Mixed Messages

We had wrapped up a very successful half-day adviser event ahead of our annual Awards for Excellence dinner last week. As we closed up the session, a co-worker of mine commented to me as an aside, “Nobody ever told me I needed to be saving 12% before.”

Now, this co-worker has nothing to do with our magazines, or the content that fills our Web sites and newsletters. He just happens to work at a company that, among other things, publishes information about retirement plans. He’s a participant in our benefit plans, of course—and so he has probably been exposed to all the same types of education and savings materials as anyone (perhaps more). He’s a smart guy (he’s pursuing his MBA at night), tech-savvy, and he pays attention. And yet, it wasn’t till he was effectively sitting there as a fly on the wall in a room full of the nation’s best retirement plan advisers that he overheard someone put forth a specific savings-target figure.

Now, like any good plan sponsor, I can explain that. I don’t know his individual financial circumstances (I’d have to “work” even to find out how much he’s saving at present), have no idea when he plans to retire, and can’t possibly guess at the viability of Social Security or other resources at that date. He may marry “well,” he may have a rich uncle—heck, he might even win the Lottery. I can tell you that his employer offers a solid 401(k) plan, with a robust investment menu (reviewed on a regular basis with our financial adviser), a generous match, access to both managed accounts and target-date funds, and the opportunity for him to sit down with a financial adviser (paid for by his employer, I might add) or get a consult via the phone, as well as through an assortment of Web-based tools. Looking over the plan’s structure, administration, and fees, it’s hard not to feel that (in the words of the Lone Ranger), “Our work here is done.”


Except, of course, it obviously isn’t.

Now, I don’t know that 12% is the right answer in his individual case. For all I know, that’s still not going to be “enough”—or, based on the combined results of the aforementioned individual circumstances yet to be discerned, it might be way too much. Obviously, there are many logistical impediments to us divining with precision what the “right” amount is for every individual situation (including our own).

That said, IMHO, any number of plan design features convey a different message to participants. A significant number of plans still don’t provide for an automatic (or even immediate) enrollment. Those who do generally default employees into these programs at a mere 3% of pay, which, in most plans, isn’t even enough to qualify for the full match. Many plans match those deferrals only up to 6% (or less), auto-accelerate at just 1% increments, and—if we’re rigidly adhering to the outline provided in the Pension Protection Act—probably cap those automatically accelerated deferrals at 10% of pay.

We all know that the motivations for those plan designs are nearly as varied as the plans that employ them: They represent the plan sponsor’s sense of a competitive benefit structure, they match the expectations of their current workforce, or perhaps they are simply what the employer can afford at any particular time. Yet, we all see evidence every day that participants read into these structures a kind of “code” that these are the “right” answers to provide them with a financially secure retirement, rather than representing decisions made for reasons that, while generally sound, are completely unrelated to ensuring individual retirement security.

We’ve long held off giving people a specific target for savings, for a host of real and legitimate reasons. I wonder if the time hasn’t come to put a target out there for participants—one that might not be precisely the “right” number for every individual situation, but one that will give them something to aim for, rather than continue to duck the issue and hope for the best.

It’s a message that I think participants are ready for—and there’s no time like the present.

—Nevin E. Adams, JD

"Afford" Abilities

There are in this--or perhaps any—business certain moments of epiphany that shed light and clarity,

Moments where complexity becomes simplicity, where the shining light of comprehension illuminates what had, until that very moment, been hopelessly “confuddled”.

On the subject of retirement income, my moment of clarity came at the end of a conversation with my then soon-to-be-retiring father who was trying to sort through his options regarding his various savings programs and distribution options. At the end of what I hoped was an educational and enlightening discussion of his options and trade-offs, their upsides and potential downsides, when I was sure that I had been able to unwind and demystify the maze and presented him with a straightforward presentation of alternatives, there was this long pause—and then, he turned to me and, as politely as he could, said, “I just want to know how much money I’ll have to live on every month.”

It’s been many years since that conversation, but, IMHO, the question my Dad wanted answered is the question we all want answered—certainly the closer we get to retirement (younger savers are, of course, more likely to be asking other questions).

In recent weeks, I have been giving a lot of thought to the concept of retirement income. Aside from the relentless march of time, and the still-painful shake-up call from the markets, in recent weeks there have been a series of interesting—and surprisingly different—retirement income offerings coming to market (and some interesting innovations in the ones that have been out there). Legislation has been introduced in the Senate that would put the answer to my Dad’s question right on that 401(k) statement. Moreover, the Labor Department’s recent RFI on the topic has given a new visibility to this critical issue.

But as I wrote about a month ago (see Safety "Knot"), while I think that both plan sponsors and participants want—and are looking for—a product that can answer that question, even the most committed advocate of these programs will tell you that, while there is a LOT of interest, the take-up rate is, well, somewhat less.

There were elements of that on display in last week’s Retirement Confidence Survey (see Retirement Confidence Stabilized, but Preparations Still Lacking). Just 14% of current retirees reported that they “purchased a financial product or selected a retirement plan option that pays them guaranteed income each month for the rest of their life,” and a mere one in 10 (11%) of current workers indicated they were “very likely” to purchase a guaranteed-income product or select a guaranteed-income option from a retirement plan when they retire. In fact, a full one in five said they were “not at likely to do so.”

Even more intriguing: The RCS noted that, while workers/retirees offered a variety of reasons for their reluctance to make this purchase, the most frequently cited reason was that they didn’t feel that they could afford it (26% of workers, 24% of retirees)(1).

Now, considering how little understood these products likely are by most people, IMHO, this seemed an extraordinarily large number to be so astute about the costs.

Additionally, the report noted that workers’ stated likelihood of obtaining this type of product decreases sharply as age rises, and also decreases as assets increase. Intrigued, I followed up with Matt Greenwald (whose firm produces the report) and EBRI for some additional insights. Turns out that, among those who had accumulated less than $25,000, fully 42% say they would not purchase because they cannot afford it. But that number dropped dramatically (to 26%) among those that had saved $25,000-$99,999--and even more dramatically (to 6%) among those with financial assets of $100,000 or more (this group had other objections; generally, that they had a separate pension or preferred other options. IMHO, they probably just didn’t want to surrender the money (2). Moreover, when you dig inside what those lower income workers likely meant by “afford,” Greenwald and EBRI believe it is a combination of two factors: The first is that many people have accumulated very little and feel they cannot afford to tie up this money; the second, a lack of understanding about the products.

Now, in fairness, those with very small balances don’t really have much to spend--or annuitize, for that matter. And, if you only have $25,000 saved at retirement, well, no amount of annuitization can “save” you from that. Unfortunately, those who think they can’t afford these kinds of solutions may well be the very folks who can’t afford to be without them.

--Nevin E. Adams, JD


1 Other reasons mentioned include already having a pension, investments, or income (13 percent of workers, 15 percent of retirees), not knowing enough about the product (12 percent of workers, 3 percent of retirees), feeling they could do better managing the money themselves (10 percent of workers, 4 percent of retirees), not knowing it was an option (5 percent of workers, 9 percent of retirees), not trusting or believing in them (8 percent of workers, 2 percent of retirees), lack of interest (6 percent of workers, 4 percent of retirees), and not being offered one at work (2 percent of workers, 8 percent of retirees).

2 Those findings actually dovetailed pretty squarely with another report out last week—this one, Cogent Research’s In-Retirement Income 2010 report. That report was based on an online survey among a representative sample of 961 retirees and pre-retirees with a minimum of $100,000 in investable assets--the upper end of the spectrum. Citing the “incredibly high expectations of today’s retirees and pre-retirees,” Cogent Principal and co-founder Christy White noted, “In theory, pre-retirees love the idea of a guaranteed paycheck, but in reality they are unwilling to give up control of their principal for too long—and certainly not forever.”

'Hind" Sighted

A year ago, with the financial world feeling still very much on the precipice, and with the 2008 election results still ringing in our ears, I noted that “the impact on much-improved defined benefit plan funding levels—and on the confidence of retirement savings plan participants—has been severe, and potentially serious. We are all inclined to wonder (hope?) if, like 1987, the market will find its way back to solid footing before year-end—and worried that 1929 will be the better analogy.”

Well, as we head into 2010, it seems fair to say that this is not a repeat of 1987 and—not yet, anyway—a second Great Depression. Here’s a look at the trends that were on our mind this past year – and are just over the horizon.

Doctor Bill? Curing Health Care

Where we are: Aside from the financial crisis and unemployment, health care has been the great issue of the past year and remains so as we go to press. That the current system needs reform is scarcely an issue for debate anymore—but what constitutes “reform,” and whether or not it can (or should) be paid for, is another matter altogether.

What’s ahead: Even at this stage, it is nearly impossible to guess how this one turns out—and what it will mean for employers. It is still hard to believe that the Senate and House positions on any number of key issues can be reconciled—but then, there was a point in the summer of 2006 when many felt the same way about the Pension Protection Act. But if it does pass—or if it does not—it seems safe to say that the issue is not going away any time soon. What remains to be seen is if the “cure” is worse than what it aims to remedy.

Fee Fie? Revenue-Sharing Litigation

What we said: Deep pockets continue to be the apparent target of revenue-sharing litigation. The early signs have been promising for employers, with most jurisdictions holding that revenue-sharing, per se, was not a problem, and that disclosure of those arrangements to participants was not required.

Where we are: The courts have, by most measures, continued to be willing to give the employers the benefit of the doubt in nearly every case. A recent decision by Caterpillar to settle its litigation might be seen by some to be a crack in that otherwise unspoiled landscape, but that seems unlikely (Caterpillar was an unusual case in that an internal division actually managed money for the 401(k) for a number of years). Though a revenue-sharing case filed in June in a case involved a much smaller plan, the fact pattern seems unusual enough, and the contingent fees so limited, that it seems unlikely to portend a big shift in focus to smaller plans.

What’s ahead: Barring a smoking gun discovery among the cases already filed, it seems likely that the laws—and disclosures—will change before the litigation has any real impact. On the other hand, it is entirely possible that the mere existence of that litigation—and the ever-present litigation threat—will serve to reform the system in a way, and on a schedule, that would not otherwise have been possible.

Auto-Premonition—Doing It for Participants

What we said: It is entirely possible that an Obama administration will, as mentioned during the campaign (see “Political Pairings,” PLANSPONSOR, June 2008), advocate workplace automatic enrollment IRAs. More significantly, there is a growing suggestion that the automatic design—having been successfully deployed for enrollment and investing—might work equally well at distribution, forestalling the tendency of participants to take—and spend—those lump sums. .

Where we are: This has been a tough year for participants and plan sponsors alike, and among some 6,000 plan sponsor respondents to PLANSPONSOR’s annual Defined Contribution Survey, the pace of automatic enrollment basically flatlined, with just under a third having embraced the design (more than half of the largest plans have, however). More significantly, just 16.2% of respondents had embraced it in the past year, roughly half the pace in 2008. Meanwhile, though the appeal of the concept of a more broad-based automatic enrollment retirement savings initiative has been touted, including by those in the Obama Administration, those efforts have taken a back seat to other matters.

What’s Ahead: Automatic enrollment may have taken something of a “holiday,” but it seems unlikely to be “over” as a trend. Look for it to pick up the pace again in 2010—and for the Obama Administration to turn its attention to the issue in the next year (or two).

Default Lines—Targeting Target-Dates

What we said: We ended 2008 with a growing awareness that all date-based solutions are not created equal. In a very real sense, we are in the first year of a new generation of participants who have not only been defaulted “in,” they have been defaulted into these funds—and just in time for the most tumultuous market in memory. It will be interesting to see how participants—and plan sponsors—respond.

Where we are: Congress has held hearings, and the Department of Labor and Securities and Exchange Commission are not only on the case, they are on the case together. The market rebound has served to restore some of the damage, but the scars remain. However, the target-date manufacturers have become more explicit about their glide path designs, and the notion that a fund family is oriented to take you “to” or “through” retirement is now an open dialogue.

What’s ahead: We don’t know yet what regulators may try to do to help ensure that investors—particularly near-retirees—are not misled by the simplicity of a fund title and marketing pitch. Plan sponsors are on notice that there are differences here, and with luck, will continue to ask pointed questions. Because, after all, when you’re selling “you don’t have to worry about it”, somebody has to.

Conflicts of Interests—Advice Regulations

Where we are: One of the last acts of the outgoing Bush Administration was the publishing of a set of final rules governing the provision of investment advice to participants—regulations for which the foundation was laid in the Pension Protection Act (PPA), but whose origins can be found in a series of legislative initiatives championed by Congressman John Boehner (R-Ohio) for more than a decade. Proponents had long said that participants clearly needed (and wanted) the advice, but that there needed to be a way in which advisers could be paid enough to want to take on the task. Opponents were just as concerned that the provision merely seemed to codify the provision of “conflicted” advice by setting out terms by which advisers could receive compensation that varied depending on the funds recommended.

Experts have long expressed amazement that the provisions survived the conference committee’s reconciliation of the PPA—but there they were. However, the controversy swirling around those regulations never subsided—and, thus, it was no huge surprise when the incoming Administration tabled, postponed, postponed again, and then officially withdrew the proposed final regulations, as it announced its intention to publish separately a proposed rule that it believes more closely conforms to the Pension Protection Act statutory exemption relating to investment advice.

What’s ahead: Will we ever get final advice regulations? Almost certainly, though almost certainly regulations very different from the ones put forth a year ago. Or perhaps they will not come until after the concepts embodied in the PPA have been recrafted by legislators, such as Congressman Rob Andrews (D-New Jersey), who has already introduced legislation (the aptly named “The Conflicted Investment Advice Prohibition Act of 2009”) that would do just that. Between now and then, participants will continue to get advice the way they always have—or have not.

Stop Gaps: Closing the Pension Funding Gap

What we said last year: The market’s tumult has taken its toll on pension portfolios and, in remarkably short order, managed to undo what had been a diligent, steady progress toward restoring the funding health of many programs. Of course, it also has served to favorably impact liability calculations, somewhat muting the damage. All in all, those workers covered by the promises represented by those programs must surely appreciate their position vis-à-vis those solely depending on defined contribution plans—but how will employers feel about those promises?

Where we are: Pension portfolios took their lumps from the investment markets last year, to put it mildly. That they were better diversified—and likely more insulated—from those travails than most defined contribution portfolios was surely a matter of some comfort, as has been their steady recovery in 2009. Still, there was a lot of damage to be undone, and for most it is still a work in progress—even as the press of more restrictive accounting and funding rules takes its toll. Fortunately, Congress has been receptive to calls for extensions that have provided some much-needed breathing room for these programs.

What’s ahead: It remains more expensive—and complicated—to walk away from pension commitments than most realize, though many employers remain committed to their pension plans for reasons that transcend those financial considerations. Still, it seems likely that freezes, both hard and soft, will continue to be applied, certainly in the private sector. The public sector’s commitment to pensions remains largely unabated—and yet, a sense remains that it may only be a matter of time before fiscal realities bring about a different result.

Tying Up “Loose” Ends—Full Disclosures

What we said: There’s little question that our industry would benefit from better disclosure about the fees paid for the services rendered to retirement plans and their beneficiaries. The proposal to expand/enhance reporting to plan fiduciaries, if imperfect, still seems to be headed in the right direction. Doubtless, some providers will adopt different business models to “duck” those disclosures just a little bit longer, but it seems clear that plan sponsors will want—and deserve—a full and fair accounting. It is less clear that participants will be as well served by an incomplete, and perhaps unbalanced, reporting of fees paid in their accounts—particularly if, as is currently proposed, the disclosures could add a dozen pages (and millions in expense across the industry) to their annual statements. It is also unclear just how much of this the current Administration will be able and willing to press into service in the short time remaining.

Where we are: In just a few short months, the 2009 Form 5500 will escort in a whole new level of plan sponsor fee disclosure, though the proposed participant disclosures are not yet on the radar screen.

What’s ahead: It is nearly impossible to argue against the critical importance of full fee disclosure, certainly to plan fiduciaries. Whether the current requirements truly constitute “full” disclosure remains a matter of some debate—but it is a start. On the participant side, the short-term implications are less clear; but then, we have some time—and a new Administration—to work through those issues.


— Nevin E. Adams, JD

Naughty or Nice?

Editor’s Note: There’s so much going on in the world of retirement saving and investing that I never feel the need (or feel like I have the opportunity) to recycle old columns – but this one has a certain “evergreen” consistency of message that always seems appropriate – particularly at this time of year.


A few years back—when my kids still believed in the reality of Santa Claus—we discovered an ingenious Web site that purported to offer a real-time assessment of their "naughty or nice" status.

Now, as Christmas approached, it was not uncommon for us to caution our occasionally misbehaving brood that they had best be attentive to how those actions might be viewed by the big guy at the North Pole. But nothing ever had the impact of that Web site - if not on their behaviors (they're 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) was on the verge of tears, worried that he'd find nothing under the Christmas tree but the coal and bundle of switches he surely deserved.

Naughty Behaviors?

One might plausibly argue that many participants act as though some kind of benevolent elf will drop down their chimney with a bag full of cold cash from the North Pole. They behave as though, somehow, their bad savings behaviors throughout the year(s) notwithstanding, they'll be able to pull the wool over the eyes of a myopic, portly gentleman in a red snow suit. Not that they actually believe in a retirement version of St. Nick, but that's essentially how they behave, even though, like my son, a growing number evidence concern about the consequences of their "naughty" behaviors. Also, like my son, they tend to worry about it too late to influence the outcome—and don't change their behaviors in any meaningful way.

Ultimately, 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 expected it to modify their behavior (though we hoped, from time to time), but because, IMHO, kids 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 realize—that those possibilities are frequently bounded in by the reality of our behaviors. This is a season of giving, of coming together, of sharing with others. However, 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 savings behaviors.

Yes, Virginia, there is a Santa Claus—but he looks a lot like you, assisted by "helpers" like the employer match, your financial adviser, investment markets, and tax incentives.

Happy Holidays!

Nevin E. Adams, JD

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The Naughty or Nice site is still online (at http://www.claus.com/naughtyornice/index.php.htm). An improved site and much better internet connection speeds produce a lightning fast response – more’s the pity. I used to like the sense that a computer was actually having to crank through the data!

Business As Usual?

Like many, perhaps most, Americans I have viewed the unraveling “Bonusgate” scandal with a mixture of disgust and incredulity.

Essentially, the federal government, operating in crisis mode to restore the financial system and markets to “normal” - extracted through a kind of political blackmail (“you have to approve this now without questioning, or this will be on your hands”) enormous sums of money that they handed over, largely without condition, to allow certain firms to stay in business. Those firms, right or wrong, are still in business – and, much to the consternation of the American public, have then proceeded to conduct business as usual. That, of course, means honoring their financial obligations and – like it or not – that includes those now-infamous bonuses.

Of course, the American public is struggling to understand how a company that is so badly off it has to take on millions, and in AIG’s case, billions, of taxpayer dollars, can afford such apparent “largesse”. And, of course, most cannot even begin to get their intellectual arms around the enormous sums of money these companies are handing out (the largest bonus was $6.4 million, six employees got bonuses of more than $4 million, and 66 got bonuses of more than $1 million each of the $165 million, though the Connecticut Attorney General indicated over the weekend that those amounts could be understated).

Now, at least in theory, those bonuses were earned – and paid based upon objective, job-related criteria (and if they weren’t, that will surely come to light in short order, considering the number of regulators currently scouring the contracts). It may well be that they acknowledge extraordinary efforts and performance under conditions of extreme distress. None of that will matter to the average guy on the street, any more than it mattered to the US House of Representatives which last week passed a retroactive, targeted, and admittedly (even proudly) punitive tax on the individuals who received those bonuses.

As irritating as that situation is, however, what’s more concerning IMHO is how easily it could have been avoided. We know now, for example, that the agreement between the federal government and AIG had a provision in it that could have blocked the bonuses – but that changes were inserted – and inserted deliberately - at the last minute to allow them (1). We know that, of course, only after being treated to the spectacle of a U.S. Senator first expressing outrage that someone had inserted that language into his amendment – and then, less than 24 hours later, getting to watch that Senator admitting that he was the inserting “culprit” (albeit allegedly at the behest of the Administration – which, of course, denies such wrangling).

Ultimately, I suspect that tax won’t hold water in court – assuming it makes it into law, and that any of the bonus recipients are willing to contest the issue (once the current crisis is past, I suspect some would). I also suspect that the American taxpayer will be “stuck” with all of the other bonuses and expenditures paid by these firms; they’re legal obligations, after all, and in the absence of the intervention of a bankruptcy event or conditions imposed by the federal government along with those TARP infusions, not paying those bonuses is probably no different legally than not paying their electric bill. It is, it seems, “business as usual.”

Those implications notwithstanding, advisers have a vested interest in how this current imbroglio plays out. Many work for the firms drawing fire for these practices, of course, and even those who don’t, work in an industry tainted, at least for the moment, by its associations with the markets and those who sought to profit from the trust of others. Not to mention that the financial futures of many plan participants (and advisers) still rest on the futures of these institutions.

The $165 million is a lot of money, but a mere drop-in-the-bucket compared with the BILLIONS already promised to AIG and other firms – and as cathartic as it may be for some to watch the “fat cats” getting their comeuppance, the ultimate consequence of scrambling to close the barn door after the cow has already been loosed is likely less confidence in our financial services system, not more – and that will doubtless lead some to think that the solution is more intervention, not less – and that will, based on every historical precedent of which I am aware, retard, rather than accelerate the process of economic recovery.

It should be of no small concern that lawmakers would be willing to rush not just to judgment, but to a “solution” to the current situation with so little appreciation for its origins or implications. To attempt to dramatically, and radically redress a situation that, IMHO, could have been avoided with a modest amount of contemplation and thoughtful evaluation. The kind of contemplation and thoughtful evaluation one might reasonably expect to come naturally with the expenditure of billions and billions of taxpayer dollars, as a matter of normal business. The kind of thoughtful evaluation and contemplation we should be able to expect from those we elect to represent our interests and to guard the public trust as a customary means of conducting the people’s business – and that we should now demand in times that are anything but mundane or commonplace.

Because, IMHO, we’ll never get back to normal by simply conducting business as usual.

- Nevin E. Adams, JD

(1) Editor’s Note: The provision said the new limits "shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009. . .”

Making A List...

There was a time when Christmas shopping for my nieces and nephews was a relatively straightforward process. Simply put, we’d spend a day or two at the mall, looking for things that we thought would be genuinely fun (in my case) in a generic sort of way—some flavor of electronic car, legos, dolls, etc.

Of course, as our family has grown ever more extended—and my nieces and nephews older—it became very nearly impossible to keep up with their various and sundry interests—and to a point where the only practical solution was a gift card (even then, pains must be taken to make sure it’s from a store at which they shop).



Nonetheless, and in the spirit of the holiday season, here are some “presents” that I hope participants find on their retirement plan menus during the next year:

(1) A workplace retirement plan. It’s easy to overlook this one, particularly for those of us who work with these programs on an ongoing basis. The sad fact is that roughly half of working Americans still don’t have access to any kind of workplace retirement plan. That means no convenience of payroll deposit, no assistance from an employer match, no education and/or advice about how to properly invest their retirement savings—and, in all likelihood, no retirement savings.

(2) The ability to roll over distributions from prior programs into their current plan. We all know how difficult it can be for participants to keep up with even a single 401(k) account. How much harder is it for them to keep up with—or remember—all those stray accounts left behind at prior employers, or rolled into retail-priced IRAs? It’s better for them—and it could well be better for the plan as well.

(3) The chance to automatically increase their deferral amounts. Plan sponsors have increasingly been willing to embrace automatic enrollment—but auto-escalation, even though it’s an integral part of the Pension Protection Act’s (PPA) automatic enrollment safe harbor provisions, has proven to be a harder sell. More’s the pity. This is a chance to let participants set in motion a systematic improvement of their retirement plan fortunes—and with a minimum of effort.

(4) The opportunity to select a target-date fund. Some target-date funds have better asset allocations and investments than others, but almost all are likely to provide more favorable investment results over time than most participants will achieve on their own.

(5) Some consideration of a retirement income alternative. It’s ironic to me that we spend decades working with participants trying to help them make prudent, well-reasoned savings and investment decisions—and then, at the most critical moment (distribution), most just get pointed in the general direction of a rollover IRA or annuity. Both can be effective, of course, but can be quite the opposite as well. We shouldn’t just leave participants to their own “advices” at this critical juncture—and there is a whole new generation of options to choose from.

(6) The continued support of an employer match. I’ll admit this is a tough one, and it can be expensive, particularly when the economy is in such turmoil, and when it seems like so many others are cutting back. Still, we know that the existence of a match has a notable impact on the level of contributions, and certainly influences participation. And even if it did neither, it goes a long way toward shoring up the adequacy of those individual retirement accounts. It is, quite simply, money well spent.

—Nevin E. Adams, JD

Crisis of Confidence

I’m old enough to have been a driver (albeit a young one) the last time we had a “real” gas crisis (the one where the issue was not being able to buy gas, not just being able to afford to buy gas).

I can still remember the national sense of frustration when a bunch of crackpots in Iran held 52 Americans hostage for 444 days; the concerns when the USSR, using language startlingly similar to that employed during the recent invasion of Georgia, strolled into Afghanistan—and, yes, I can still remember what a “real” recession felt like (the one where we actually had a 5% drop in GDP).

I also remember the “response” of our leaders in Washington at the time. Now, it’s easy to sit on the sidelines and judge those who actually have to make the tough decisions, but I think it’s fair to say that a common sentiment was that we were “getting what we deserved.” America had too long strutted the world stage imposing its values on others, some said—this was just the ghosts of Vietnam and Watergate coming home to roost. We were told that we were suffering from a crisis of confidence, a “national malaise.” It was, some said, simply time we, as a nation, learned to make do with less.

Fortunately, IMHO, not everyone accepted that assessment as a foregone conclusion. The turnaround wasn’t overnight, and it wasn’t easy. But it began with a leader who saw America’s best days still ahead, who was willing to call to mind that “shining city on the hill.” Frankly, it began when people began to believe they could solve the problems confronting them, rather than being victims of circumstance.

Now, I wouldn’t for a moment suggest that the current economy isn’t struggling. Like you, I feel the anger every time I pull up to the pump—that I get excited at the prospect of paying (slightly) less than $4/gallon is troubling, in and of itself. Like yours, no doubt, my 401(k) portfolio has seen (much) better days, and I have every reason to expect that I’ll be paying twice as much to heat my home this winter as I did a year ago.

Unfortunately, it seems that there is today a growing chorus of “it’s all our own fault” and a willingness, if not an eagerness—at least on the part of some—to once again effectively throw in the towel. Not just on the economy, mind you, or gas prices, but on the employer-sponsored retirement system.

Encouraging Words

It was encouraging, therefore, to see this week’s report from Fidelity that suggested that deferrals were up, albeit slightly, even while balances were down over the past year. It was even more encouraging that participants who had been deferring into the same plan year over year saw a more significant increase (see “Fidelity Database Shows Participants More Inclined To Save”), while statistics on participant loans (down slightly) and hardship withdrawals (up slightly) suggest that participants are, in large part, not only staying the course, but upping their ante.

Our industry has long cautioned against the consequences of not preparing adequately for retirement, but those June 30 participant statements were almost certainly a shock to participants who had been acting on those admonitions. Certainly there were some (perhaps many) who, as the averages in the Fidelity study suggest, saw their entire quarter’s contributions apparently “disappear” into the ether, swept under by the market’s maelstrom. That will, no doubt, fan concerns about how “safe” your 401(k) (or 403(b) or 457) plan is.

Without question, changes will be required. The three-legged stool, to the extent it ever existed, is a thing of the past for most workers (see "Saving While You Still Work"). We may well have to rethink our notion of retirement—though I’m not sure that notion will wind up being much different than the one our parents are already living. And yes, I think the federal government may well be part of the solution—but I don’t think most Americans want government to be THE solution.

The Fidelity survey offers hope—a reassurance that we can make (and are making) a difference; that we don’t necessarily have to lower our expectations of people. We could always do more—and perhaps better—of course. We need to keep exploring the reasons people hesitate to save, or don’t save enough. We need to continue to find solutions, like target-date funds, that make it easy to do the right things when it comes to retirement savings. We need to be willing to be open and honest not only about the goals and risks of these programs, but about their costs. We need to continue to encourage employers of all sizes to remain committed to these programs.

And, yes, we need to do all of that with an appreciation of the importance of our mission—and confidence in the abilities of ourselves and our profession to succeed.

- Nevin E. Adams, JD