Attention Getters

I was recently taken to task for last week’s column about retirement savings regrets.

More precisely, my column about the regrets expressed in a recent American Century survey drew the attention of Faith Teope in a LinkedIn post titled, “Dear Finance Experts: We Would Listen, But We Don't Care.” In fairness, it wasn’t so much my column (“boring but true”), or even the American Century survey’s findings that came in for criticism, but more the head-scratching that the survey set off among financial professionals (including, I suppose this one) as to why people aren’t paying more attention to things like… saving for retirement. Her premise—that we’re using language that doesn’t resonate with those we hope to motivate—is, frankly, unassailable. 

In fact, it’s a topic I broached (at least at a high level) earlier this year in a post titled, “Is it Time to Retire Retirement?” As I noted then, for all but the most financially astute, trading off a here-and-now need (or want) for some obscure future notion like “retirement” is a hard sell. And, let’s face it, the further you are from that future event, the harder it is to “sell.” 

But arguably the problem runs deeper than the label(s) we affix to the concept of the ultimate goal. Let’s face it, financial freedom is a laudable, evergreen objective—but for most of us it’s not a short-term goal—and without a “how” to go with the “what,” it might not matter. 

In her post, Faith states that our current messaging is “…not working because that’s not how humans are wired. We are wired to survive and that drives the urges for happiness, the desire to live, to buy, to bucket-list, to binge-watch, to prime-delivery. We are not wired to plan for an unknown future with an unknown time frame and no magic 8-ball to what will even happen tomorrow much less 25+ years from now.”

To her credit, she put forth some suggestions, conversation starters of a sort—something that ostensibly might motivate people to “care”—things like:

• The Life You Want—Top 5 questions to help you take control of your life
• 3 Ways to Legally Pay Less in Taxes
• The One Debt That Pays YOU interest—401k loans and a few perfect reasons to tap into them

Now, as someone who spends a good part of his day crafting (what he thinks are) compelling headlines and (obsessively) tracking clicks, that approach has some allure. (I mean, who wouldn’t want to know how to legally pay less in taxes?) That said, it’s not clear to me how much of this kind of thing is already out there, though I imagine in a world increasingly reliant on TikTok, Instagram, Twitter and YouTube to communicate complex (and sometimes farcical) messages, it’s a burgeoning field—or should be. 

Indeed, the more I considered the subject, the more it occurred to me that the essence of some pretty compelling messages are already imbedded (obscured?) in most of today’s benefit communications. Wouldn’t you be intrigued by the following topics?

• How to get the free money you’re missing out on
• Turn $5 a month into $50,000
• You can get a pay increase without asking for it

There are some potential shortfalls, of course—there’s often a fine line between making complex things simpler and making them overly simplistic. But when all is said and done, to me, it’s not so much about simplifying our messages (though there’s that), but about getting people’s attention. But as I look at the bullets above, they strike me as short, near-term in focus, snappy, and ultimately action-oriented. Clickbait? Sure—but if you can get people’s attention, even for a minute, that’s an opportunity, a door-opener… a start… 

Of course, “starts” notwithstanding,[i] what matters isn’t just getting people’s attention, but motivating action—anything from a quick readiness assessment to taking steps to automatically increase their rate of contribution, or to make sure they are contributing at a rate sufficient to receive the full company match.

In sum, it’s one thing to get people’s attention—but then we have to keep it. 

- Nevin E. Adams, JD

[i] And thanks to automatic enrollment and qualified default investment alternatives (like target-date funds), millions of American workers have gotten a good start at saving and investing for retirement even if they don’t always appreciate it.

Things You Don't Learn in School

Life has many lessons to teach us, some more painful than others—and some we’d just as soon be spared. But the graduates of 2021—well, they’ve been through a lot, arguably more than most—but with any luck at all, the days and years ahead will be brighter. 

Regardless, if you have a graduate—or if you are a graduate, here are some insights I’ve picked up along the way…   

ASAP is never as soon as people think.

Even those who work for themselves have bosses (they’re called “clients”).

Emails (generally) don’t have to be answered right this minute.

Bad news doesn’t improve with age.

Your first job can be like your first love—it will either bring a smile for years to come—or it can break your heart. And sometimes both.  

Don’t expect your job to respect personal boundaries without some “help.”

Don’t be afraid to pick up the phone.

If the only time your boss hears from you is when there’s trouble, don’t be surprised if they don’t look forward to your visits. 

Book some quiet time in your day.

Most meetings really could be replaced with an email.

You’re either early—or you’re late.

There is an inverse relationship between the number of people in a meeting and its productive output.

Everything you’ve heard about your elders isn’t true. But some of it is.

Generalizations are (almost) never accurate.

The world is made up of introverts and extroverts—learn and respect the difference(s).

Just because you’re young(er), people are going to assume you know things you don’t—and assume you don’t know things you do.

A picture may be worth a thousand words, but sometimes it pays to read the fine print.

Never say you’ll never…

Always sleep on big decisions.

Never let your schooling stand in the way of your education.

Sometimes the grass on the other side looks greener because of the amount of fertilizer applied.

Never miss an opportunity to say, “thank you.”

If you wouldn’t want your mother to learn about it, don’t…

Comments that begin “with all due respect” generally aren’t.

Sometimes the questions are complicated, but the answer isn’t.

That 401(k) match isn’t really “free” money—but it won’t cost you a thing.

And most of all, don’t forget that you’ll want to plan for your future now—because retirement, like graduation, seems a long way off—until it isn’t.

Congratulations to all the graduates out there. We’re proud of you!

- Nevin E. Adams, JD

p.s.: Got any advice to add to this list? Share it in the comment section below!

Education Precedents

I’ve been working with retirement plans for my entire professional career, during which I have met, spoken with, and written to tens of thousands of plan sponsors. And yet, in all that time, and with all those people, I’ve not met more than a handful who had chosen that specific role as a career path. More often than not, they’ve found themselves in that role with no training, education or background in the role beyond an out-of-date plan document and the cryptic notes left behind by a harried predecessor.

Indeed, there’s more than a bit of irony that individuals who find themselves in a job with personal liability for their actions (and the actions of their co-fiduciaries), alongside an expectation of prudence that courts have described as the “highest known to man,” have had little in the way of practical, retirement-plan-focused training.

That’s a problem for those plan sponsor fiduciaries, of course, but also for the plan advisors who support them. While some may find it easier to lead someone who doesn’t know any better, every quality advisor I’ve ever met much prefers working with plan sponsors who know their job and responsibilities well enough to appreciate the value and contributions of a trained professional.

NAPA members have long valued the benefits not only of education in the field, but the ability – the critical need – to be able to stay up to date on the latest legal and regulatory developments. In addition to conferences, webcasts, and the NAPA Net Daily, we’ve helped you do just that. In the past few years, we’ve launched several NAPA credentials and certificates – the Certified Plan Fiduciary Advisor and more recently the Nonqualified Plan Advisor, as well as NAPA’s PracticeBuilder and Qualified Plan Financial Consultant (QPFC) credential.

Now it’s time for plan sponsors.

This need for education – and acknowledgement of expertise – of plan sponsors was one of the first items discussed with the Plan Sponsor Council of America as they joined the American Retirement Association. We’ve spent the past year in close collaboration with various subject matter experts, including volunteers and the leadership of the PSCA not only discussing this scope of this education need, but also developing a solution.

Last week we unveiled a new industry credential: the Certified Plan Sponsor Professional (PSCA CPSP^TM), and – coincident with the NAPA 401(k) Summit – we are extending to NAPA Certified Plan Fiduciary Advisors the opportunity to extend complimentary access for some of their plan sponsor clients and prospects to the education program associated with the CPSP credential.

Leveraging the latest in online education technology and adult learning methods, this three-course, nine-module online program was developed by plan sponsors and some of the nation’s leading retirement experts to improve and enhance plan sponsors’ understanding of how to effectively evaluate, design, implement and manage a comprehensive employer-sponsored retirement plan. It deals with establishing organizational objectives, plan design, behavioral finance and employee engagement, investment concepts, fiduciary oversight and risk management, compliance, and even vendor management. In sum, it deals with a broad spectrum of issues, concerns and insights regarding retirement plan design and administration.

The education program is designed so that plan sponsors with varying levels of experience and expertise can move through the course flexibly – but provides enough detail and supporting resources that those who are still relatively early in a plan sponsor role can focus on needed knowledge points. Ultimately, those who attain the CPSP credential, by possessing the requisite experience and passing the rigorous credentialing exam, will have demonstrated that they have the knowledge and practical application skills needed to protect their organization from unnecessary fiduciary risk while helping their plan participants achieve better outcomes.

We’re excited about this new credential, and its prospects – not only for enhancing the knowledge and appreciation of dedicated plan sponsors, and for helping advisors add value to their relationships, but also for the positive impact that valuable, practical, timely education in the hands and minds of dedicated retirement plan professionals surely has on the outcomes from our nation’s retirement system.

You can find out more about the program, the credential and the PSCA National Conference, where we’ll be sponsoring a preparatory boot camp for plan sponsors, at www.pscalearn.org.

- Nevin E. Adams, JD

4 Reasons Why Plan Sponsors Should Care About the Fiduciary Proposal

As I talk to retirement plan advisors and plan sponsors around the country, there seem to be three camps of thought on the Labor Department’s fiduciary reproposal:

• those who think it will be a big deal;
• those who think it will be a big deal but manageable (once certain key issues are addressed); and
• those who are nearly completely oblivious as to the proposal, its potential impact or its current status.

Unfortunately for advisors in the first and second category, nearly all plan sponsors seem to be in the third group.

Here’s why plan sponsors should care about the proposal.

You might have to change your plan education materials.

Remember back when your plan education materials only had generic fund references, and your participants struggled to figure out which of the specific funds on their plan menu were supposed to match up with those colored pie chart pieces? Remember how frustrated they were when you couldn’t tell them? And how poor the results were? Perhaps not, because you’ve been able to show sample asset allocations including actual fund names for well over a decade now as participant education.

However, as currently proposed, the Labor Department’s fiduciary proposal would consider any specific fund references to be advice, not education. And that would make the folks who provide such materials fiduciaries. And that would likely mean a return to education materials that aren’t nearly as educational.

You might have to change advisors.

The rules about how advisors work with retirement plans and retirement plan participants are getting ready to change, arguably in ways as significant as at any time since the passage of ERISA. For some advisors, that may mean that they will want to focus on different areas, some may choose to focus on different size plans, or to forgo working with plan participants altogether.

And while this could also bring a whole new generation of advisors to choose to work with these plans, this is a big change. And though we don’t yet know what the ultimate result will be, things will likely not be the same, particularly for smaller employers, who may very well find that the advisors they work with now will not be willing (or able) to serve their plans under the new regimens.

Your advisor might be more expensive.

There are doubtless advisors and advisor practices out there who won’t have to change a thing in order to comply with the new regulations, and whose fee structure won’t be affected. But others will, and those who do have to make changes could have to make a lotof changes – and that could affect how, and how much, they charge. And that could, of course, have an effect on others.

These changes might not be effective immediately, and how – and how much – will obviously depend on exactly what form the final regulations take. There will almost certainly, at least at the outset, be fewer advisors working with retirement plans. As for what that may mean to their costs, only time – and the final regulations – will tell.

Your advisor may not be able/want to help participants with their rollover decisions.

Today many retirement plan advisors only work with plans, or with participants in those plans. However, a growing number either work with participants as they consider a rollover decision, or have others in their firm who do. Participants who have developed a relationship with a plan advisor while they are accumulating retirement funds often have an interest in extending that relationship to the time when they are trying to figure out what to do with a rollover, or how to create a reliable stream of retirement income that won’t end before their retirement (particularly since a significant percentage of plans don’t offer a systematic withdrawal option). Similarly, plan sponsors, who have undertaken a review and monitoring of those advisors while they work with plan participants have generally prefer to see those discussions taking place with that trusted advisor than with some random advisor off the street.

And for those plan sponsors who want to encourage ex-employees to roll those balances over to another account, the current plan advisor can be a valuable help in facilitating that decision.

However, the Labor Department’s current proposal would, at best, greatly complicate this relationship. The services provided to a participant among many in a workplace retirement plan are quite different from that for an individual in a rollover situation, or one who would be rolling those savings into an individual retirement account (IRA), with the broader array of choices and decisions that would entail. However, the DOL’s current proposal would restrict even a level-fee plan advisor from working with an individual participant circumstance if he or she charged more, even if the level of service was significantly different and more complicated, even if he or she charged a flat fee for those highly individualized services.

That’s why the American Retirement Association and NAPA have advocated for a “level-to-level” compensation exemption that would address this issue.

Of course, at this point, these potential issues are just that – potential issues. The Labor Department has taken great pains to assure legislators, industry professionals and the public at large that they have listened, and are making a serious effort to address the major concerns expressed regarding the proposal (our concerns are outlined here and here).

Still, the devil is (always) in the details, the “proof” in the pudding. But as we wait to see how the Labor Department has chosen to address the concerns expressed, plan sponsors – and advisors – who haven’t yet given consideration to the potential new landscape for retirement plan education and advice would be well advised to do so.

- Nevin E. Adams, JD

State “Capital”

I recently had the opportunity to attend The National Financial Capability Study Roundtable, where a variety of researchers (including EBRI’s Sudipto Banerjee) presented, discussed, and challenged a variety of research papers on topics ranging from financial literacy and retirement planning to financial advice, and from financial literacy and financial behavior to “Prohibition, Price Caps and Disclosure”. Taken as a whole, the day’s discussions focused on ways to better understand and measure the factors that appear to influence individual behaviors regarding their finances.

Simply stated, financial literacy is generally described as the ability to understand finance. More recently, some have begun to focus on financial capability¹. Research has shown that people with higher levels of financial literacy approach retirement with much higher levels of wealth. However, a growing body of research also suggests that most Americans have limited knowledge about concepts such as inflation, compound interest, and risk diversification at a time when they face an increasingly complex financial planning process alongside an expanding set of saving, investment, and decumulation options.

Drawing on data from the National Financial Capability Study (NFCS)², designed by the FINRA Investor Education Foundation (an ASEC member firm), Dr. Banerjee’s report³ noted that the chances of having a bad financial behavior decreases with age, and that the chances of exhibiting a bad financial behavior go down with education and income. Interestingly enough, full-time and part-time workers, homemakers, sick or disabled, and unemployed or laid-off individuals were all more likely to have bad financial behavior than self-employed people.

That said, the report specifically examined the role of where you live – specifically the state in which individuals live – in explaining financial literacy and behavior. It also ranked all U.S. states in terms of financial literacy and financial behavior of its residents.

Financial literacy and financial behavior are strongly associated with an individual’s age, income, education and other demographic characteristics. The study shows that, after controlling for the effect of these individual demographic characteristics, most bottom-ranked states had a statistically significant effect on their residents’ financial literacy and almost all states have a statistically significant effect on their residents’ financial behavior. However, the chance of exhibiting “worse”financial behavior increased as the financial behavior ranking dropped.

According to the report, this suggests that there might be factors shaping individual financial literacy and behavior other than individual demographic characteristics – and they might be influenced by the state in which people live.

- Nevin E. Adams, JD

¹ The National Financial Capability Study identifies four key components of financial capability as (1) making ends meet, (2) planning ahead, (3) managing financial products, and (4) financial knowledge and decision-making. See http://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p120535.pdf

² The National Financial Capability Study is available online at http://www.finrafoundation.org/programs/p123306

³ Banerjee’s paper, including the state rankings, is online at https://custom.cvent.com/09056B0B33C34EC2BECC8C4A235B766F/files/event/51EB0D7B12344774B422F6A615E9B8B9/0c08c7cd98d74c01bf954ad368275ff4.pdf. See also“How Do Financial Literacy and Financial Behavior Vary by State?” in EBRI Notes, November 2011 at http://www.ebri.org/publications/notes/index.cfm?fa=notesDisp&content_id=4936

IMHO: Catching Your Drift

I recently found myself driving in an unfamiliar city without the aid of a GPS (global positioning system).

Sadly, I had become so accustomed to having that device available, I hadn’t even taken the time to print out instructions from any of the usual Internet sources, and while there were maps in the vehicle, none were of the area in question. That didn’t matter, I told myself—because I had made that drive before, had a pretty good idea of where I needed to be and, armed with a pretty reliable memory for such things, I set out with only a little trepidation.

Just about the time I was getting pretty confident in my ability to navigate without all the high-tech “crutches,” I was thrown a series of curves. The primary route was closed due to construction, the rerouting didn’t seem to take into account where I was trying to get to, an unexpected one-way street suddenly emerged going the “wrong” way, and then I found myself directed onto a parkway whose designers had apparently never contemplated the need of a misdirected driver to pull off and turn around.


In just a matter of minutes, I went from coasting along cool and confident to a state of growing concern (it felt suspiciously like panic) as I began to be drawn what I was sure was miles off my designed course, and heading further away all the time.

Then I remembered that I DID have a GPS on my phone. One that, admittedly, lacked the calm, reassuring voice of the more traditional version giving me step-by-step directions, but it was something. However, it wasn’t the ability of the device to offer routing instructions that I found most useful—the screen was too small (and my need to watch traffic too great) to do much with that feature.

The feature that saved me that day was the blue dot—that element of the GPS that, with a simple touch, will show where you are. That information, presented on the map of my surroundings, allowed me to not only find where I was, but to then visualize where I needed to be and begin heading in that direction. Oh, I missed a turn or two after that, but thanks to that locator “dot,” I quickly saw when I made those mistakes and was able to remedy them before going miles out of my way.

Most participants don’t set out on their retirement savings journey with a confident sense that they know where they are going, much less any real sense of how to get there. Nonetheless, by the time they sit through an education session (or two), make their way through the attendant materials, and try to complete the requisite enrollment forms, they may well feel that they are heading in the right direction.

And then, something happens—it doesn’t have to be an “event” like the financial crisis of 2008 (though it can be); sometimes it’s as simple as just not having had the time to pay attention to your account while the market decides to go on a losing (or winning) streak, or it can simply be a result of the preoccupations that come with those ordinary, but often unplanned, changes in your daily (and financial) life. It can be any of a series of things that pop up just about the time you think you have nothing but smooth sailing ahead; the things that crop up to suddenly “close for construction” the path you had thought you’d be able to follow for a long and uneventful journey.

At times like that—and, arguably, at any time—it’s important for participants—and plan sponsors—to have some kind of idea not only of where they want to be, but where they are relative to that destination.

Because, after all, it’s a lot easier to stay—and get back—on track the sooner you find out you’ve begun to drift from it.

—Nevin E. Adams, JD .

The IKEA “Experience”

We spent some time this past weekend getting my eldest daughter squared away in her new apartment. It’s her first, and as with nearly all first apartments, there is a lot you need to get that you never needed in your room at home or in your dorm away at college. So we headed out to IKEA.

Those who have never had occasion to visit an IKEA store should check it out at least once. They are mammoth stores—big on the outside and seemingly even more massive on the inside. It’s the kind of store you can easily get lost in (not to worry, they have their own food court inside), and yet it’s very hard to simply get from point A to point B, even if you know what you want to buy. About the only way to get through the store is to wander along the winding path the IKEA folks have constructed that takes you—literally—through every display imaginable.1

But the really interesting thing about the IKEA shopping process is that you not only have to find what you want, you must write down the part number(s), and—at the end of your journey through this mammoth store—you must assemble the requisite pieces/boxes in the warehouse.2 You not only have to make sure that you have each of your purchases, you frequently have to make sure that you have all the (separate) boxes into which your purchase has been divided. Ironically, the consummation of that IKEA shopping experience is that you get to go home and put your purchases together.


Now, I’ve never met anyone who didn’t like the IKEA “experience.” Oh, some might not care for the quality of the furniture, or the selection—and surely I’m not the only one who wonders why I have to do all the work (I understand that it’s supposed to be cheaper, but I haven’t found it to be cheap). But it’s not for those in a hurry, and at the end of the night, I kept feeling like I should be able to present someone else with the bill!

As I was loading up the family van with our purchases, I wondered if this is how participants feel about the current structure of our voluntary savings system: one (still) fraught with a mind-numbing array of choices that have to be assembled at the point of enrollment by participants who want to do the right thing(s), but who find themselves stuck trying to follow an instruction manual they don’t quite understand, surrounded by people who seem to get it (but probably don’t, either), only to find themselves at the checkout counter wondering if they do, in fact, have everything they need—only to then have to go home and put it together themselves.

And I wonder if, when they tally up that bill, they too will observe that it’s probably supposed to be cheaper that way—but find that it’s not exactly cheap.

—Nevin E. Adams, JD

1 This turns out to be an interesting way to create the kind of “impulse” purchasing that most retail stores only have positioned at the checkout counter, as one continually wanders past interesting things that you hadn’t even thought you needed. On the other hand, the maps posted along the way that purport to show you where you are were not exactly reassuring to those in a hurry.

2 A place reminiscent of that last scene in “Raiders of the Lost Ark” (albeit with numbered shelves and aisles).

Hurricane Forces

It’s been a stressful week—and it’s not over yet.

Over the past 10 days, I’ve managed to survive three college move-ins, an earthquake in our nation’s capital and—with a little luck—a hurricane bearing down on the Northeast even as I write this column.

Now, I know it’s summer—Labor Day is only a week off—and there’s a lot looming over our industry’s head, but the fact is, I am—perhaps like many of you—having trouble focusing on anything other than Hurricane Irene.

See, we live in a neighborhood that seems particularly prone to losing power, and we’re frequently the last in our town to have it restored—and that’s when we don’t have a hurricane sweeping the Eastern seaboard!

It’s bad enough to be without power for several days, but the last time it happened, it was accompanied by some significant rainfall, and we quickly found out (the hard way) that the sump pump that normally keeps that extra water from pouring into our basement requires electricity to function. Fortunately, we were able to borrow a neighbor’s generator before things got too out of hand, and once we were past that crisis, I determined never to go through that again. Figuring that a small portable generator was a prudent investment, I did a little online shopping, decided I knew NOTHING about portable generators, made a mental note to go back to it when I had time to deal with it… and never did.

Now, life throws a lot of curve balls at you—and forces of nature, more often than not, simply happen with little, if any warning. Hurricanes, on the other hand, you tend to see a long way off. Oh, there’s always the chance that they will peter out sooner than expected, that landfall will result in a dramatic shift in course and/or intensity, or that, like with Hurricane Katrina, the real impact is what happens afterward.

But still, hurricanes don’t generally spring up out of nowhere the way that tornadoes (or earthquakes) do. Incredibly, these massive storms with 100+ mile-per-hour winds seem to creep slowly toward land (with the relentless determination of a zombie in a George Romero classic) over a series of days.

In theory, that provides you with time to prepare—but, this week anyway, it mostly seems to have provided time to wonder why I didn’t do more.

I suppose a lot of participants are going to look back at our working lives that way as they near the threshold of retirement. They’ll remember the admonitions about saving sooner, saving more, the importance of regular, prudent reallocations of investment portfolios. Sure, you can find yourself forced suddenly into an unplanned retirement, but most have plenty of time; not only to see it coming, but to do something about it.

But only if they choose to do so before their retirement storm makes landfall.

—Nevin E. Adams, JD

What Lies Ahead - Part 2

If 2010 was not quite the return to “normal” we might have hoped, there was more than enough—both new and old—to draw the attention of plan sponsors. Here is the second part of our look at the trends that were on our mind this past year—and those just over the horizon.

Stop Gaps: Closing the Pension Funding Gap

What we said last year: 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.

Where we are: For the very most part, little has changed. Pension funding remains a challenge, with the funding gap seemingly constantly buffeted between the ups and downs of the markets and interest rates, despite the conscientious efforts of most plan sponsors to keep up with ever-tightening funding requirements.


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, while in the public sector, financial pressures seem likely to result in a different future solution for newer hires. Sound familiar?

Conflicts of Interests—Advice Regulations

What we said: 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.

Where we are: Well, we now have those regulations—a proposed final version, anyway. For the most part, they seem to have restored and shored the status quo. Not that that’s a bad thing.

What’s ahead: The final proposed regulations will, likely, become the final regulations, at least in the important areas. The big change in advice seems more likely to emerge from a different direction—the recently proposed regulations on the definition of a fiduciary, not so much because it will change the rules on advice, but because the controversy on advice has largely revolved around trying to avoid becoming a fiduciary while offering advice (and getting paid for doing so). And it seems likely that if the proposed fiduciary regulations become law, the advice net some have tried so hard to become ensnared in will, quite simply, be inescapable.

Tax Treatment—Paying Now or Paying Later

Where we are: For years, much of the impetus for the growth in tax-deferred savings plans has been the premise that one’s taxes and/or income would be lower in one’s retirement future. Those prospects no longer seem quite so certain, and new Roth provisions for workplace retirement plans offer today’s retirement savers a different kind of choice. That, coupled with a unique window of opportunity to convert tax-deferred balances (albeit at a price), has some seeing the benefits of tax-deferred saving in a whole new light.

What’s ahead: As with self-directed brokerage accounts, the Roth conversion window (and its affiliated tax acceleration) seems most likely to appeal to the highly compensated minority. Of course, the impetus for the conversion itself is not only the timing window, but also the (still) looming sunset of the Bush Administration’s tax cuts (well, it was looming when I wrote this). Of course, the real issue may be a shift in assumptions about taxes; what if they won’t be dependably lower in retirement?

—Nevin E. Adams, JD

Editor’s Note: If you missed it, you can check out the rest of the list HERE

The Measure of the Plan

Not so long ago, plan sponsors gauged the success of their defined contribution offerings by a single metric: participation rate. It’s not that they didn’t pay attention to other criteria, but participation rate is objective, easy to calculate, and, certainly for a voluntary savings program, it’s not an inappropriate gauge of the program’s perceived value.

Over the past couple of years, a growing number of plan providers have brought to market a new set of plan diagnostic measures, measures that not only show individual and plan balances, but also project those balances out to an estimate of what those balances will provide in retirement income, or presented as a measure of retirement readiness—compared with an established level of income replacement.

It’s not a new idea, of course. Heck, there has even been legislation introduced to place—on participant statements—a projection as to what the participant’s monthly retirement income would be. Meanwhile, despite long-standing fears that participants, confronted with the stark realities of their savings situation, would abandon the cause, the realities seem to be quite different. One might well expect the providers touting such wares to extol the virtues of the approach (and they do), but I have yet to meet a plan sponsor who had adopted these enhanced gauges of retirement readiness who said it had had a negative impact.

That said, there are still many plan sponsors that have not yet taken that step. At the PLANSPONSOR National Conference this past June, I asked the audience of some 200-plus plan sponsors if they had established any kind of target replacement ratio as part of their program design. While the survey sampling was admittedly unscientific (though I would suspect skewered toward more-active, involved, engaged plan sponsors) a whopping 78% said “no.” Just one in 10 said yes, while the remaining 12% responded “not explicitly, but it’s in the back of our minds.” (1)

Based on that result, I wasn’t too surprised that just 28% said their participants will be able to retire comfortably, while 43% said “maybe” (the polling was anonymous). (2)


Now, most of us have a hard enough time answering that comfortable retirement question for our individual situation, much less an entire employee populationbut I was struck by how many of those in that particular attendance didn’t even seem to have a rough notion in the back of their mind. As I explored that poll result with the audience, a couple of themes emerged: First, plan sponsors only know so much about an individual participant’s lifestyle, sources of income, and/or plans for retirement, and generally don’t have the time or inclination to know any of that, anyway. Second, these are voluntary programs, and while plan sponsors take seriously their responsibility to see that they are well, reasonably, and efficiently run, most don’t see it as their responsibility to make sure that participants are doing what they need to do (in fairness, most plan sponsors have their hands full just trying to make sure that THEY are doing what they need to do).

In casual conversations with plan sponsors about these types of programs and their reluctance to embrace them, it isn’t the cost or complexity that holds them back, nor is it concern about the response of newly enlightened participant-savers. Rather, it’s an underlying concern that, once those retirement replacement goals have been established at a plan committee level, and once those readiness results are presented in black and white (or multi-color) to plan fiduciaries, they could be held accountable for the results and/or shortfalls. Ignorance, to some it seems, is not only bliss, it’s a litigation shield.

Personally, I think plan sponsors already carry burdens and responsibilities beyond what many, perhaps most, are compensated for (and some beyond what they are aware). That said, it seems to me that presenting plan participants with specific information about their retirement savings situation, coupled with the kinds of diagnostic tools that accompany most of these offerings (not to mention the counsel of a trusted adviser) not only serves to help them make better decisions sooner, it effectively undermines their ability to later turn on the plan fiduciaries and try to hold them accountable for the participant’s results.

Now, some might argue that sponsoring these programs with no specific goal in mind is not much better than participants who save with no goal or focus to those efforts. Others would go so far as to suggest that failing to administer these programs with those kinds of specific goals in mind runs afoul of ERISA’s fiduciary charge.

For me, it’s not about measuring your program—it’s about seeing how your program measures up.

—Nevin E. Adams, JD ,

(1) While I don’t have a correlation between the responses and the program designs represented, it seems fair to say that many were in the DC-only camp.
(2) As for the rest of the responses, 16% said “no,” 10% were “not sure,” and 3% said “I’ve no idea.”

Thanks Giving

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

Here's my list for 2010:

I’m thankful that the vast majority of plan sponsors continued to support their workplace retirement programs with the same match and options as they had in previous years—and that so many of those who had to cut back in 2009 made the commitment to restore some or all of it in 2010.

I’m thankful that participants, by and large, hung in there with their commitment to retirement savings, despite the lingering economic uncertainty. I’m especially thankful that many who saw their balances reduced by market volatility and, in some cases, a reduction in their employer match were willing and able to fill those gaps, in most cases by increasing their personal deferrals.

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 for the time, cost, and effort employers expend each year on health-care coverage for their workforce—never more so than this year with the absorption and assimilation of requirements under the new health-care law.


I’m thankful that those who regulate our industry continue to seek the input of those in the industry—and that that input continues to be shared broadly in open forums. I’m thankful that so many in our industry take the time to provide that input.

I’m thankful that so many employers have remained committed to their defined benefit plans and—often despite media reporting to the contrary—continue to make serious, consistent efforts to meet funding requirements that are quite different than when most initially decided to offer these programs.

I’m thankful that plan sponsors will soon have better access to more information about the expenses paid by their plans—and optimistic that it won’t be as bad as some fear. I’m thankful that we’re no longer talking about whether fees should be disclosed to participants, and are now trying to figure out how to do it.

I’m thankful that a growing number of advisers—and the firms that employ them—are willing to accept responsibility as an ERISA fiduciary.

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

I’m thankful that we might—finally—be ready to have a national, adult conversation about retirement income and entitlement programs.

I’m thankful to be part of a growing company 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, 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, designation program, 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.

Thank you!

"Sure" Things

In a very real sense, this has been a “rebuilding” year for many plan sponsors and participants: a time spent rebuilding account balances, resurrecting and/or reviving employer matching contributions, a time for shoring up participation rates, and—in some cases—restoring trust. The markets, overall, have been sympathetic to those causes, but in many respects, the still-soft economic trends doubtless weighed on the kinds of dramatic trend shifts that we have seen in recent years.

That said, only a quarter (24.9%) of some 6,000 plan sponsor respondents said that “all or nearly all” of their participants were deferring enough to take full advantage of the employer match, a reading that declines sharply with plan size. Additionally, participation rates were roughly flat with a year ago; with responding plans reporting a combined participation rate of 71.5%, compared with 72.3% a year ago. The median participation rate was also lower; 75.0% in 2010, compared with 78% in last year’s survey.

As for automatic enrollment, the 2010 trend line was mixed. While the overall adoption rate was slightly lower this year, there was a discernable uptick in adoption at the largest programs (62.7% in 2010, compared with 52.3% a year ago) and about a 10% increase in the number of mid-size and large programs—but small and micro plans showed no change at all. The overall pace of contribution acceleration—that process of providing for annual increases in the rate of deferral—slipped from a 15.5% adoption rate in 2009 to just one in 10 plans this year (though most of that decline came from the smallest plans). However, even the adoption rate at the largest plans was effectively flat from a year ago.


The number of plans not offering some form of financial/investment advice continued to shrink. In this year’s survey, fewer than one in four plan sponsors did not offer that support, though larger programs were more likely to eschew the option. Relying on a financial adviser outside the plan was the preference for 37.5% of this year’s respondents, though that option was significantly more appealing to micro and smaller employers. While there continued to be different trend lines in different market segments, there was a distinct and noticeable trend across market segments toward offering—and accepting—“help.”

But as I sorted through the results of our annual Defined Contribution Survey, the one thing that emerged as something of a theme across multiple categories was—a lack of clarity. Plan sponsor respondents—and I maintain that those who respond to our survey are some of the most knowledgeable and actively engaged in their responsibilities—expressed what I thought were relatively high levels of uncertainty around several key plan-design elements: fees, target-date glide paths, retirement-income offerings, the focus of their investment policy statements, and even the “best” option for a qualified default investment alternative (QDIA).

Now, that may simply be a reflection of the wide array of choices available, the pace of new product development, and the unsettling effects of volatile markets. In fact, it might even reflect a certain level of prudent humility on the part of serious plan fiduciaries, who are aware of just how much they don’t know in the midst of that change and turbulence and are willing to own up to that reality.

After all, as Mark Twain once said, “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”

—Nevin E. Adams, JD

Scale "Model"

I’ve long had an issue with weight scales, for the perhaps obvious reason that, these days, they frequently deliver a message I’d just as soon not receive. See, even when I’m feeling pretty good about the way I look and feel, those scales generally remind me that is at a weight that I know is not “appropriate” for my height.

Over the years, I have rationalized that gap in any number of ways; that those scales are frequently inaccurate, that the definitions of “appropriate” are skewed, even that I’m wearing clothes (or shoes) at the moment that are throwing things off (hey, I’ve got pretty big feet). But since I know, deep down, that those are, after all, mere rationalizations for avoiding the truth, these days I pretty much just treat stepping on scales as I would stepping on a rusty nail—which is to say, I avoid them at all costs…at least until I manage to get back on a regular exercise regimen.

My sense has long been that that is how participants approach the issue of figuring out how much they need to save for retirement. It’s not that they don’t know they should know that number, and not always that they just don’t have time to deal with it. Mostly, they have a sense that the number will be larger than they would like it to be, and that, coupled with a sense that the savings they have accumulated will be smaller than it is “supposed” to be—well, let’s just say they don’t want to be reminded that their retirement plan health isn’t good.

There was some of that in the “National 401(k) Evaluation” published by Financial Engines (see Report Highlights Savings Gaps, Ways To Close Them). The report was, in fact, replete with signs that most participants in the sampling are not in very good shape when it comes to retirement, with roughly three-fourths not on track to replace 70% of their pre-retirement income at age 65. When you consider that about a third have badly allocated portfolios (the report somewhat euphemistically terms these “inefficient”), and that nearly 40% are not contributing enough to receive the full match—well, let’s just say that there are some obvious reasons for the gap.

IMHO, it’s more than a bit ironic that studies routinely show that participants who take the time to make that retirement assessment feel better—and are more confident—about their retirement preparations than those who don’t. Of course, it could be that the only ones taking the time to check things out are those who are already reasonably confident that they’ll get a good result; unfortunately, I don’t recall ever seeing a connection between pre-assessment confidence and post-assessment (nor, for that matter, do these confidence assessments typically correlate confidence with savings that justify that sentiment).

Still, I like to think that those who take the time to do the assessment find out that things are perhaps not as hopeless as they had thought—and that, following the assessment, they walk away with a specific action plan for either staying on track, or closing the gap between needs and reality.

Inside the Financial Engines report there are a couple of examples that illustrate the point. One is a 45-year-old participant making $50,000/year who currently has a $50,000 account balance and who is deferring 4% in a portfolio that is overly risky—a combination that the report says will leave him 27% below his idea goal (if the market performs “typically”). But the report notes that if this participant reallocates at an “appropriate” risk level, they can narrow the gap to 23%; if they do that AND save 2% more per year, they can cut the gap to 14%; and if they do both AND delay retirement two years—well, they’re on track. Or, this participant could simply save 8% more a year to achieve the same gap-closing result.

Now, like with my bathroom scale, you can quibble with the assumptions, but the important thing, IMHO, isn’t taking the time to figure out you have a gap—most of us probably have that sense before we ever sit down with our retirement plan statement. Rather, it’s the plan that comes out of that process—the plan that helps us get back where we need to be—that not only helps us feel better, but gives us a reason for that feeling. And, like that bathroom scale model, the longer you put that off, the longer that “recovery” will take – and the harder it will be.

—Nevin E. Adams, JD

Live Long and Prosper?

I’ve been a huge “Star Trek” fan all the way back to when I had to watch the original episodes on a tiny black-and-white, 13-inch television set with rabbit ear antennas (and, yes, adorned with aluminium foil). Unlike most of my friends at the time, my favorite character was Mr. Spock, whose understated strength, brilliant mind, and quiet commitment to logic had an appeal to a young kid who fancied himself to have all those attributes (thankfully, my ears weren’t pointed).

Perhaps as a result, early on, I mastered the “infamous” Vulcan salute that many people struggle to perform unassisted (it consists of raising your hand and spreading your fingers apart between the middle and ring finger), and the Vulcan greeting/blessing that accompanied the gesture—“Live long and prosper”—always struck me as being as elegant as it was simple.

While we all hope to prosper and live long, a recent Issue Brief released by the Center for Retirement Research at Boston College reminds us of the financial challenges that are often attendant with living long, but that tend to be glossed over in retirement planning. That particular study claimed that those who are in good health heading into retirement had better brace themselves for higher, not lower, health-care costs in retirement—since the researchers determined that the expected present value of lifetime health-care costs for a couple turning 65 in 2009 in which one or both spouses suffer from a chronic disease (defined in that research as diabetes, cancer, lung disease, heart disease, or stroke) is $220,000, while the comparable tally for a healthy couple was projected to be—$260,000 (see “Being Healthy Could Cost You More in Retirement”). Now, as usual in such matters, there is a certain amount of interpolation and extrapolation at work. Still, without wandering into the statistical “weeds,” a primary reason for that somewhat counterintuitive finding is that people in good health can expect to live significantly longer than their less-healthy counterparts—and thus, according to the report, are at risk of incurring health-care costs over more years(1).

Now, the point of the report wasn’t to encourage an unhealthy lifestyle; rather, it seemed designed simply to underscore the need to set aside money (2)—and a significant amount of money at that—for health-care expenses in retirement, regardless of how healthy you are (or expect to be).

Healthy or not, all other things being equal, the longer we live, the longer we must rely on our retirement savings. Not surprisingly, confronted with the potential of outliving one’s retirement savings, participants frequently fall back on an assumption that they will simply work longer. Now, that’s a good solution, at least in theory; saving, rather than spending, for additional years can do wonders to shore up one’s financial security—as long as you can count on being able to actually remain employed, that is. Unfortunately, even those physically able and willing to do so don’t always have that option.

That’s a reality that participants don’t always appreciate—and, IMHO, one that is all too often shrugged off in the retirement planning process.

The better option, if one hopes to both live long AND prosper, is to prepare as though you won’t have the time or the luxury to do so; to take action here and now, rather than banking on the opportunity to “make good” later on.

Anything else would be—illogical.

—Nevin E. Adams, JD

1 The report also acknowledges that, over those longer lives, those relatively healthy individuals may, nonetheless, eventually contract one of those chronic diseases.
2 More precisely funding. The report notes that “Households that delay purchasing insurance until their health declines run the risk of facing higher premiums, or for long-term care insurance, being denied coverage altogether.”

Goals Oriented

As the New Year begins, we are often of a mind to think about making a fresh start. Working with your plan sponsor clients, you may well have established new goals for your retirement plans this year—a new threshold for participation, perhaps—or maybe you’ve just rolled out a new fund menu for your participants.

But whether those programs have undergone change or not, it seems like a good time of year to help participants reexamine their savings goals—and perhaps even some of their “bad” retirement savings habits. Here’s a short list of “resolutions” that you can share with your plan sponsor clients—and discuss with their participants.

___ Resolve to participate in your workplace retirement savings plan.

If you are not already saving for your retirement in your workplace program, you are missing out on one of the most important—and easiest—ways of making sure that you are on track for a financially secure retirement. Unless, of course, you have a rich (old) uncle.

___ Resolve not to miss out on the company match.

Odds are your employer matches your contributions to your retirement savings account up to a certain level, say 5% of 6% of your pay. Whatever that level is, if you do not contribute up to that point, you are letting “free” money slip through your fingers.

___ Resolve to increase your savings rate in your workplace retirement savings plan by at least 1%.

If you are already saving, are you saving enough? Have you ever made an attempt—with some kind of planning tool or the assistance of a financial adviser—to figure out how much you will need? Even if you have, it is remarkably easy to increase your current rate of savings by as little 1%--and you might be surprised just how much difference that will make!

___ Resolve to consider rebalancing investments at least once this year.

Your retirement savings account is being rebalanced all the time—by the investment markets. You can start out the year with half of your account balance in stocks and the rest in bonds, and a month later find that 70% is now in stocks and just 30% in bonds, or the reverse. How much and how fast depends on how your balance is allocated, and what is happening in the market. The bottom line: Once you have taken the time to put together a thoughtful allocation, you need to keep an eye on things. Once a month is good, once a quarter is probably enough, and once a year—well, that’s a minimum. Try picking a day that you won’t forget—your birthday, an anniversary…. Or any three-day weekend.

___ Resolve to use target-date investments properly.

Target-date funds are a pre-mixed investment solution—and most are designed in such a way that they assume that you are investing all of your retirement savings in that one investment. If you mix and match that with other funds on your retirement savings menu—or split your savings between two (or more) target-date funds—you will probably wind up with a mess. Just pick one. It’s the basket you SHOULD put all your eggs into.

- Nevin E. Adams, JD

End "Points"

Several years back, after a day of meetings in Manhattan, I caught the train home. I wound up on one of those “milk run” trains that makes every stop along the way—and, trust me, there are a lot of stops between Manhattan and “home.” To make a long story short, I decided to take a short nap…and woke up just as the train was pulling away from my station.

It wasn’t a big “miss,” mind you. But that 15-minute nap cost me about two hours of time and a lot of aggravation…and, of course, it could have been a lot worse.

It seems that many things long taken for granted in our business are today being subjected to a whole new level of scrutiny, including the very efficacy of the 401(k). The most recent “target” is, of course, target-date funds—and the examiners no less than the U.S. Senate, the Securities and Exchange Commission, and the Department of Labor (see More Details Given on EBSA/SEC Hearing on Target-dates , Senate Committee Takes Aim at Target-Dates) .

That examination is not necessarily a bad thing, of course. The reality is that these offerings have quickly become a de facto investment solution for the nation’s prime retirement savings alternative, and in the past couple of years received nothing less than the official sanction of the DoL itself (at the instigation of Congress via the Pension Protection Act). That said, these solutions have benefited hugely from their simplicity. What is sold is the concept: professional money management, monitored and rebalanced over time. And to some extent, that is also what is bought.

What’s Being Bought

However, IMHO, there is something else that is being bought, if only implicitly—the ability to not have to worry about saving for retirement(1).

With target-date solutions, and more specifically with target-date solutions as part of an automatic-enrollment strategy, we’ve been able to set aside many of the messages we once viewed as essential to participant/investor education. We no longer have to teach participants about the importance of asset allocation, the wisdom of “not putting all your eggs in one basket” (quite the contrary, in fact), nor the need to keep an eye on your investments and to regularly rebalance. The message today is, tell us your birth date and “we’ll take care of all that.” And so we have.

There are two problems with that approach as I see it. The first is one of message—I think we may well have given a fair number of participants a message, if only subliminally, that they no longer need to worry about their retirement savings because we’ve attended to their retirement investing(2). That, of course, can be easily remedied—an effort that will doubtless be encouraged by the sustained market downturn and its impact on investors of all kinds. Still, for many, I’m sure the recent downturn has left them feeling the way I did as I watched the train pull away from my station.

The second problem is perhaps more insidious—and it is that “problem” that I suspect regulators will be trying to deal with next month. It is quite simply that, at the moment, we have lots of target-date funds on the market with nearly identical names—but very different philosophies. And, like it or not, in an age where we’re selling “don’t worry about it”— somebody has to.

Personally and professionally, I would hate to see us “fix” the problem by complicating the simplicity of a target-date choice. On the other hand, how can we continue to hold out a dozen different versions of the “right” asset allocation mix for a particular point in time without doing a better job of articulating that those differences exist, and explaining what those differences are?

What’s a Target-Date?

I’d start by explaining “target-date.” Once upon a time, the target-date was widely understood as being your retirement date, but more specifically, it was the date on which you would stop accumulating money for retirement and start drawing it down; and, yes, in most cases that was focused on the year in which the investor turned 65. Of course, these days, the definition of retirement is less precise; it’s not always 65, for one thing, and a growing number may leave a full-time career for a while and renter the workforce a couple of years later. Those kinds of changes, if not always in the control of the individual participant, are at least things that he or she is in a position to be aware of.

But for any number of target-date solution providers, the target-date in their fund family name is only a mile marker along the way, rather than the destination itself. They have developed strategies that ostensibly take the participant investor not only beyond that retirement date, but, in some cases, to the date upon which they leave this mortal coil.

Now, there’s nothing wrong with that as a strategy if the participant-investor understands that and appreciates what that means. On the other hand, if they think—as I am sure many do—that the target-date is the end, the point at which they are “done”— well, they could well wind up, as some surely have, being taken beyond their intended station—with no easy way to get back.

—Nevin E. Adams, JD

(1)I realize as well as anyone that you don’t invest your way to retirement security. But we also know that most participants tend to concentrate on the things they can’t influence (picking investment funds, market trends, the availability of a company match) rather than their rate of saving—ironically, the one thing that they can, subject to certain economic realities, control.

(2) While automatic-enrollment programs are clearly an effective means of getting workers to save for retirement, I’ve worried in this column previously that it might also insulate them from these issues (see IMHO: “Expert” Opinions).

Tweet Spots

Those who try to figure out when certain trends reach a tipping point—who try to figure out when things have crested, the beginning of the end of the beginning—should note that we may have reached that point about three weeks ago—when I started “tweeting.”

And, no, I wasn’t commemorating the arrival of spring by making bird calls. “Tweeting,” if you haven’t heard, is reportedly now all the rage as a means of communication.

Well, sort of.

See, you “tweet” by establishing an account on twitter.com (it’s free). And, once there, you can keep everybody up to date on what you’re doing.

Well, sort of.

What you actually do is update everybody who has signed up for your updates (“followers”). And, by update, what I mean is that you can tell those following your activities what you’re doing…in 140 characters (or less). Not 140 words…140 CHARACTERS. About half the length of this paragraph….

Now, I’ve been aware of Twitter and its capabilities for some time now. But, for a guy who long ago eschewed putting up creative status messages on AOL’s Instant Messenger, and who still finds Facebook’s “what are you doing now” box an annoying reminder of unfinished business (not to mention a mundane existence), the notion of incessantly updating the world on the trivialities of one’s daily existence just seemed—well, trivial.

Having said that, over the past several weeks I have found Twitter to be an interesting way to keep up with breaking news from a wide variety of sources (including politicians, many of whom are now “tweeting,” apparently), has already helped me find a good book, allows you to connect with people you wouldn’t normally be able to even find, much less interact with (although that cuts both ways), won’t tie up your e-mail, and has the potential, believe it or not, to actually help you find information and promote your professional activities.

Well, sort of.

As long as you can do so in that 140 character space—and only, to state the obvious, if somebody’s “listening.”

In point of fact, while for the moment it’s “fun,” I’m not yet sure how effective tools like Twitter will be in the long run, nor how its “soundbytes” will work for complex areas such as retirement planning. Not that I’m not intrigued by how Newt Gingrich spent his Friday evening (I’m more intrigued that he’d be willing to share that information), or how a “professional Wal-Mart shopping cart” finds the time (or Internet connection) to keep up with my postings, but there’s a great deal of this medium’s “information” that really isn’t worthy of that name. Still, it’s been interesting to meet the challenge of creating a message that (literally) fits the medium, and one that I’m sure I will improve on over time.

There’s a reason good advisers have an “elevator speech”—a “reason I should be hired to help you” explanation that can be delivered in the space of time an elevator ride consumes. Ditto the ability to share the essentials of participation and investing in a group setting in what are frequently “less-than-optimal” settings. Sometimes, perhaps most times, you simply don’t have all the time you’d like to explain things the way you’d like to explain them.

There is a science to being heard amidst all the clutter, IMHO. It’s all about attracting followers, and, from what I have discerned on Twitter, at least initially, you must follow to be followed (unless, of course, you’ve already attracted a following). You also have a much better chance of being heard, IMHO, if you’ve been referred/followed by someone they are already listening to.

Success in this “new” medium (it’s about three years old) seems to be about listening at least as much as you talk, sharing timely information that is useful (and entertaining), and doing so at a time—and in a setting—that is convenient for those whom you want to reach.

And in my experience—regardless of medium, message, or audience demographic—that’s always been the best way.

—Nevin E. Adams, JD

You can follow me on twitter at http://twitter.com/nevinesq

“Focus” Group

A couple of weeks back, I got an e-mail from Robert Powell, who writes on personal finance for MarketWatch, and he asked an interesting question: specifically, what, in my opinion, were the top five retirement priorities that the Obama Administration should focus on?

Now, that’s a more complicated question than you might think at first glance. For instance, if you were to ask me what ONE thing should be dealt with, I could probably pull something hugely critical out of the air. Not that it wouldn’t be hard to come up with just one thing—but there’s a certain clarity to that process. However, once you get going, it’s harder than one might think to keep the list to five. Furthermore, there are LOTS of little things that you know would make the system better, but if you can only come up with five—and five for presidential-level involvement, no less—well, you also tend to focus on the big picture.

In any event, here’s my list:

(1) Focus on expanding coverage with the ACTIVE involvement of employers.
Everybody realizes that it is a problem that only about half of working Americans have access to a workplace retirement savings plan, and candidate Obama has talked about a mandatory payroll IRA. However, in my experience, while that may make it easier for more workers to save (they would be auto-enrolled, but could opt out), it still will be problematic for the employer to set that up for all workers, only to dump them in a retail-priced IRA. That's better than a poke in the eye with a sharp stick, but they'd be MUCH better served, IMHO, by getting the benefits of institutional pricing/fiduciary oversight that come with an employer-sponsored program.

Additionally, I think the creation of these alternatives to workplace programs will encourage employers that currently offer these plans to "step aside"—and let the government-sanctioned approach take over.

By the way—getting employers involved will mean that the government will need to spend some time understanding why more employers don't offer these programs, and it will mean that they have to understand that there is a difference between making it easIER to offer these plans, and making it truly EASY to do so. How about an “auto-enrollment” program that also makes it easy for plan sponsors to do the right thing?

(2) Shore up Social Security.

It's not only the third leg of that vaunted three-legged stool, it now represents about half of most retirees’ income (the shocking thing is how little income it is for that percentage). The future solution, whatever it is, needs to be based on a solid foundation. This is the place to start.

(3) Establish some kind of national retirement policy.

Pensions were never as widely available, or as "lucrative," as people sometimes mythologize them, certainly not in the private sector. As for 401(k)s, they were never designed to provide a single—or even a primary—source of retirement income. Social Security has "morphed" well beyond its original design and no longer accurately reflects the demographic realities of the nation. Let’s admit it: The “three-legged stool” is a rationalization, not a reality.

We need a plan—a blueprint, a roadmap—rather than the "necessity is the mother of invention" approach we have stumbled along with these past 50 years. I find it ironic that we regularly disparage participants for not developing a plan for retirement financing—when we, as a society, suffer from the same “it will work out somehow” perspective.

That plan needs to articulate what we as a nation expect our obligations—both personally, and as a society—to be. But, whatever plan we develop may—and should, IMHO—need to consider different solutions for varying generations of our society. Social Security may well have to be the primary solution for those over 55, but why should we limit ourselves to that for someone who has just entered the workforce?

(4) Help the free market fix health-care costs.

Several studies have documented the impact of health-care costs on retirement savings. Personally, I don't think a government-based solution fixes the “cost” problem, and it may well "break" the access those with health insurance currently enjoy. But you don't want people to have to drain their retirement savings for one extended stay in the hospital.

(5) Imbed financial education in the elementary school curriculum—and further.

As the father of three, I can tell you that, if kids were exposed to even half as much education about finances and the markets as they are classes on drugs and sex education, we'd all be much better served—and much better prepared to take responsibility for our financial futures, both pre- and post-retirement.

And, ultimately, isn’t that the soundest solution of all?

—Nevin E. Adams, JD

The MarketWatch column (I wasn't the only expert to contribute) is online HERE

Irreconcilable Differences

Last week, the Department of Labor took another step toward finishing another piece of unfinished business.

It did so by proposing regulations necessary to implement (in confidence, anyway) the provisions of the Pension Protection Act (PPA) dealing with investment advice offered to participants under the auspices of a fiduciary adviser.

For the most part, the proposals (see “EBSA Clarifies Investment Advice Regulations”) seem fairly unobtrusive—if not downright “squishy” (more on that in another column). And, like the recent proposals on fee disclosure (see “IMHO: No One (Else) To Blame”), most of the 129-page document is spent outlining the details of the proposal’s cost/benefit analysis ($10 billion, in case you were wondering—$14 billion in benefits versus $4 billion in implementation/compliance costs). So, if you were having trouble working up the courage to wade through the PDF, take heart—the meat is found in the first 35 pages (with the occasional reference to a glossary at the back).

I was about halfway through the document (yes, the whole thing), when the response from Congressman George Miller (D-California) hit my inbox. Now, I wasn’t surprised to find that Miller, Chairman of the House Education and Labor Committee, took issue with the proposal; it’s an election year, after all. But Miller didn’t just criticize the proposal, or say that it didn’t go far enough, as he has on issues like fee disclosure (see “Miller Fee Bill Cruises through House Committee”). No, he called the proposal “nothing less than a boon for Wall Street and corporate executives” and urged the DoL to “immediately withdraw these harmful proposals.” And then he took a final swipe, noting that, “[i]n its final months in office, this administration has developed a disgraceful pattern of sneaking in last-minute regulatory changes at the behest of special interests” (see “Miller Slams DoL Advice Proposal”).

Setting aside for a moment the contents of the proposal, it’s not like the DoL just rolled out of bed and decided to create some guidelines for investment advice. The PPA set out a lot of new rules and plan design opportunities and then—prudently, IMHO—left fleshing out the details on things like participant notices and, yes, fiduciary adviser investment advice to the ministrations of the Department of Labor. Legislation that, admittedly, is now two years old—but one can hardly argue credibly that the DoL hasn’t been kept busy trying to fulfill the “to do” list created by the PPA.

The reality is that the investment advice provisions of the PPA were among its most controversial —that they even made the final cut was something of a miracle or mistake, depending on your perspective; that the areas of gray left were so abundant perhaps an implicit acknowledgement of the inability to balance two very opposite views. Doubtless there were (are?) those who hoped those provisions would simply atrophy on the vine for want of attention.

Of course, the heart of the controversy lies in the potential, if not inherent, conflicts of interest that arise when advisers offer advice on investments that provide compensation to those same advisers. Some, of course, believe that those conflicts can never be surmounted, or at least that they cannot be surmounted by every adviser every time. Others believe that the problem can be overcome by a combination of process structure, disclosure, and oversight.

Whether or not the PPA’s broad outline—or last week’s DoL proposal—is sufficient to provide the latter will remain a point of debate, IMHO—except for those who will never reconcile themselves to the notion.

- Nevin E. Adams, JD

Motivationally Speaking

As anyone who has (or has been) a teenager can attest, motivation is a tricky business. Once upon a time, it took little more than a smile or a “good girl” to motivate my children to do the right things (alongside the occasional threat to rely on corporal punishment). But as they have grown older, the “motivations” have become more “challenging” (and, unfortunately, frequently louder); not because they are not interested in doing the right things—it’s just that they have other priorities.

Of course, teenagers are really just human beings (despite the occasional rumor to the contrary), and as such, they don’t always do the right thing, or do it as soon as a parent might prefer. So it also goes for adults—specifically, adults in the context of saving for retirement. Realizing that, we have long used certain subtle means of encouraging them to do the right things. We impose vesting schedules to encourage their continued employment, we offer “free money” in the form of company matches to spur their willingness to put some of their own money aside, we allow them to borrow against their savings so that they feel more comfortable about saving larger amounts than they might otherwise—heck, we even offer 401(k) plans to entice them to come to work for us in the first place.

In large part, those motivations have succeeded. Far more people participate in these programs than not, and the vast majority contribute to the exact level to obtain the full company match. More recently, a series of initiatives was first touted, and then legislatively sanctioned, to “motivate” those workers who, for a variety of reasons, had nonetheless been disinclined to take advantage of these programs: automatic enrollment to get them “in,” contribution acceleration to help them get to the right amount, and asset-allocation funds to help them get—and stay—optimally invested.

“Thinking” Caps?

Now, if these new tools work—and, by all accounts, they are working well—then, IMHO, it might well be time to give some new thought to our long-standing assumptions about participant motivation and plan design.

For example, why should the company contribution only go to workers who think they can afford to save? That, after all, is what a matching contribution does. And if you’re going to match contributions, why not do so with a smaller amount applied to a larger range of deferrals? Instead of 50 cents on the dollar up to 6% of pay (which leads participants to stop deferring at the 6% level), why not 25 cents on the dollar up to 12% of pay? Participants will likely save more—and employers might well save some money.

Why maintain these enormous menus of investment options that have to be selected, monitored, and explained—and which require participant involvement to rebalance—when it is so much easier to focus your due diligence efforts on a QDIA solution? And do you still need to offer loans to get workers to participate, when you no longer even require them to fill out an enrollment form?

I don’t mean to suggest that these changes won’t be viewed unfavorably by some. After all, if you used to get a 50% match for only deferring 6%, it’s hard to imagine a scenario in which a 25% match for the same deferral doesn’t look like a benefit reduction. And, as much bother as those bloated investment menus are, many participants like at least the illusion of broad choices—and may well feel a bit hemmed in by a QDIA. As for loans—well, you take that away, maybe more of those automatically deferred participants will actually expend the energy to opt out.

It’s hard to know just exactly how this new era of defined contribution plans—and plan participants—will respond to change. What we do know is that not considering the possibilities associated with these changes can mean that we overlook opportunities.

- Nevin E. Adams, JD