paid their full benefits when due. But what are the “appropriate steps”?

Why It Matters

This is a growing concern of regulators; in fact, (now former) Principal Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson has noted that, “In fiscal year 2020 alone, EBSA’s investigators helped missing and nonresponsive participants recover benefits with a present value in excess of $1.4 billion.”

The good news is, the Labor Department has published some guidance on the subject—in fact, it’s a triple dose of guidance related to helping retirement plan fiduciaries meet their obligations under the Employee Retirement Income Security Act (ERISA) to distribute retirement benefits to missing participants.

What You Can—and Should—Do

Plan fiduciaries will likely find most helpful the first document in the package. Titled “Missing Participants—Best Practices for Pension Plans,” the document outlines those key best practices that you will want to make sure are a part of your process in keeping up with those missing participants. Those best practices are outlined under four broad headings: 

• Maintaining accurate census information for the plan’s participant population. This includes contacting participants (current AND retired, as well as beneficiaries) on a periodic basis to confirm or update their contact information—including putting contact information change requests in plan communications—along with a reminder to advise the plan of any changes in contact information and flagging undeliverable mail/email and uncashed checks for follow-up.
   
• Implementing effective communication strategies. This includes things like using plain language and offering non-English language assistance when and where appropriate, and building steps into your onboarding, exit and enrollment processes to confirm or update contact information, confirm information needed to determine when benefits are due and to correctly calculate the amount of benefits owed, and to advise employees of the importance of ensuring that the plan has accurate contact information at all times.
   
• Documenting procedures and actions. Every good plan fiduciary knows and appreciates the importance of documentation—both as a record of actions taken and as a roadmap for future consideration. As with other plan procedures, when it comes to keeping up with missing participants, this not only means writing it down and keeping it current, but you will also want to be sure that your recordkeeping provider does their part—in maintaining plan records and participant communications and documenting those practices as well.
   
• Conducting missing participant searches. Despite your best efforts to maintain contact, participants often move and/or change names without communicating that information or even leaving a forwarding address.[i] This is where the rubber hits the road for most plan fiduciaries.  The beneficiary information can provide some solid leads, and the reality today is that if you can track down your grade school sweetheart on Facebook, there is a pretty good chance you can leverage social media to do some of the heavy lifting—and even broad-based search engines like Google can be a valuable resource, as well as paid services that can use credit searches and such. 

But the place you should probably start—and one cited in the Labor Department guidance—is the National Registry of Unclaimed Retirement Benefits. It is a free public service designed to help employers or plan fiduciaries and former employees locate each other so the former employees can claim their overlooked or abandoned retirement money.

What better way to not only find “Waldo,” but to ensure that your ex-participants are reunited with the benefits they have earned—to fulfill your responsibilities as a plan fiduciary—and to avoid potential issues with federal agencies down the road.

- Nevin E. Adams, JD 

---

[i] And, of course, there are some other good tips here: https://www.penchecks.com/what-to-do-with-missing-participants-and-required-minimum-distributions/        

'Hacking" Stances

A couple of Saturdays back I discovered that one of my online accounts had been “hacked.” 

The good news is that I “discovered” this via transaction emails confirming what appeared to be purchases—a half dozen of them… for various, small-ish (though not small) amounts… all about 4:00 a.m. on a Saturday morning. And trust me, while the pandemic has certainly fueled my online purchases, both the number and the timing were not normal behaviors (nor was the Chinese text in those emails).

The even better news was that I was able to flag those transactions via the provider—and via my credit card company—almost immediately (apparently the foreign hackers and I were the only ones awake at that hour). Even though there was no damage done by this incursion (aside from some temporary heartburn), it brought home to me again the importance of protecting all of my online accounts.

Like many, perhaps most, of you, I have long found managing the sheer volume of online passwords and varying criteria daunting. Oddly, the ever more complex (and varying) password requirements—different lengths, different combinations of caps, numbers and “special” characters, not to mention forced resetting of those passwords—has, if anything, tended to leave me being more casual than I should be regarding some of the practices I know are important. That said, and while I am far from a cybersecurity expert, I try to stay current on the latest advice from those who are—and trust me, it’s a moving target. 

As it turns out, the Labor Department recently issued a set of guidance on the issue of cybersecurity,[i] and while our more immediate focus here has been on the expectations of plan sponsor/fiduciaries, advisors and recordkeepers (particularly in view of the recent reports of Labor Department audits on these practices), my recent experience reminded me that it’s worth noting—and sharing here—the list of “online security tips” for participants included in that guidance. 

Use Strong And Unique Passwords

The most detailed of the tips is also perhaps the most important. The Labor Department recommends that you “use letters (both upper and lower case), numbers, and special characters”—which is increasingly mandated anyway—and to “use 14 or more characters.” We’re also advised not to use letters and numbers in sequence (like “1234” or “abc”), to change passwords every 120 days (or if there’s a security breach—p.s. you probably won’t hear about it until at least 30 days after it’s been detected), and—despite all these strictures—to not only not write it down, but not to “share, reuse, or repeat passwords.”

This is both the most obvious—and in my experience—most nettlesome of the recommendations. Of course, the more complicated the password, the less likely a hacker is to be able to “hack” it. And, unfortunately, the less likely you are to be able to remember it. I’ve seen suggestions on how best to manage this—most commonly these days (including from the Labor Department) the suggestion to use a password “manager.” 

But for those who find that process intimidating (or inconvenient), what I’ve found most useful is the idea of using phrases that are familiar or meaningful to you, but would amount to gibberish in a password field. Something like (for those who took typing classes in high school) “thequickbrownfoxjumped,” particularly if combined with some kind of numerical reference (perhaps “thequickbrownfoxjumpedh1.” You can also use a random combination of words like “fleetwoodChicago1978” (which happens to be when/where I saw Fleetwood Mac perform), or maybe a random combination of month and year (though avoid birthdates, anniversaries, and such)—perhaps something like “januarY2019” (I try to capitalize something other than the first letter). One other neat trick is to use spellings that may mean something to you, but aren’t in the dictionary—like dixshunary, or Septimber. 

The challenge, of course, will be remembering which (random) combination(s) you used for what. But if that leads you to write it down, keep that in a safe place—and don’t store it on your computer! 

Use Multi-Factor Authentication

The very first thing I did with the account that had been hacked (once I had reestablished control) was to set up multi-factor authentication. I have made a practice of doing this with all my accounts, and can only assume that years back, when I set up the account in question, they either didn’t have it available, or I considered it too much of a hassle to set up. No more.

Basically, this means that when you log on and/or initiate a transaction, the system requires the confirmation of a second credential. The most common set up would be to send you a code via text (to a phone number you’ve established on file) or to an email address. If you don’t have this set up yet on your online accounts—do it right away. It’s a life (and savings) saver. And always, always, always, be sure that you are set up to receive notifications any time your account or account information has been changed! Oh—and it bears noting here that the password to your email account is perhaps the most important—because if they hack your email account as well, they can intercept those confirmation emails, and delete them before you even know it has happened! 

Keep Personal Contact Information Current

Odds are the accounts you access with some frequency have current contact information. The problem is, retirement savings often don’t fall into the “with some frequency” category. Let’s face it, we’ve long been advised that we shouldn’t be constantly checking in on our retirement savings, but there’s nothing that says you can’t look without touching. Particularly if you have left some 401(k) balances “behind” with a prior employer.  

Close Or Delete Unused Accounts

It’s unfortunately not uncommon for folks to use the same password(s) for multiple accounts—but using those same passwords for accounts you don’t use (or perhaps don’t even remember using) and ones with current, and perhaps monetary implications, can leave you exposed. You may have gotten one of those (badly spelled) emails from individuals who claim to have accessed your webcam and/or planted some kind of “trojan horse” on your PC, and by way of proof—show you the password that they’ve stolen. While those kind of intrusions are certainly possible, odds are what they did instead was tap into your email—and password—from an old blogging account or such that you simply walked away from years ago. 

There are a couple of easy ways to check out your potential vulnerability—https://haveibeenpwned.com/ or https://monitor.firefox.com/. 

One the DOL ‘Missed’

Now, for all the value in the tips provided, there is some irony in one they missed—the importance of logging on to your 401(k) account(s) regularly. 

If you have an online account—and these days you may have more than one—and particularly following a change in recordkeepers (and with the recent wave of consolidation there’s been a lot of that[ii]), it is imperative to log on ASAP, and not only establish the unique password noted above, but also set up the multi-factor authentication, provide answers to key security questions, and make sure that you are set up for electronic notifications of any changes to your account. Did I say ASAP? I mean now. 

After all, if you don’t lay claim to that account—quickly—it’s all the easier for a hacker to do so.   

- Nevin E. Adams, JD

---

[i] It’s worth acknowledging here that recently there have been numerous situations where plan fiduciaries have been sued for various account intrusions, including participant accounts at Abbott Laboratories (Split Decisions in 401(k) Theft Suit for Plan Sponsor, RK), Estee Lauder (Recordkeeper, Plan Sponsor Charged in 401(k) Account Theft), MandMarblestone Group (Court Backs TPA Counterclaim on Plan Sponsor in 401(k) Cyber Theft Case) and Boeing (Man Charged with Retirement Account Thefts).

[ii] As an additional note of caution, I have now had two of my 401(k) accounts converted (by and from different providers) without the beneficiary information. Now, sooner or later, should it become necessary, the paperwork I submitted once upon a time will surely suffice (and since my spouse is my beneficiary, it shouldn’t matter)—but it’s a good idea to double check such things while you are setting up that password, etc.

The 'End' in Mind

I was discussing the subject of retirement over the long holiday weekend with family. 

There was a lot of talk about Social Security (or the looming lack thereof), the impact(s) of inflation, and how the markets (stock and housing) had boosted prospects, but ultimately decided we weren’t sure when that would happen, we weren’t even positive that it would happen (the so-called “great resignation” notwithstanding), or if it might consist of a gradual slowdown/pullback. Moreover, we really didn’t know what “it” would be like if and when it did happen, or where we might be living even if and when. Finally—it had been a pretty hectic week, after all—I somewhat playfully suggested that the best definition of retirement would be the absence of time-critical deadlines and Zoom meetings. Ah, now that’s something to look forward to!

However, and as those who are already ensconced there can attest, retirement has its own set of pressures, and they go well beyond bucket list “bingo.” But the “difficulty” that my family discussion had in actually describing what we would “do” is a real problem in retirement planning. After all, if you don’t know what you are going to “do” (or from where you will be doing it), it’s really hard to develop a plan, certainly not an effective one. Let’s face it, the things we are accustomed to saving for—a car, a house, the kids’ college tuition, a vacation trip—generally are not only things we can envision, they have a very specific price tag—and sometimes a specific deadline.

Now, of course, retirement—more precisely, living in retirement—also has a price tag, if not a specific deadline (though the latter can certainly influence the former). Anyone who has an interest in knowing what that is can turn to any number of readily available calculators capable of revealing that number, or at least a range of numbers. Unfortunately, those disembodied figures don’t shed much light on defining what we’ll get for our money—and even then they tend to be so large that the normal reaction is, “Isn’t there a cheaper model?” (or perhaps a higher assumed return).

The sad reality is that too few take the time to make that calculation before making that decision. In fact, according to the Employee Benefit Research Institute/Greenwald & Associates’ 2020 Retirement Confidence Survey, just over 4 in 10 (44%) have (ever) estimated[i] how much income they and your spouses would need each month in retirement—a pretty consistent finding from the RCS, which began asking that question way back in 1993. 

Doubtless some of the reluctance is the sheer complexity of the “ask” (not to mention the variables), the press of more immediate concerns, perhaps even a fear of what the answer will be. For years now, a number of providers have produced an estimate of how much monthly income one’s current account would yield on participant statements, a feature (somewhat) codified in the SECURE Act. That said, and with its many assumptive flaws, I’ve never found that focus particularly useful, though it’s an improvement over the traditional lump sum “need” that most calculators provide, and certainly better than a mere account balance. Personally, I think we’d do a better job of paying that retirement “bill” if participants set an annual target—a budget for retirement, just like we have for the mortgage or the car payment. That would give them a shorter-term target that could still be part of the larger, often apparently unassailable goal. Too often, retirement savings is a function of what is left over after everything else is paid. And that means that, too often, particularly when things like health care costs, groceries, and filling the tank cost more than we had planned, we not only don’t pay that retirement “bill,” we don’t even see it as overdue. 

Retirement planning needs to start with the “end” in mind, of course—but to be effective it also needs a constructive road map to help chart the way there. 

- Nevin E. Adams, JD

---

[i] Worse—and this data point was not in the 2020 RCS—when you ask how people had made some kind of assessment of their retirement income needs, a jaw-droppingly large percentage indicated they… guessed.

History’s Lessons for Plan Fiduciaries

 

The study of history is a passion of mine, and while it seems a bit trite, the old adage that those who don’t remember the past are doomed to repeat it seems more apropos by the day. Regardless, I never cease to be touched by the experience of walking the grounds where famous individuals or great historic events took place. 

A few years back I had the opportunity to be in Philadelphia for a few days beyond the customary speaking event “fly-by,” and was thrilled to be able to tour Independence Hall where, in 1776, the Continental Congress crafted what we will shortly celebrate as the Declaration of Independence. Those who think that partisan divides, cynical self-interest, and political acrimony are recent “innovations” in government would perhaps be shocked to learn that regional tensions have always been part-and-parcel of our republic… even before it was a republic. 

The room was smaller than I had imagined—and I couldn’t imagine what it must have felt like on a July day with no air conditioning. The chairs (though doubtless replicas) looked… uncomfortable, to say the least. The idea that the debates—and ultimately the consensus (of sorts) that was wrested from this group of disparate individuals with varied (and competing) objectives in that room was—to me, anyway, nothing short of extraordinary. To this day the reality that our nation was born from—and has survived—those contradictions is a testament to the power of the ideals expressed on that July day in 1776, even if some would require the passage of time (and a Civil War) to achieve. 

But, as we commemorate this Independence Day holiday, there are, I think, lessons to be learned from that experience that can be applied to our work with retirement plans, particularly those who serve those plans as fiduciaries. 

Inertia is a powerful force.

By the time the Second Continental Congress convened, the “shot heard round the world” had already been fired at Lexington, but many of the representatives in Philadelphia still held out hope for some kind of peaceful reconciliation. Little wonder that, even in the midst of hostilities, there was a strong inclination on the part of several key individuals to put things back the way they had been, to patch them over, rather than to take on the world’s most accomplished military force.

As human beings we are largely predisposed to leave things the way they are, rather than making abrupt and dramatic change. Whether this “inertia” comes from a fear of the unknown, a certain laziness about the extra work that might be required, or a sense that advocating change suggests an admission that there was something “wrong” before, it seems fair to say that plan sponsors are, generally speaking, and in the absence of a compelling reason for change, inclined to rationalize staying put.

Little wonder that we often see new fund options added, while old and unsatisfactory funds linger on the plan menu, a general hesitation to undertake an evaluation of long-standing providers in the absence of severe service issues, and reluctance to adopt potentially disruptive (and, admittedly, often expensive) plan features like automatic enrollment or deferral acceleration.

While many of the delegates to the Constitutional Convention were restricted by the entities that appointed them in terms of how they could vote on the issues presented, plan fiduciaries are bound by a higher obligation—that their decisions be made solely in the best interests of plan participants and their beneficiaries—regardless of any other organizational or personal obligations they may have outside their committee role.

Selection of committee members is crucial.

The Second Continental Congress was comprised of representatives from what amounted to 13 different governments, with delegates selected by processes ranging from extralegal conventions, ad hoc committees, to elected assemblies –with varying degrees of voting authority granted to them, to boot. Needless to say, that made reaching consensus even more complicated than under “ordinary” circumstances.

Today the process of putting together an investment or plan committee runs the gamut—everything from simply extrapolating roles from an organization chart to a random assortment of individuals to a thoughtful consideration of individuals and their qualifications to act as a plan fiduciary. But if you want a good result, you need to have the right individuals—and, certainly in the case of ERISA fiduciaries, if those individuals lack the requisite knowledge on a particular issue, they need to access that expertise from individuals who do.

Know that there are risks.

Those that gathered in Philadelphia that summer of 1776 came from all walks of life, but it seems fair to say that most had something to lose by signing on to a declaration of independence. True, many were merchants (some wealthy, including President of Congress John Hancock), and perhaps they could see a day when their actions would accrue to their economic benefit. Still, they could hardly have undertaken that declaration without a very real concern that in so doing they might well have signed their death warrants. As Ben Franklin is said to have commented just before signing the Declaration, “We must, indeed, all hang together, or most assuredly we shall all hang separately.”

Despite the threat of litigation, it is not quite that serious for ERISA plan fiduciaries. However, there is the matter of personal liability—not only for your actions, but for those of your fellow fiduciaries—and thus, you might be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. So, it’s a good idea not only to know who your co-fiduciaries are—but to keep an eye on what they do, and are permitted to do.

It’s important to put it in writing.

While the Declaration of Independence technically had no legal effect, with the possible exception of the Gettysburg Address (which was heavily inspired by the former), its impact not only on the establishment of the United States, but as a social and political inspiration for many throughout the world is unquestioned, and perhaps unprecedented. Putting that declaration—and the sentiments expressed—in writing gave it a force and influence far beyond its original purpose.

Plan fiduciaries are sometimes cautioned (often by legal counsel) about committing to writing certain decisions, notably an investment policy statement. In fairness, the law does not require one, though ERISA basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, plan sponsors (and the advisors they work with) find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those standards are in writing—rather than being crafted at a point in time when you are desperately trying to make sense of the markets. That said, and in the defense of caution, if there’s something worse than not having an IPS, it’s having an IPS that isn’t followed.

There is an old ERISA adage that says, “Prudence is process.” However, an updated version of that adage might be “prudence is process—but only if you can prove it.” To that end, a written record of the activities of plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations. More significantly, those minutes can provide committee members—both past and future—with a sense of the environment at the time decisions were made, the alternatives presented and the rationale offered for each, as well as what those decisions were. 

Those might not serve to inspire future generations—but they can be an invaluable tool in reassessing those decisions at the appropriate time(s) in the future and making adjustments as warranted—properly documented, of course.

Actions can speak louder than words.

As dramatic and inspiring as the words of the Declaration of Independence surely were (and are), if they never got beyond the document in which they appeared, it’s unlikely we’d be talking about them today. Indeed, it’s likely that, without the actions committed to in that Declaration, their signatures on the document would have only ensured that they wound up on the gallows.

Anyone who has ever had a grand idea shackled to the deliberations of a moribund committee, or who has had to kowtow to the sensibilities of a recalcitrant compliance department, can empathize with the process that produced the Declaration of Independence we’ll commemorate this week.

Yes, Independence Day is a great opportunity to reflect and remember that our actions have consequence(s)—and that while plan committee meetings and deliberations may sometimes seem like little more than obligatory (and tedious) reviews of arcane information, it’s worth remembering that those decisions affect people’s lives—and, ultimately, their financial independence. 

- Nevin E. Adams, JD