Nearing the Summit

  Last year, we took some family to the nearby Great Smoky Mountains in search of a waterfall of note — one that the guidebooks said was “readily accessible.” 

That said, it took longer than we thought — we’d come up around a curve on the mountain trail, sure that it would be right there —– only to find (just) another curve. As we crossed folks coming back down from the falls, we’d (breathlessly) ask — “how much further is it?” — and while the responses were varied in terms of their accuracy and descriptive depth, they all added “it’s worth it.” 

And you know what? It was.  

Well, believe it or not, we’re nearing another kind of summit; a week from today we’ll be about halfway through the 2025 NAPA 401(k) Summit. It’s later than “normal” this year — and it’s been a long-time coming. Indeed, your Summit Steering committee has spent nearly a year putting this all together — leveraging YOUR input on topics, each has aligned themselves with a specific workshop — literally “owning” that session. That means fleshing out the focus, lining up speakers/panelists, developing a core list of key takeaways, conducting trial runs/practices, and ultimately making sure that all the materials are in on time — and that on “game day” everybody shows up and does their part.

As a result, I can pretty much promise that you won’t be able to attend every session you’d like. In fact, I’d be surprised if you don’t find yourself torn between multiple sessions all going on at the same time throughout the event. This year, we’ve even added a “technical track” for those who want to get “down and dirty” with the details!

In fact, we do approach our content a bit differently than most, I think. While it’s gotten to be pretty common for events to boast of the pedigree of their steering bodies, many —perhaps most — are essentially no more than figureheads to the actual agenda development. They’re a group to whom the folks doing the “real” work of planning, structuring and implementing the event keep updated, mostly for a sense of validation and the occasional course correct. Oh, and so that the event can “show off” the luminaries that have agreed to lend their name (and face) to promote its bona fides. Trust me — this steering committee doesn’t just steer — they row!

There are, of course, a myriad of ways to build and structure events. Note here that I haven’t said a word about our keynotes, or even NAPA After Dark (that has, in just a few short years, emerged as the pinnacle of industry networking events). But, aside from the practical information, valuable insights, vibrant networking — and yes, world-class entertainment — it’s worth remembering that among all the (other) things that set the NAPA 401(k) Summit apart — unlike every other advisor conference out there — your NAPA 401(k) Summit registration helps support the activities of NAPA — your advocacy, information and education organization — not the bottom line of some corporate media organization or some private equity firm. NAPA not only informs and educates — it literally is your voice with regulatory agencies and legislative bodies both here in the nation’s capital — and across the nation.

There’s a new administration — one whose goals and objectives with regard to retirement policy are still emerging. And while I know to some it seems we say this every year — there are real concerns about the influence that fiscal policy might have on retirement plans, the implications for Social Security funding and benefits, and legislative initiatives that (still) seek to undermine the private retirement system. 

So, if you’re one of the record 3,000+ arriving in Las Vegas next week — please lend your voice, support the ARA PAC, and get ready to leave full of energy, ideas, and a renewed fervor to make a difference.[i] 

While you’re there, please stop me (I’ll likely be running) and say “hey!” Make sure to thank the Summit Steering committee when you see them — and the ARA/NAPA conference staff as well — cause something this big doesn’t even get off the ground without a LOT of careful/thoughtful planning and on-site execution! 

I can promise you that the views from OUR Summit will be worth the trip — and when you’re back home, you’ll want to remember to share that with the folks that haven’t made it there yet! 

• Nevin E. Adams, JD

 

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[i] And if you haven’t (yet) applied to be part of the NAPA DC Fly-In Forum — well, today would be a good day to do so before it fills up as well!

Financial Literacy — A Skeptic’s Perspective

 It’s an odd thing to admit in Financial Literacy Month — but I’ve been a financial literacy skeptic. 

Not always, of course. Once upon a time I was one of those industry voices decrying the burden placed on employment-based retirement plans. Employers (and advisors) who — in the course of a 25-minute workshop — had to convey the range of concepts required to make knowledgeable investment decisions to an audience of adults who had never been exposed to any of that prior to that session. Considering all the (relatively) useless things that ARE mandated in school curriculums, some basic finance concepts seemed like a pretty reasonable “ask.”

State Steps

And though it’s been a long time coming, a number of states[i] now do require students to take a financial literacy course for high school graduation — and that number continues to climb. That said, what constitutes complying with that requirement — varies. And, if it’s like a lot of the classes I was required to take in high school, that knowledge may not last — at least according to research.[ii]

While the findings in those studies have some limitations — not the least of which is their determination of the outcomes measured, and the aggregation of a wide variety of scholarly work (and assumptions) — as someone who has long been one of those voices advocating for greater financial literacy — this has been a bit of an eye-opener. With this broadening exposure to personal finance in school, why aren’t these programs — why isn’t financial literacy — taking root in a meaningful way?

As I mentioned earlier, there are a number of classes I took in high school (and college) that I quickly dismissed as soon as the final exam was concluded — because I didn’t much like the subject (or the teacher), but often because I just didn’t get the point. Might that be the case with these personal finance offerings?

Literacy Lessons

But what IS financial literacy? At its core, financial literacy is supposed to be about understanding money — how to manage it, how to grow it, and how not to let it slip through your fingers by the 15th of the month. But in practice,[iii] it often gets reduced to a pop quiz on acronyms (IRA vs. 401(k), anyone?) and the occasional reminder to “live within your means,” as if that’s some kind of revelation.

True financial literacy isn’t about memorizing definitions or passing a multiple-choice test. It’s about giving people the tools and confidence to make informed financial decisions at every stage of life. It’s not just knowing what a mutual fund is — it’s understanding when and why you might want to invest in one. It’s not just grasping compound interest — it’s appreciating that there is a huge impact of starting to save in your 20s versus your 40s.  Math, while surely helpful, shouldn’t be required, certainly not at the outset (though I may get some pushback on that).

‘Know’ Hows

Over the years employers — aided by plan design — have done a lot to help those who lack the knowledge (or courage) to make savings decisions on their own. And, courtesy of developments like auto-enrollment, target-date funds, and more recently managed accounts, we’ve managed to help workers make better decisions, without their action, but often (always?) without their knowledge or understanding. 

But true financial literacy — or what these days gets labeled financial “wellness” — connects knowledge to action. Because here’s the uncomfortable truth: most people already know the basics. They know they shouldn’t be spending more than they earn. They know they should be saving for retirement. At some level they know high-interest debt is a trap, even if they can’t do the math. 

Look, we’ve spent decades pushing retirement savings, but if someone’s living paycheck to paycheck, telling them to max out their 401(k) may feel like a cruel joke. Financial literacy has to start with the foundation: how to manage daily cash flow, how to build an emergency cushion, how to understand a pay stub or a credit report. The “long-term” can wait until the basics are covered — and the basics DO need to be covered, and with any luck before they find themselves sitting in a 401(k)-enrollment meeting (which, of course, is rarer by the day).

At the end of the day, it’s not about what people know — it’s about what they do with what they know. And financial literacy, when it’s done right, turns hesitation into action. 

And “skeptics” into believers.

• Nevin E. Adams, JD

 

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[i]  See Which States Require Financial Literacy for High School Stud - Ramsey:  Alabama, California, Connecticut, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana,  Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, West Virginia, Wisconsin

[ii] Indeed, the research on the subject of financial literacy in schools — at least pre-college — is not encouraging. According to a 2016 paper titled “High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses” “there is little evidence that education intended to improve financial decision-making is successful.” These authors pose the question “Can good financial behavior be taught in high school?,” only to conclude that, “It can, though not via traditional personal finance courses, which we find have no effect on financial outcomes.” Similarly, a 2014 paper by three professors reviewed 168 different papers covering some 200 studies on the topic of financial literacy and financial education — and found that what they termed “interventions to improve financial literacy” accounted for “only about 0.1 percent of the variance in the financial behaviors studied.” 

[iii] Noted academics have boiled that complicated concept down to three fairly fundamental questions —though personally I don’t see how knowing the answers to those particular questions would help anybody make a financial decision in the real world, much less a decision about saving or investing in a 401(k) plan. Which brings to mind questions not only what the personal finance curriculum covers, but what kind of contribution it is making to financial “literacy.”

The Real Retirement Crisis

  I recently picked up a book that states “why (almost) everything you know about the US retirement system is wrong” — and it’s definitely worth a read.

The book — titled The Real Retirement Crisis: Why (Almost) Everything You Know About the US Retirement System Is Wrong — is the work of American Enterprise Institute senior fellow Andrew Biggs — and it’s a comprehensive assessment of any number of the misstatements, mischaracterizations, flawed assumptions and downright obfuscations that plague any realistic assessment of the nation’s retirement system. Indeed, he argues that “factoids, however compelling, are no substitute for facts.”  

The Goal

Biggs outlines the goal of a retirement system as one that “allows individuals to maintain their preretirement standard of living in retirement.” In that regard, he (and academics generally) would say that lower-income individuals' preretirement are well-served by Social Security’s benefit structure. Indeed, the argument — based on a “lifecycle model,” with rational tradeoffs in terms of the present and future — means that some shouldn’t be saving — or expected to save — at the rates promoted. 

“Low earners and younger households are often saving for retirement in a textbook fashion, even if financial columnists and other well-intentioned but not well-informed commentators chide them for doing so,” he writes.

That said, the coverage of the nation’s retirement system in the media (and academia) is often skewered by both a misunderstanding of the past and present state of work and retirement and, sadly, many in the retirement industry itself suffer from the same myopia. 

Cost(s) of Bad Data

In a chapter titled “The Cost of Bad Data is the Illusion of Knowledge,” Biggs references a quote attributed (perhaps incorrectly) to Stephen Hawking — “the greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.” Something that we hope those — both in “the industry” and out — are mindful of going forward.       

In that regard, Biggs devotes a fair amount of the book to delving into those misalignments of perception and understanding that distort an objective evaluation of the system, and its progress. He buttresses those points with actual tax data, sentiment surveys of actual retirees (rather than those who haven’t yet experienced the realities), and any number of studies based on objective, administrative data, which are well-documented in the 31 pages of footnotes. 

Now, if you’ve kept up with Mr. Biggs’ writing over the years (and I have), you’ll find a fair amount of the criticisms familiar, though this format[i] provides more space for things like charts and graphs — and there are those aplenty here. 

In it (among other things) he debunks the notion(s) that:

There was a “golden age of pensions” with data that affirms just how uncommon such things were in the private sector, how few individuals actually qualified for a full pension (due to things like job turnover and steep vesting schedules), and how the costs of those benefits were rationally deemed not to be worth the cost by corporations (later in the book he points out that a similar conclusion might well be drawn by public-sector pensions, were they held to the same funding and accounting standards imposed on the private sector).

A large number of the population is unable to work longer (granted, some can’t — but consider that even way back in 1940, the average Social Security claiming age was 68.1 for men and 67.4 for women — and as Biggs notes, at a time when manual labor was more prevalent, and age/gender discrimination was not barred).

Social Security is the primary income source for the vast majority of Americans. Biggs points out that government surveys (notably the Current Population Survey[ii]) understate income in retirement by only considering “income on a regular basis” — ignoring money drawn from retirement accounts. That, in turn, misstates the average income of retirees, the official poverty rate for retirees, AND the percentage of retirees who receive nearly all their income from Social Security (as it turns out, only 12% of retirees receive 90% or more of their income from Social Security, though 42% receive half or more from that source).

Retirement healthcare expenses — especially long-term care — are a big financial concern for most individuals. It turns out that a small number of households spend a lot — but most spend little or nothing on long-term care. A 2017 study found that 75% paid less than $1,000, 90% paid less than $20,000 — versus the $150,000+ reported in some surveys for long-term care).

Individuals spend as much, and consistently, in retirement (note: families with kids, once those kids leave the nest, they actually spend a lot less).    

The United States’ private retirement system is inferior to those found in other countries. On one of my pet peeves, he also points out the flaws in reports that claim the U.S. system is inferior to other nations (“focuses on a consultant checklist, not actual income”), noting that the U.S. system[iii] produces a disposable income for 65 year-olds that is the highest among 24 OECD countries, and 60% higher than the median.[iv] Moreover, when retirees in these countries are asked about their confidence in maintaining their pre-retirement standard of living, the U.S. comes out well ahead — even besting the Netherlands, which is a perennial “favorite” of these ranking systems.  

That said, however interesting, I doubt that this single tome will persuade those who (want to) continue to proclaim there’s a retirement crisis, though one might well hope there might at least be some acknowledgement that what people think, and what they fear — might not be as dire as their imaginations create.

Ultimately, whether or not one concludes that there is a retirement “crisis,” Biggs quotes Census Bureau economist Josh Mitchell as observing “there is a crisis of retirement plan data.” 

And with this new book, Biggs has, once again, done a great job of filling at least some of those gaps.

• Nevin E. Adams, JD

 

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[i] Biggs does devote about a third of the book to lay the foundation for his solution to shoring up Social Security — one that he has also published previously, and one that includes taking away the current tax preferences for private sector retirement plans. The focus there is on whether those preferences are necessary to encourage worker savings (Biggs says it isn’t) — though there’s an imbedded assumption that it would have no impact on employer sponsorship/adoption — and I’ve seen data that suggests it would, and if that were to be the case, then there ostensibly wouldn’t be workplace plans in which workers could save.

[ii] See also Question Err?

[iii] In fact, towards the end of the book is a chapter titled “The Retirement Savings Gap is Really a Government Funding Gap,” where Biggs basically holds out the notion that the private system has done a much better job than the government-run programs as a cautionary note to those who would advocate shifting responsibility from the private sector, because “voters wish to be promised things without being asked to pay for them, and elected officials are often willing to oblige them.”

[iv] Granted, the firms are entitled to prize/value/rate whatever criteria they want for their rankings, but they never include the cost of those systems in terms of tax structures, nor the restrictions on access to funds prior to retirement that have been proven to encourage higher rates of participation and savings. 

Retirement Readiness Surges with Focus Shift to Actual Data

  “Sure, it will probably be more work, and generate fewer clicks,” commented one industry source, “but it’s the right thing to do.”

Yes, after years of relying on uninformed “guesses” from individuals ignorant of their financial needs and situation, the retirement industry, major media outlets, and a large number of academics have made a commitment to focus on actual data, rather than hypothetical extrapolations from incomplete datasets.

Another explained, “we always thought that exaggerating the depth of the retirement crisis would encourage people to save more — but that turns out not to be the case.” Those projections affixed labels like “magic” to those extrapolated numbers based on surveys of uninformed workers, which not only ignored real differences in incomes, location and age, but were typically also averaged to further obscure accurate results. Likely fueled by previous reports of needed retirement savings, surveys of individuals routinely exaggerated the real needs of retirement finances — fueling future projections as well. 

“While self-assessment can be a critical foundation for retirement needs planning, we are committed to sharing real-world perspectives on actual retirement needs,” noted one industry expert. We’re ready to call “bs” on inflated, uneducated and unrealistic “estimates.”     

Part and parcel of this previous approach — and reinforcing its messages — were academic studies that mixed results of those who participated in a workplace retirement plan with those who never had, and individuals within five years of retirement with those who had just started working. All breathless reported by a media then-clamoring for click-bait ready headlines.     

An academic noted that, “I’m not sure what people expected since we routinely built our projections on the projections of others, who were — as it turned out — based on survey data from — well, questionable sources. No wonder we kept coming up with the same results.”

Indeed, new research, published by the Oxford Newfound Institute of Nihilism (ONION), finds that workers — no longer persuaded by “retirement crisis” headlines that there wasn’t any point in trying — now are taking proactive steps to understand their situation, often with the help of trained advisors. Previous research had shown that fewer than half of workers had made even a single attempt to assess their retirement needs, and many of those had simply … guessed.

Ironically, despite this newfound and dramatic increase in confidence, the new retirement savings goals were not only more likely to produce a successful outcome, they were generally higher than the goals previously set by workers who had gone through the process.

In fact, some of the most dramatic impacts were recorded by participants in plans where employers had not only provided for automatic enrollment immediately upon hire, but who applied automatic enrollment retroactively to existing hires as well. “All these years, I just assumed my employer thought it was too late for me to start saving,” said one long-time worker who had just been automatically enrolled under such a program. 

A separate, plan sponsor-focused report found that the renewed focus and confidence translated into tangible workforce management benefits as well. “We found that a growing number of older workers were simply hanging on to their old jobs, afraid to retire because they had no idea how much they would need to have in retirement,” observed one. “Now, for the first time in a long time, we’re seeing workers actively plan for their retirement date with confidence. We should have done this years ago!”

No foolin’.

• Nevin E. Adams, JD

Note: Sure, it's April Fool’s, but while the post above has a certain tongue-in-cheek character, the implications are not as fictional as you might think. In fact, they are well within the realm of a very potential reality for millions more — with a little help from plan advisors, their plan sponsor clients and the cooperation of plan participants. Not holding my breath on the shift in focus by the media, academia, or — sadly — even the retirement industry itself.