Thanks, Giving

While it’s the celebration following a successful harvest held by the Pilgrims and members of the Wampanoag tribe in 1621 that provides most of the imagery around the holiday, Thanksgiving didn’t become a national observance until much later.

Incredibly, it wasn’t marked as a national observance until 1863—right in the middle of this nation’s Civil War, and at a time when, arguably, there was little for which to be thankful. Indeed, President Abraham Lincoln, in his proclamation regarding the observance, called on all Americans to ask God to “commend to his tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife” and to “heal the wounds of the nation.” 

We could surely stand to have some of that these days.   

Thanksgiving has been called a “uniquely American” holiday—and so, even in a year in which there has been what seems to be an unprecedented amount of disruption, frustration, stress, discomfort and loss—there remains so much for which to be thankful. And as we approach the holiday season, it seems appropriate to once again take a moment to reflect upon, and acknowledge—to give thanks, if you will.

I’m once again thankful that so many employers (still) voluntarily choose to offer a workplace retirement plan—and, particularly in these extraordinary times, that so many have remained committed to that promise. I’m hopeful that the encouragements of prospective legislation, if not the requirements of same, will continue to spur more to provide that opportunity. 

I’m thankful that amidst all the turmoil and strife in our political system, we’ve seen near-unanimous bipartisan support for legislation that stands to enhance the retirement of tens of millions of Americans.

I’m thankful that so many workers, given an opportunity to participate in these programs, (still) do.

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’m thankful for the dozen or so state IRAs for private sector workers that, despite relatively high opt-out rates, are providing millions of Americans an opportunity to save through payroll deduction.  I’m even more thankful that the employer mandates associated with these programs are encouraging employers to consider more robust workplace retirement savings programs, like 401(k)s.

I’m thankful for new and expanded contribution limits for these workplace retirement programs—and even though it was spurred by dramatic increases in inflation and the prospect for higher costs in retirement, I’m hopeful that that will encourage more workers to take full advantage of those opportunities.

I’m thankful for the Roth savings option that provides workers with a choice on how and when they’ll pay taxes on their retirement savings.

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, volatile markets, rising inflation, and competing financial priorities—and that their employers continue to see—and support—the merit of such programs.

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 (if somewhat skeptical) 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 our industry continues to explore and develop fresh alternatives to the challenge of decumulation—helping those who have been successful at accumulating retirement savings find prudent ways to effectively draw them down and provide a financially sustainable retirement.   

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 for the opportunity to give advisors a voice in acknowledging the best recordkeepers in the industry via our new Advisors’ Choice accolade.

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 those who have supported—and I trust benefited from—our various conferences, education programs and communications throughout the year—particularly at a time like this, when it remains difficult—and complicated—to undertake, and participate in, those activities. 

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 also thankful for the development of professional education and credentials that allow the professionals in our industry to expand and advance their knowledge, as well as the services they provide in support of Americans’ retirement. 

I’m thankful for the constant—and enthusiastic—support of our event sponsors and advertisers—again, particularly during a period 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), 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.

I’m particularly thankful for the education, support, and availability of programs in our private retirement system that have allowed me to contemplate my own “retirement” in just a few more months.

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

Things to Ponder

In the course of my day, I talk to (and email with) people, read a lot, and every so often jot down a random thought or insight that gives me pause and makes me think. See what you think.

It’s not what you’re doing wrong; it’s what you’re not doing that’s wrong.

The best way to stay out of court is to avoid situations where participants lose money.

The key to successful retirement savings is not how you invest, but how much you save.

Does anybody still expect their taxes to be lower in retirement?

If you don’t know how much you’re paying, you can’t know if it’s reasonable.

Everybody wants a pension, but nobody seems to want an annuity.

Everybody’s “committed to the business”…until they aren’t.

Retirement income is a challenge to solve, not a product to build.

“Stay the course” is only good advice if you were on a good course to begin with.

Does anybody but lawyers actually read those legal “disclosures?” (that’s a rhetorical question.)

When selecting plan investments, keep in mind the 80-10-10 rule: 80% of participants are not investment savvy, 10% are, and the other 10% think they are. But aren’t.

There’s no such thing as a passive ESG fund.

“Don’t put all your eggs in one basket” applies to all life decisions.

What’s the “target date” for a “through” retirement date target fund?

92% of participants defaulted in at a 6% rate do nothing. 4% actually increase that deferral rate.

Plan sponsors may not be responsible for the outcomes of their retirement plan designs, but someone should be.

Sometimes just saying you’re thinking about doing an RFP can get results.

Hiring a co-fiduciary doesn’t make you an ex-fiduciary.

“Because it’s the one my recordkeeper offers” is not a good reason to select a target-date fund.

Given an opportunity to save via a workplace retirement plan, most people do. Without access to a workplace retirement plan, most people don’t.

Disclosure isn’t the same thing as clarity. Sometimes it’s the opposite.

Nobody knows how much “reasonable” is.

You want to have an investment policy in place before you need to have an investment policy in place.

The same provider can charge different fees to plans that aren’t all that different.

The biggest mistake a plan fiduciary can make is not seeking the help of experts.

Thanks to all who have inspired these—by thoughts, words and (mis)deeds—past, present and future.

- Nevin E. Adams, JD

Campaign Premises

If you have turned on a TV, walked by a radio, driven down a residential street, gotten an unsolicited text 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.

I say “officially,” but 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 means that the process of voting, like so much of our lives the past couple of years, 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.

Now, we all carry on as though the nation has never, ever seen anything like this—but perhaps it would be more accurate to say that it hasn’t …in our lifetimes. Students of history will, of course, remember that the nation literally split apart in the 1860s, but even before that there were the “Alien and Sedition Acts” in the late 1700s, the so-called Whisky Rebellion in 1791-94, the Sedition Act of 1918, the Alien Enemies Act in 1942—and let’s not forget from when the Tea Party of 2009 drew its inspiration. As for the outsized impact and biases of the media, hard as it may be to believe the founding fathers (not to mention elected officials throughout the 1800s) would very likely have characterized today’s voices as “restrained” (of course, they weren’t subjected to it 24/7).

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 at the level of the individual 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[i] that produces those individuals. 

None of that should be read as an acceptance of, or acquiescence with, the current state of affairs. Like most of you (I suspect) I find the tone and tenor of most in the public square today (both “sides”) to be both vitriolic and toxic. We have real problems to solve, crisis of which to steer clear—and some from which we need extrication in the here and now.

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—not to mention the SECURE 2.0 (still) waiting in the legislative wings.  

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.

Here’s also hoping that those who find themselves in office as a result conduct themselves accordingly.

  - Nevin E. Adams, JD

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[i] Which can probably not be said at this point for the perspectives of those who actually made it to the ballot. But then, if they want to stay there, they can’t long ignore the voice/will of the people.

Is Retirement Saving ‘Wasted’ on the Young?

 The academics are at it again.

In a paper provocatively titled “The Life-Cycle Model Implies that Most Young People Should Not Save for Retirement” no fewer than four of them take 48 pages to make that case. The “trade press” breathlessly intoned “Most Young People Should Not Save For Retirement in Their 401k,” “Many young people shouldn’t save for retirement, says research based on a Nobel Prize–winning theory,” “Under 35? Don’t Save For Retirement Yet, These Experts Say,” “Economists Say Enjoy Your Youth and Save Later.” At least one had the temerity to offer a contrasting viewpoint (see “A New Paper Says Young People Shouldn't Save for Retirement. Advisors Disagree”), while The Street at least called it out as “This May Be the Worst Financial Advice Ever Shared.”

Like most research, the conclusion is a premise based on assumptions. Here the most basic is that this thing called a “life-cycle model” is worth considering in the first place. Now, granted, it’s the “Nobel Prize-winning theory” noted above—so mere mortals might be inclined to give it some breathing room.  But the underlying premise behind it is that individuals prefer to smooth out their consumption over their lifetimes, or—as the authors of the paper put it, assuming that “rational individuals allocate resources over their lifetimes with the aim of avoiding sharp changes in their standard of living.” Now, I don’t know about you, but my aspirations—and I consider them rational—have always been a bit higher than that.   
 

As it turns out, the authors here do anticipate some growth in income over time—indeed, that’s a contributing factor in their logic about putting off saving for retirement. Buttressing this are three basic arguments; first that since high-income workers tend to experience “wage growth” over their careers (and thus, for them “maintaining as steady a standard of living as possible therefore requires spending all income while young and only starting to save for retirement during middle age”—that’s right, it REQUIRES spending). Second, that low-income workers “receive high Social Security replacement rates, making optimal saving rates very low”—which apparently means that if you’re at a low-income level now, you’d (only?) be looking to maintain that level into retirement (and certainly, if you’re spending.  The final point has to do with what was then an artificially low interest rate environment that they claim “make a front-loaded lifetime spending profile optimal”—basically, at least at that point in time, they argue you might as well spend the money because there’s no economic advantage in saving. But what about market gains, you say? Hang on, we’ll come back to that in a minute.

‘Star’ Bucks?

Now, if you find yourself scratching you head at all that gobbledygook, it seems to boil down to this—you’ll get more “value” out of spending all of a smaller income now than you will suffer by depriving yourself—so that you can spend later when you’ll have more money to spend. Or something like that.  But to put some numbers behind those assumptions, you have to do a little financial alchemy—create some sort of “value” for consumption—something beyond a mere price tag. How much DOES that cup of Starbucks that we’re always telling people to forego actually mean to them in terms of what academics call “utility”? Indeed, that’s another required assumption here—and it’s key in terms of assessing the perceived trade-offs. 

What’s also odd here is that they actually talk about the “welfare costs” of automatic enrollment—essentially treating an individual who has been defaulted into saving as the equivalent of being scammed by a Nigerian prince. 

And for those of you wondering what happened to the “magic” of compounding those savings, the authors have a direct, but quizzical response: “…there is no power of compound interest when real interest rates are zero. While individuals could invest in risky assets with higher expected returns (which we do not model), those higher returns are merely compensation for taking on the additional risk.” So, basically, in this magical theoretical world… it’s a “wash.” 

Oh—and leakage? Well, in this world, since participation in plans by younger workers (who are particularly vulnerable to things like mandatory cash outs), they comment that, “Viewed from this perspective, leakages from 401(k) balances for young workers might be interpreted as correcting a mistake rather than a major problem in need of further government policy.” That’s right—early cash outs are a good thing (doubtless the taxes and penalties are considered a well-deserved “punishment” for the mistake of saving). 

That said, the authors do offer some caveats—they admit that they’re focused on saving for retirement, and that there may, indeed be reasons for saving earlier for non-retirement purposes. But they also admit that their model “does not account for uncertainty about future wages, employment, or health.”   They acknowledge that “if the wage profile is uncertain, or if there is a risk of future unemployment, individuals may wish to begin saving for retirement earlier in life in case future earnings do not turn out as expected.”

Ya think?

- Nevin E. Adams, JD