What’s Top of Mind for Retirement Plan Advisors?

One of my favorite parts of the NAPA 401(k) Summit is a comprehensive annual survey we do of advisors in attendance at the Summit I call the Summit Insider.

It’s a unique opportunity to get the perspective of hundreds of retirement plan-focused advisors in a unique window of time. A chance, if you will, to see what’s on the collective minds of a very special group of individuals.

Like the networking experience of the Summit itself, it’s a chance to see what is actually on the minds and driving forces for the nation’s leading advisors. Sometimes it’s a validation—sometimes a repudiation—but it’s always insightful, all the more so in view of this year’s (record-breaking) response to the Summit Insider questionnaire.

Over the past couple of weeks, I’ve shared some insights in the NAPA-Net daily—but if you’re looking for a quick sense of the advisor perspective(s) on business practices, industry trends, team building, or future focus—well, here you go:

• There have been BIG shifts in sentiment regarding cryptocurrency (from positive to negative game changers) and state-run IRAs (ditto). 
• Managed accounts continue to be viewed negatively—a sharp and sustained turnabout from three years ago (when they were actually seen as a positive game changer).
• ESG remains the most over-hyped trend—but advisors are split as to whether it is a negative or positive game changer.
• Indeed, when it comes to over-hyped trends, ESG has demonstrated remarkable “staying” power, having topped that most over-hyped list for (now) four years running—and this year drew nearly THREE times as much support for that categorization (last year it was only twice as supported) as the #2—which was, again, cryptocurrency. MEPs/PEPs crept up to the #3 slot, while actually declining in overall ranking from its placement the past two years. 
• Cost loomed large as the biggest hurdle for managed accounts, though not far ahead of “participants lack understanding of how they work.” Most see the future of these as being offered by the advisor’s firm.
• Plan sponsor interest in retirement income options really hasn’t changed, hovering somewhere between “minimal” and “occasional.” Something else that hasn’t changed; portability remains the dominant advisor concern with these solutions. 
• Roughly two-thirds are now incorporating HSAs (health savings accounts) into financial wellness curriculums—though a third of those do so only if they consulted on the specific solution. 
• Nearly a quarter (24%) say their team’s work/life balance is “better than ever.”
• “Attracting and retaining talent” alongside “scaling your practice” remained the big issues for advisor practices over the next 12 months. Perhaps somewhat ironically, succession and advisor consolidation were in the “not important” category.
• Among support from DC wholesalers, “plan tools and resources” slightly edged out “competitive info” as valued services.

Thanks once again to all who took the time to share those (your?) perspectives and insights on the pages that follow. Thanks for being part of the 2023 NAPA 401(k) Summit—and thanks particularly to the sponsors of this year’s NAPA Summit Insider!

And please—like, share and comment! Check out the rest of the 2023 NAPA Summit Insider at https://bit.ly/23Summitinsider1

See you (all) in Nashville April 7-9 for the 2024 NAPA 401(k) Summit!

- Nevin E. Adams, JD

A ‘Value’ Proposition

A few weeks back, an industry friend commented that, while we had certainly done a great job promoting the NAPA 401(k) Summit, that campaign hadn’t fully captured the essence of what makes “the Summit” different. Let me try here.

There are, admittedly, a lot of conferences out there — and most promote — as we do — the great content, compelling keynotes, robust networking and great accommodations.  Some of them actually deliver on those promises. But since everyone says they do, how do you know the difference?

The most obvious metric is, perhaps growth. Time-pressed advisors don’t waste their time going to conferences that don’t deliver the “goods.” The Summit has now been around for more than 20 years — and it’s challenging to sustain consistent growth over that long a stretch. That said, when I arrived here back in 2014, my first Summit “here,” we had about 1,300 attendees — and about a third were advisors.  And we were pretty darned proud of that ratio.

But this year we’re looking at about 2,400 — and almost exactly half are advisors. You can do the math. 

Now, that’s the what — but it’s also part of the “why.” And for my money, a big part of the “why” is because of the “who.” I’ve long referred to the Summit as the nation’s retirement advisor convention for one simple reason; everybody who is anybody in the retirement plan space will be there — and they don’t just swing by to do a quick “drive by” presentation — they stay.[i] So, whether you’re looking to reconnect with old friends, to connect with new ones, or to meet and/or learn from others — the Summit has you covered on all fronts.

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 their steering bodies, many, perhaps most — are just 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.

Our steering committee is informed not only by their own experience and perspective as some of the industry’s leading advisors, but by the reader polling that provides insights from you. We don’t just ask them what they think we should include (or merely ask for that affirmation of a sponsored agenda platform), we ask them what session(s) they are willing to “own” — and by that we literally mean carrying responsibility not only for panel/speaker selection, but for ensuring that those chosen fulfill their responsibilities — up to and including making sure that the session delivery itself lives up to the high standards of the nation’s retirement plan advisor convention. They literally have skin in the proceedings. And, unlike many events, we choose the topics, and only THEN do we match speakers/perspectives with those topics. The result? Well, despite a solid diversity of topics, attendees often “complain” that they want to attend two or three “competing” sessions all at the same time.     

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 become the pinnacle of 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. 

And more importantly, your attendance at the NAPA 401(k) Summit remains a unique investment in your future — and the future of your profession.

See you in San Diego!

 - Nevin E. Adams, JD

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[i] And there’s no better testimonial to the value of the Summit and the commitment to be part of it than the numerous courageous (and sometimes harrowing) efforts undertaken by many to get to Summit — see “Planes, Trains, and …U-Hauls?”

Advisor Value ‘Adds’

Most of the attempts to affix a value to having an advisor tend to focus on investment returns or cost savings. Both are valid, objective measures that can have a real, substantive impact on retirement security—but, at least with the best advisors—there’s usually more.

Indeed, years ago as a fiduciary of another firm’s 401(k) plan, and while I had always felt comfortable with the decisions the plan committee had made, as our little company grew to be less little, I was increasingly aware of the personal liability associated with my role, and the small amount of time I was able to dedicate to the task alongside my “day job.” 

That advisor delivered in all the ways I had hoped he would—but there was value well beyond that in terms of the structure he brought not only to our discussions, but to our process. Things like:

The Discipline to Meet

Internally driven committee meetings are frequently a casualty of whatever crisis emerges on any particular day. As human beings we are wont either to assume that nothing will happen unless we are present, or that because others will be there, our voice isn’t required.

Having a committee and not having committee meetings is potentially worse than not having a committee at all. In the latter case, at least ostensibly you know who is supposed to be making the decisions. But if there is a group charged with overseeing the activities of the plan, and that group doesn’t meet, then one might well assume that the plan is not being properly managed, or that the plan’s activities and providers are not prudently managed and monitored, as the law requires.

However, the presence of an outside advisor helps bring a seriousness both to the gathering itself and the agenda.

The Discipline to Educate

Individuals are chosen to be on these committees for a variety of reasons, some better (and some much better) than others. But the first thing our advisor did at that first committee meeting was to acquaint the members with what was expected of them. That included the requirement to act solely in the interests of plan participants and beneficiaries, the importance of process (and documenting that process), and the implications of the prudent expert rule.

It also included reminders that by being on this committee they were a fiduciary under ERISA, that that brought with it personal liability (and, in our case, how the company had chosen to insure them), and that each of us was responsible for the actions of other plan fiduciaries. 

Sure, I could have delivered all those messages—but it meant a lot more coming from that external, expert resource.

The Discipline to Establish an Investment Policy Statement

While I have known attorneys who have counseled against having a written investment policy statement (IPS), I can’t recall a plan advisor of my acquaintance who wouldn’t insist on it (I may now hear from some, of course). ERISA doesn’t require one—and some lawyers see it as a smoking gun (if you don’t follow its terms, it certainly can be). But in its best form it establishes investment guidelines for the plan—and plan fiduciaries, and plan advisors in particular, will generally 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. And in writing crafted in the objective, cold, clear light of day, rather than in the throes of tumultuous market (or plan) conditions.

In sum, you want an IPS in place before you need an IPS in place—and in my experience any advisor worth their salt will demand that as a starting point.

The Discipline to Remove Funds

As human beings we are largely predisposed to leaving 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 fiduciaries are, in the absence of a compelling reason for change, inclined to rationalize staying put.

As a consequence, you routinely see new fund options added, while old and unsatisfactory funds linger on the plan menu, a general reluctance to undertake an evaluation of long-standing providers in the absence of severe service issues, and an overall inertia when it comes to adopting potentially disruptive plan features like automatic enrollment or deferral acceleration.

Whether or not the plan has an official IPS, plan fiduciaries are expected to conduct a review of the plan’s investment options as though they do. Sooner or later, that review will turn up a fund (or two) that no longer meets the criteria established for the plan. Oh, and make no mistake—there will be someone with money in that fund, maybe even a senior executive.

Rational thought reminds us that leaving an inappropriate fund on the plan menu—and allowing participants to invest in it—is a bad thing. But human beings, including those who serve on plan committees, have a hard time walking away from a “bad” investment.

The Discipline to Document

I’ve heard it said that when it comes to ERISA, “prudence is process—but only if you can prove it.” To that end, a written record of the activities of the plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations.

But as anyone who has ever participated in a group meeting of any kind knows, it’s hard to fully participate while taking notes. And sometimes those notes don’t make sense by the time you get around to writing them up. An advisor can help with that—and that matters because 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. They also can be an invaluable tool in reassessing those decisions at the appropriate time.

The current emphasis on fees and plan costs, while important, brings to mind a quote by Oscar Wilde, who once famously described a cynic as someone “who knows the price of everything and the value of nothing.”

As an advisor, what are YOU bringing to the table?  As a plan sponsor, what are you getting from your advisor?

- Nevin E. Adams, JD

Planes, Trains, and ...U-Hauls?

One of my favorite holiday movies is “Planes, Trains, & Automobiles”—but who thought so many would have to live it? 

The movie I’m referring to is that 1987 John Hughes classic starring Steve Martin and John Candy as a pair of travelers (Martin an advertising exec, Candy a traveling shower curtain ring salesman—and you think you have a hard job) trying to get home for Thanksgiving. There are any number of misadventures along the way—involving the aforementioned means of transportation on the trip from New York to Chicago… via Wichita and St. Louis. 

Well, a couple of weeks back several hundred advisors found themselves reliving that experience as a series of unrelated events emerged to thwart their scheduled travel to the NAPA 401(k) Summit in Tampa. It started early the day before the event with a strike by Alaska Airlines pilots, by mid-morning Southwest Airlines was experiencing ““intermittent performance issues following routine overnight maintenance of some of [its] backend technology,” there was snow in the upper Midwest, and in early afternoon the southeast found itself covered by a massive series of thunderstorms—all of which had an impact—and a ripple impact across the systems of travel—and all at a time when air traffic was arguably even more complicated by a large volume of Spring Break traffic as well. And that’s not even considering the normal issues with mechanical issues that some who missed the other events had to contend with.

As you might imagine, a good part of that Saturday was consumed not only worrying about, but hearing from, and responding to, speakers and staff who were ensnarled in those travel issues. At the same time, I heard from at least a dozen individuals who, on the ground in Tampa, but aware of the travel issues, reached out to me to volunteer their services as a stand-in for speakers who couldn’t get here in time. Meanwhile, there was the “call” to be made with regard to the outdoor activities that were being planned for Sunday (Flo-Rida) and Monday nights.

Sunday morning dawned with a great deal of uncertainty as to what we’d be looking at in terms of attendance and speakers. But what impressed me throughout was just how hard people were working to get to Tampa. And over the three days of the conference people just… kept on coming… 

There were some amazing stories of persistence and perseverance throughout—but the one that made the deepest impression on me was that of Odyssey Financial Group’s Michelle Coble and Adam Bahner. Based in Oklahoma City, OK, they got as far as Atlanta when not one, but two of the flights from there to Tampa were cancelled—and they were told that there were no seats on the flights out to Tampa for two days. There were no rental cars to be had, and the trains—well, they wouldn’t get to Tampa on time. So they rented a U-Haul—and drove that last leg from Atlanta to Tampa! 

When all was said and done, we had an amazing conference. Sure, some couldn’t get there—many despite enormous effort and inconvenience. But it was clear from the opening session all they way through to the close that those who were there were there because they really wanted to be there—and the level of enthusiasm and engagement—and I think the quality of the content and networking—were through the roof[i].

So, my sincere thanks and appreciation to the speakers and sponsors, to those who “stepped up” to fill gaps, and those who volunteered to do so (because even if we didn’t have to call on you, it relieved some planning pressure)—to the steering committee who helped ensure those gaps were filled, to the conference staff for all the extra work (and stress) that accompanied all this uncertainty.

But most especially, my thanks to all who (including those above) made those (extraordinary) efforts to “get there” via planes, trains, automobiles—and even U-Hauls—to be part of what, by any measure, was an extraordinary event! 

p.s.: Mark your calendars now for the NEXT one—April 2-4, 2023 in San Diego!

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[i][i] And, despite all the bad weather on Saturday, the weather during the conference was great, and the outdoor events unaffected!

An Insiders' Perspectve(s)

There’s nothing like the NAPA 401(k) Summit—particularly being at the NAPA 401(k) Summit after the many months and a worldwide pandemic that kept us all apart. 

Each year for the past four years we’ve taken advantage of that gathering (including in 2020 when we gathered “virtually”) to reach out[i] to the nation’s top retirement plan advisors to glean their perspective on a wide range of issues relating to their practice—and practices. 

This year’s Summit Insider was no exception—as we “consulted” with more than 500 retirement plan advisors and home office staff on a range of issues—the criteria in selecting—and rejecting—key business relationships, the things that are over-hyped—and the things that no one is talking about—but that everyone, at least in the eyes of these “Insiders,” should be. We also got some insights on retirement income, important features in choosing target-date funds, rollovers and outcomes. 

We’ve included a number of verbatim comments on what these “Insiders” wish that plan sponsors knew, or knew better. Sometimes those words are harsh, sometimes reassuring—but we asked advisors for their insights, and they were generous in doing so. I only wish we had room to share them all.

Key Findings

Among the key findings:

• Glidepath philosophy topped the criteria on selecting target-date funds, slightly outpacing 5-year performance.
• More than half of the advisors surveyed focus on measuring outcomes at the plan level during every plan review.
• Nearly two-thirds deliver financial wellness as a component of their current service offerings—another 17% do so through an external partner.
• ESG remains the most “overhyped” trend in the industry, outpacing robo-advice and MEPs/PEPs by a significant margin.
• Portability was deemed the most influential/compelling factor to respondents’ plan sponsor clients in considering a retirement income solution. It was also the most cited factor influencing advisor considerations.
• Client support and market intel were tied as the most-valued support from the DC wholesaler partners.
• Service was—still—the dominant criteria in selecting a TPA partner.  
• Rollovers, the SECURE Act’s expansion of a retirement income safe harbor, including lifetime income disclosures on participant statements, managed accounts, and e-delivery were all rated as “positive game changers.” However, a third rated managed accounts as “much ado about not much.”
• Legislation to allow student loan repayment matching was cited as a positive gain changer by 7 in 10, and legislation to expand emergency savings accounts drew “positive game changer” support of 60%. 
• The Labor Department’s fiduciary (re)proposal? A plurality (43%) said it was “too soon to say.” Which, as we’re still waiting for it, seems reasonable (if not obvious). 
• Recordkeeper consolidation was viewed as a negative game changer by nearly half (46%), though a quarter (23%) saw it as a positive.

As for what they wished plan sponsors knew more about, the list included “their roles and responsibilities,” the role(s) of other parties servicing the plan, fees, plan design, plan operations—oh, and “our roles,” of course. The verbatim quotes here are, as you might imagine, “priceless.”

A special thanks to the hundreds of retirement plan advisors who took the time to provide such thoughtful responses—and to the sponsors of this fourth edition of the Summit Insider. Which NAPA members can find in your mail—or online at https://www.napa-net.org/industry-intel/summit-insider.

- Nevin E. Adams, JD

Game Changers or (Just) Rearrangers?

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

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

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

Here’s what they thought about: 

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

40% - Too Soon to Say

38% - Positive Game Changer

20% - Much Ado About Not Much

12% - Negative Game Changer

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

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

2. DOL’s Fiduciary Reproposal

37% - Too Soon to Say

26% - Much Ado About Not Much

26% - Positive Game Changer

11% - Negative Game Changer

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

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

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

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

54% - Positive Game Changer

27% - Too Soon to Say

15% - Much Ado About Not Much

3% - Negative Game Changer 

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

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

4. E-delivery 

86% - Positive Game Changer

4% - Much Ado About Not Much

3% - Too Soon to Say

1% - Negative Game Changer

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

6. Printing/Showing Lifetime Income Disclosures on Statements 

52% - Positive Game Changer

26% - Much Ado About Not Much

15% - Too Soon to Say

6% - Negative Game Changer 

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

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

Said another way—it’s “show” time.

- Nevin E. Adams, JD

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[i] Who Are the Summit Insiders?

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

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

5 Ways to Boost Retirement Confidence

With increasing regularity, the financial services industry pumps out surveys that purport to capture America’s sense of confidence regarding its readiness for retirement, at least on a financial footing. Mostly, however, they seem to focus on the symptom, rather than dealing with the underlying cause(s).

However well-intentioned, these all seem designed to highlight a persistent strong undercurrent of concern — one that, certainly when juxtaposed against the generally disappointing preparation levels reported by respondents, seems completely warranted.

Confidence about retirement is one thing, of course, and preparation something else, though the two are logically intertwined. That said, for those looking to shore up confidence levels, data from the granddaddy of such surveys — the non-partisan Employee Benefit Research Institute’s (EBRI) Retirement Confidence Survey — provides a roadmap:

Work for an employer that offers a retirement plan.

Data indicates that workers — even workers of modest means — are 15 times more likely to save for retirement if they have access to a retirement plan at work than those who don’t have that option. It is perhaps not surprising then that in recent years, the RCS has tracked a huge gap in confidence about retirement between those who have a retirement plan and those who don’t; in the 2015 RCS, 44% of workers without a retirement plan are not at all confident about having enough money for a comfortable retirement, compared with only 14% of those who have a plan.

Furthermore, among those with a plan, the percentage of those who are very confident increased from 14% in 2013 to 28% in 2015. In contrast, the percentage of those who are very confident remained statistically unchanged among those without a plan (10% in 2013, 9% in 2014 and 12% in 2015).
Workers reporting that they or their spouses have money in a defined contribution plan or IRA or have a defined benefit plan from a current or previous employer were more than twice as likely as those without any of these plans to be very confident (24% with a plan vs. 9% without a plan in the 2014 RCS).

Figure out how much you’ll need.

The RCS has found that workers reporting that they or their spouses have a DC, DB or IRA plan are twice as likely as those who do not have such a plan (60% vs. 23%) to have tried to do a calculation to estimate what they will need to finance their retirement.

And despite higher savings goals, workers who have done a retirement savings needs calculation are more likely to feel very confident about affording a comfortable retirement (33% vs. 12% who have not done a calculation). Moreover, worker households with a retirement plan are more likely than those without such plans to report having saved for retirement (90% vs. 20%).

That said, as recently as the 2015 RCS, fewer than half (48%) of workers report they and/or their spouses have tried to calculate — even a single time — how much money they will need to have saved by the time they retire so that they can live comfortably in retirement, a level that has held relatively consistent over the past decade.

In other words, while many have (or had) a retirement plan, they don’t seem to have a plan for retirement.

Talk with an advisor.

Anecdotally, when you ask someone about their interest in engaging the services of an advisor, they are likely to tell you that they will wait until they need one — by which most seem to mean that, once they have accumulated enough savings to make it “worthwhile,” they’ll consider getting some help. What’s often overlooked is the role that a financial advisor — particularly one whose expense is covered by an employer plan — can play in helping make that account growth a reality.

In the 2015 RCS, more than three-quarters (78%) of respondents who had talked with a professional financial advisor about retirement planning were either somewhat or very confident that they will have enough money to live comfortably throughout their retirement years, far more than the 49% who did not use an advisor. The 2013 RCS found that nearly two-thirds (65%) of those who used either online calculators or asked the advice of financial advisors were either somewhat confident or very confident that they will have enough money to live comfortably through their retirement years.

On the other hand, nearly half (44.6%) of those who simply guessed were also somewhat confident or very confident.

It seems that, as noted above, the calculation/determination itself has a positive impact, though the kind predicated on real assessment clearly does more for confidence (and probably for the actual basis of that confidence as well).

Retire.

One might expect that the financial realities of being in retirement might well shatter the fragile levels of confidence expressed ahead of crossing that threshold — and yet the RCS has consistently chronicled that retirement confidence is higher among those already in retirement than among those still working. In the 2015 RCS, 37% of retirees were very confident about having enough money to live comfortably throughout their retirement years (up from 28% in 2014 and 18% in 2013), and a third were somewhat confident.

This is despite a consistent finding that individuals are frequently forced to leave the workforce earlier than planned, and that they are less likely to work in retirement than pre-retirees anticipated (in the 2015 RCS, 67% of current workers plan to work for pay in retirement, compared with just 23% of retirees who report they have actually worked for pay in retirement. In the 2015 RCS, 37% of retirees were very confident about their prospects, up from 27% in 2014 and 18% as recently as 2013.

However, as one might expect, workers who are not confident about their financial security in retirement plan to retire later, on average, than those who express confidence.

Save for retirement.

Retirement confidence, like confidence generally, is a state of mind, and one not always grounded in an accurate assessment of reality. As noted above, the mere act of guessing about retirement needs seems to be enough to provide a boost in confidence, certainly in the short run.

Regardless, it’s hard to deny that the best, most secure, means of assuring retirement confidence is establishing a solid foundation for that belief by:

• taking advantage of the opportunity to save and having the discipline to do so;
• establishing a goal and revisiting that goal on a regular basis; and
• enlisting the help of professionals in establishing those goals and in making sound, diversified investments.

Because ultimately, of course, what really matters is not how confident you feel, but whether you have a reason to feel confident.

- Nevin E. Adams, JD

5 Reasons Why Your Small Business Should Offer a Retirement Plan

People who don’t have access to a plan at work don’t save for retirement. Here’s why small business owners should care.

About half of private sector workers did not participate in a workplace retirement savings program in 2012, and a recent report by the Government Accountability Office (GAO) found that most workers who did not have coverage lacked access to such programs.

While there are many reasons that might account for those individual decisions, among those not participating, the majority worked for an employer that did not offer a program or they were not eligible for the programs that were offered. In particular, lower income workers and those employed by smaller firms were much less likely to have access to programs, after controlling for other factors. However, the majority of these workers participated when they had workplace access.

Here’s why small businesses should provide that access.

To attract and retain workers.

Okay, every time somebody talks about the reasons to offer a retirement plan, “attract and retain qualified workers” is on, if not at the top of, that list. But it’s a bit more complicated than that. The reality is that a larger employer that does not offer a retirement plan benefit sticks out like a sore thumb.

However, among smaller employers, the situation is almost a mirror image. In fact, the GAO reports that only 14% of small employers with fewer than 100 employees sponsor a plan in which workers can save for retirement.

The opportunity for smaller employers then, is to stand out from your competition precisely because you do offer a workplace retirement plan.¹ And to use plan design features such as vesting and an employer match to keep the good workers you’ve attracted, and maintain that competitive edge.

Your workers will use it.

This may seem obvious, but among the more intriguing rationales offered by small businesses for not offering a workplace retirement plan was one put forth in a 2003 Small Employer Retirement Survey by the Employee Benefit Research Institute (EBRI) — that their employees are “not interested” in having a retirement plan. And I have actually had plan sponsors say to me “nobody has ever asked about a 401(k).” Well, I’ll grant you that workers are probably more concerned about their paycheck, and perhaps health care. And they may just be glad to have a paying job, and don’t want to rock the boat by pressing for benefits.

That said, the vast majority of workers who do not participate in a workplace retirement plan – 84% — reported they did not have access to a workplace retirement program. Of two key access factors — the employer must offer a program, and the worker must be eligible to participate — GAO found that the lack of access was primarily due to employers not offering a retirement program (68% reported they worked for an employer that did not offer a program, and another 16% reported they were not eligible for the program their employer offered. Indeed, the GAO report found that workers at the largest firms were only slightly more likely to participate compared to workers at the smallest firms.

Your workers need it.

You may well employ a workforce that has alternative sources of retirement income — a legacy from that rich uncle everyone’s so fond of, or maybe they have a surefire lottery strategy. Or perhaps their pension or savings from a prior employer, combined with Social Security, will be “enough.”

But EBRI’s 2014 Retirement Confidence Survey suggests that retirement confidence — and the retirement savings that ostensibly underpin that confidence are at least somewhat connected. There’s a growing body of research that suggests that financial concerns take a toll on productivity. That’s not just retirement, of course — but it’s a big part of it.

You need it (too).

It’s not unusual for a small business owner to invest heavily in the enterprise, including sinking some of their own personal retirement savings into “the business.” Whether you have or not, and no matter how much you are now able to pursue your passion, you’ll want to provide for a retirement at some point that doesn’t necessarily require liquidating your business to fund it. That’s when the benefits that your employees appreciate can pay off for you as well, including:

• The availability of pre-tax contributions that can reduce your current taxable income.
• Deferral of taxes on pre-tax contributions and investment gains until you take a distribution.
• The flexibility of a Roth 401(k) (if offered).
• The “magic” of compounding returns over time.

Oh, and there are tax advantages. 

Despite all the compelling reasons outlined above, for some it still (rightly) comes down to the bottom line. And, in addition to the benefits of offering a plan, there are some tax advantages designed to encourage you to do so.

Any employer matching contributions will be tax-deductible, as will any costs incurred by the employer in connection with offering the plan. Better yet, you may be able to claim a tax credit for some of the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan.
But don’t take my word for it — here’s what the IRS has to say.

Let’s face it, there are any number of reasons to put offering a workplace retirement plan — not enough time, worries about the expense, a sense that this is something better put off to a future time.

Then again, aren’t those the same reasons often put forth to justify not saving for retirement?

Nevin E. Adams, JD

1. A growing awareness of the coverage “gap” among smaller employers has led a number of states to consider a variety of initiatives that, generally speaking, include a requirement that employers above a certain size/business longevity threshold offer a payroll deduction IRA option to their employees. The Obama administration is lending its support to these efforts, with some additional regulatory clarity anticipated before the end of the year.

On Retirement Plans and Plans for Retirement

When is a plan not a plan? When you have a retirement plan at work, apparently.

The good news is that the 2015 Retirement Confidence Survey shows a strengthening of retirement confidence — at least among those who had some kind of retirement plan (DB, DC or IRA). Indeed, among that group, the number saying they were very confident has doubled since 2013.

The bad news? Well, there doesn’t seem to be much in terms of substantive savings accumulations¹ or planning behaviors to account for this uptick in confidence.

Consider that fewer than half (48%) of workers report they and/or their spouse have tried to calculate — even a single time — how much money they will need to have saved by the time they retire so that they can live comfortably in retirement, a level that has held relatively consistent over the past decade.

In other words, while many have (or had) a retirement plan, they don’t seem to have a plan for retirement. 

On the other hand, workers reporting that they or their spouse have a DC, DB or IRA plan are twice as likely as those who do not have such a plan (60% vs. 23%) to have tried to do a calculation to estimate what they will need to finance retirement. And despite higher savings goals, workers who have done a retirement savings needs calculation are more likely to feel very confident about affording a comfortable retirement (33% vs. 12% who have not done a calculation). Moreover, worker households with a retirement plan are more likely than those without such plans to report having saved for retirement (90% vs. 20%).

That said, after a quarter century reading and studying the RCS, several things are clear:

Those who have made the effort² — even a feeble one — to figure out how much they need in retirement are more confident, and likely better off in the long run, since they tend to set higher savings goals.

Those who work with an advisor are more confident, and likely better off in the long run, since they also tend to set more realistic (i.e., higher) savings goals.

And perhaps most importantly, those who have access to a retirement plan are not only more confident, they are probably better off, since they tend to have actual sources of income on which to draw in retirement.

But ultimately, while having a retirement plan may provide some quantifiable increase in confidence about retirement, it’s having a plan for retirement — and acting on it — that grounds that confidence in reality.

Nevin E. Adams, JD

Footnotes

1. While much will likely be made of the relatively low/modest savings amounts reported by RCS respondents, without knowing individual factors like age or income, it’s impossible to discern whether those amounts are woefully inadequate, or reasonable. 

2. Those plans for retirement need to be reconsidered on a regular basis, since many are forced (or choose) to leave the workforce earlier than planned.

Thanks Giving - A Retirement Plan Professional's List

Thanksgiving has been called a “uniquely American” holiday, and one on which it seems fitting to reflect on all for which we should be thankful.

Here’s my 2014 list:

I’m thankful that retirement plan coverage and participation is up, if slightly, and that there seems to be a expanding national dialogue about how to expand that.

I’m thankful that a growing number of policy makers are willing to admit that the “deferred” nature of 401(k) tax preferences are, in fact, different from the permanent forbearance of other tax preferences — even if the governmental accountants and academics remain oblivious.

I’m thankful that so many employers offer access to a retirement plan in the workplace — and that so many workers, given an opportunity to participate, do.

I’m thankful that most workers defaulted into retirement savings programs tend to remain there — and that there are mechanisms in place to help them save and invest better than they might otherwise.

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

I’m thankful that participants, by and large, continue to hang in there with their commitment to retirement savings, despite lingering economic uncertainty, and competing interests, such as rising health care costs.

I’m thankful for objective research that validates the positive impact that committed planning and preparation for retirement makes.

I’m thankful for the perspectives that remind us that the “golden age” of pensions wasn’t. And that allow us to appreciate the strengths of the current system, even as we work to improve it.

I’m thankful that the prospects of fee disclosure seem to have made the realities less of a shock than might otherwise have been the case for some.

I’m thankful that fewer seem to think that their 401(k) is free – though more than a bit concerned that some (including, according to surveys, some plan sponsors) still do.

I’m thankful that plan design enhancements such as automatic enrollment, contribution acceleration, and qualified default investment alternatives continue to be adopted — and hopeful that more plan sponsors will see fit to extend those advantages to their existing workers as well as their new hires.

I’m thankful for qualified default investment alternatives (QDIA) that make it easy for participants to create well-diversified and regularly rebalanced investment portfolios — and for the thoughtful review of those options by prudent plan fiduciaries.

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

I’m thankful, in this anniversary year, for the foresight of those who brought ERISA into being — and for all who have, in the subsequent 40 years, worked to make it better through legislation, regulation and interpretation.

I’m thankful for the team here at NAPA, 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 on a daily basis.

I'm thankful for the warmth with which readers and members, both old and new, have embraced me, and the work we do here. I'm thankful for all of you who have supported — and I hope benefited from — our various conferences, education programs and communications throughout the year. I’m thankful for the constant — and enthusiastic — support of our advertisers.

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

 

Here’s wishing you and yours a happy Thanksgiving!

 

- Nevin E. Adams, JD