Are Your Retirement Savings Behaviors Naughty — or Nice?

  We’re often told that actions — or lack thereof — have consequences. Indeed, this is the time of year where many a stressed-out parent often falls back on the admonition from that holiday classic “Santa Claus is Coming to Town” — you know, “you better watch out, you better not cry…” because Santa is keeping tabs.   

In fact, as Christmas approached, it was not uncommon for my wife and I to caution our occasionally misbehaving brood that they had best be attentive to how their actions might be viewed by the big guy at the North Pole.

That said, a few years back — when my kids were still “kids” (and “believers”) — we stumbled across an ingenious website; one that did more than caution. It actually purported to offer a real-time assessment of one’s "naughty or nice" status. Our parental admonitions notwithstanding, nothing we ever said or did had the impact of that website — if not on their behaviors (they were kids, after all), then certainly on their level of concern about the consequences.

In fact, in one of his final years as a "believer," my son (who, it must be acknowledged, had been PARTICULARLY naughty that year) was on the verge of tears, distraught that he'd find nothing under the Christmas tree that year but the lump of coal and bundle of switches he surely “deserved.” 

‘Naughty’ Savers?

Arguably, there are plenty of websites available to workers to check on their status as “naughty” or “nice” retirement savers. Despite that availability, surveys consistently indicate that they are, for the very most part, disinclined to do so[i] — perhaps because they, like my son once upon a time, feared the answer.

Nor is there much sign that those fears ever translate into improved behaviors. Indeed, it often seems that, their bad savings behaviors throughout the year(s) notwithstanding, some think they'll be able to pull the wool over the eyes of a myopic, portly gentleman in a red snow suit, or perhaps pull off some kind of compounding “magic” with some last-minute savings scramble.

Not that they actually believe in a retirement version of St. Nick, but that's essentially how they behave, even though, like my son, a growing number evidence some concern about the consequences of their "naughty" behaviors. Also, like my son, they tend to worry about it too late to influence the outcome.

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Of course, the volume of presents under our Christmas tree never really had anything to do with our kids' behavior. As parents, we nurtured their belief in Santa as long as we thought we could (without subjecting them to the ridicule of their classmates), not because we actually expected it to modify their behavior (though we may have hoped, from time to time), but rather because we thought that children should have a chance to believe, if only for a little while, in those kinds of possibilities.

We all live in a world of possibilities, of course. But as adults we realize — or should — that those possibilities are frequently bounded in by the reality of our behaviors. And though this is a season of giving, of coming together, of sharing with others — it is also a time of year when we should all be making our list(s) and checking them twice — taking note, and making changes to what is naughty and nice about our behaviors, savings and otherwise.

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

It’s time to do more than just make a list — but it’s a place to start. And there’s no time like the present.

Happy Holidays!

• Nevin E. Adams, JD

P.S., Incredibly, the Naughty or Nice site is STILL online (at http://www.claus.com/naughtyornice/index.php.htm) — so check it out — cause you just never know…

 

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[i] Which should, of course, cast skepticism about the accuracy of their guesses as to what their retirement needs are, much less their current level of savings.

5 Ways Changing Jobs Puts (Your) Retirement at Risk

  Changing jobs can be a time of great energy and excitement — but if you’re not attentive, it can also undermine your retirement security. Here are five ways it can do so.

Cashing It Out

Probably the biggest job change risk to retirement security is the rollover decision. Generally speaking, most with balances less than $1,000 are automatically issued a check of their savings minus income tax and 10% penalties, those with between $1,000 and $7,000 are given two other options to cashing out: to roll over assets into a qualified IRA or to transfer to a new employer’s plan, while those with balances over $7,000 also have the option to leave their account with that old employer plan.

As you might expect, smaller balances are not only the most likely to be those of lower income individuals, but they also tend to be lower tenured and are more likely to be women. Oh — and if that individual has an outstanding loan? Well, that’s where the real “leakage” occurs. Remembering of course that there will be federal and possibly state/city taxes netted against it, not to mention a 10% penalty for all that are less than 59 ½.

Sizing the impact of this leakage is complicated, but the Employee Benefit Research Institute (EBRI) has estimated that each year approximately 40 percent of terminated participants elect to prematurely cash out 15% of plan assets. For 2015, EBRI estimated that $92.4 billion was lost due to leakages from cashouts.

Putting It in a Money Market ‘Mattress’

Even those who manage to successfully rollover their balance to an individual retirement account (IRA) can lose out on retirement account growth. A 2024 Vanguard analysis notes that 28% of rollover investors stayed in cash for at least 12 months, with minimal changes after the first three months following the contribution.

More than that, the report notes that among rollovers conducted in 2015, 28% remained in cash for at least seven years — and explains that younger investors, women, and those with smaller balances (who, of course, are the same groups that are more prone to cashouts in the first place) are especially prone to staying in cash for years following a rollover.

Which these days is pretty much the same result as sticking in under your mattress.

Leaving It ‘Behind’

In view of the hurdles cited above, it should come as no surprise that some go with the path of least resistance — and for some that means just leaving your account where it is. In fact, there are some recent surveys that suggest that employers are not only fine with that, there is some preference for leaving those balances — particularly larger balances — in the plan where they originated.

That’s just fine — and may even be preferable for any number of reasons — so long as you keep up with it. That said, it’s the kind of thing that’s easy to lose track of — that old employer may change recordkeepers, necessitating a new website/phone number to access your account, changes in investment options that might impact your account, or even — certainly if the balance is small enough — you just forgetting that you still have an account there. All in all, EBRI has estimated that over a 40-year period, those accumulations might add up to $1.5 to $1.99 trillion.[i]

Regardless, leaving one — or multiple — retirement plan accounts with your prior employer(s) may be the easiest thing to do at job change. However, that can make it more difficult to manage your retirement savings — and there have been situations where “forgotten” accounts have fallen prey to online theft, in no small part because they haven’t been accessed in a while, or perhaps not at all following a provider change. Just don’t let “out of sight” become out of mind.

Settling for Savings Rate Resets

Consider a 2024 Vanguard study that found that, despite having an increase in income from a job change, many workers experience a substantial slowdown in savings. The median job switcher saw a 10% increase in pay, but a 0.7 percentage point DECLINE in their retirement saving rate when they switched employers. And while most job switchers (64% of the income sample) experienced a boost to their income, just 44% increased or maintained their saving rate from their prior job.

Most (55%) actually DECREASED their saving rate in their new job. Arguably not because they intended to, but because they simply drifted along with the default savings rate at their new employer. Even when they experienced a pay increase of more than 20%!

Taking a New Job Without a ‘New’ Plan

A new analysis by the Employee Benefit Research Institute (EBRI) finds that when a worker did have a retirement plan at a job, they were more likely to stay at that job compared with workers who did not have a plan. The report notes that, for example, in 1996, 76.8% of retirement plan participants were still at the same job they had had in 1994 compared with just 58.1% of those who were not retirement plan participants.

On the other hand, among workers who changed jobs from 1996–2022, an average of 43.8% moved from a job without a retirement plan to another job without a retirement plan, while an average of 20.9% had a retirement plan at both jobs.

That said, only an average of 15.3% gained a plan upon job change. while an average of 20% lost access to a plan via work.

All that said, perhaps the most encouraging statistic comes from a recent Schwab survey of stock plan participants — and while that might be an unusual subset, according to the survey, 82% of respondents consider a 401(k) plan a must-have benefit when evaluating a new job, surpassing health insurance coverage at 78%.

Because, as we know, access to a retirement plan at work is the very best way to help provide for a financially successful life after work.

In sum, when making a job change, you should:

1. Look for ways to avoid taking a distribution (and incurring the substantial taxes).
2. Look to see if the new employer has a retirement plan — and whether it permits rollovers or not.
3. Make sure your rollover balance is properly invested.
4. Make sure your savings rate in the new plan keeps pace with your previous — and perhaps more if you got an increase.
5. And while you’re at it — it’s a good time to do a retirement readiness check-in to make sure that the plans for retirement are current.

-              Nevin E. Adams, JD

[i] There have been some ridiculous projections as to how much this adds up to. The point is valid — the math, not so much. See The True 'Cost' of 'The True Cost of Forgotten 401(k) Accounts.'

'Micro' Managing

 I recently stumbled into a bit of controversy on LinkedIn. 

Honestly, I’m not even sure how this wound up in my “feed” — but there was a post from the Atlanta Journal-Constitution on the topic of “micro-retirements.”

Now, if you’re like me, you may be wondering — what the heck is a MICRO-retirement?  Turns out that, unlike actual retirement, it’s a series of multiple, intentional “mini-breaks” from work throughout life — rather than waiting until the traditional “big” retirement at the end of a career. 

Some of you are going to say — oh, we used to call that a sabbatical. Others might well see this as some kind of extended PTO or vacation break. But those, of course, are generally employer supported/sanctioned, whereas these micro-retirements presumably would not be. 

Oh, and none other than sidehustles.com[i] (who admittedly might be biased on the subject) claims that 1 in 10 Americans plan to take one this year.

That said, it’s actually not a new term, though I don’t remember hearing it previously. Said to be the latest Gen Z trend, the current label gained traction in the mid-2000s, especially after The 4-Hour Workweek by Tim Ferriss (2007), which popularized the idea of “mini-retirements” as deliberate breaks instead of a single retirement at the “end.”

This was positioned as folks working for an 8-10-year stretch — saving up enough money for — whatever — and then taking several months or a couple of years to do — whatever (travel to Asia, volunteer, write a book, etc.) funded by savings accumulated during the working stretch. And then you come back to the workforce — maybe a completely different field, maybe something related to the time you took off, or perhaps your “old” field, but rejuvenated, inspired, etc. 

The controversy, as you might expect, was between those who did a bit of eye-rolling at the notion of just walking away from work for random, extended periods of time and those who viewed those eye-rollers as some kind of 19^th century neanderthal throwbacks for their more “traditional” views about work. Oh, and interestingly enough, age didn’t really seem to be a factor in those responses (if only because LinkedIn seems to still be dominated by “older” voices — or maybe that’s just my feed).

People change jobs all the time — and employers often terminate employment of hundreds (and even thousands) of people with precious little opportunity to prepare. At some level then, people deciding to take an extended break from work shouldn’t be all that disruptive.  On the other hand, “covering” for folks who are on sabbatical, parental leave, or even vacation does put a strain[ii] on the rest of the team (though I know of instances where their extended departure was welcome!). In other words, managing micro-retirements would/is surely (be) … complicated.

We spend a lot of time and energy worrying about people not saving enough even after a 40-year career, and so the notion that you’d pull up, stop and spend (and spend money supporting) an extended period (months to a year) on life experiences[iii] — well, I can’t quite get my head around it. That said, the side-hustles survey says just over half (52%) of those who have taken one plan to return to their current employer. 

In fairness, I’ve never had a sabbatical — heck, I never even took time off between my job changes (I know, sick, right?) — and I am widely (though good-naturedly) razzed about my personal (and still “evolving”) version of “retirement.” 

So, I may not be the most open-minded on the subject. 

But what do YOU think?

• Nevin E. Adams, JD        

 

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[i] Who also claims that 1 in 8 Millennials (13%) and nearly 1 in 10 Gen Zers (9%) are planning a micro-retirement in 2025, and that 1 in 5 Americans (20%) have previously taken a micro-retirement, including 22% of Millennials and 17% of Gen Zers.

[ii] 38% of the respondents to the side-hustles survey admit it causes staff shortages and strain on companies, though 54% say it prevents burnout and improves well-being — ostensibly for the retirees, rather than those covering for their outage.

[iii] I was mostly working on my own “life experiences” like raising kids, paying a mortgage, going to law school (at night, while working) — and doing jobs that were VERY full-time on their own.

The Hassle(s) With Student Debt Matching

 Despite a lot of enthusiastic support for SECURE 2.0’s qualified student loan matching provision (QSLP match), employers don’t seem to be adopting that provision. Maybe there’s a reason — or two.

Recently only 12% of sponsors answering Callan’s annual DC survey said they had decided to offer employer-retirement account matches on qualified student loan payments, while 49% said no and 39% said they were still deciding — and that’s a survey that skews toward larger plans, generally viewed as early adopters.

Those tepid numbers have been validated in several reader polls conducted by the Plan Sponsor Council of America (PSCA). In 2023, only 2.2% of respondents said they offer or will offer the program during the year. In 2024, it was 4.7%. In the January 2025 poll covering 154 responses, the adoption rate was just 2.6%. Oh, and the “no” votes over the years were, shall we say, “emphatic”: 66.2%, 64% and 74.7% respectively, according to Pensions and Investments.

While I understand and appreciate the impact that college debt can have on retirement savings, I’ve never been a big fan of this particular provision (albeit voluntary) of SECURE 2.0. My ambivalence[i] was borne out of a sense that I saw no reason to set out college debt for special treatment. It is, after all, a financial obligation willingly undertaken — but then, so are things like a mortgage, a car payment, or even rent. And data suggests that those taking on the biggest burden are either from higher-income households, in pursuit of professions that will result in higher incomes (law, medicine), or both.

Despite those concerns, much was made of the need for this provision, and there was a LOT of enthusiasm in the industry and industry press both prior to, and when it was included in SECURE 2.0. 

So, what happened?

Well, any number of things, surely — but I figured it was going to stall out when I first saw IRS Notice 2024-63, the aptly titled “Guidance Under Section 110 of the SECURE 2.0 Act with Respect to Matching Contributions Made on Account of Qualified Student Loan Payments.” 

Don’t get me wrong — I feel like the drafters of that guidance bent over backwards to try and make it easy for those with student debt to take advantage of the option. But at the same time, when you consider the administrative work that would need to make this a reality…

So, first off, we’re not just talking about the employee’s debt — and while it has to be something THEY are legally obligated to pay, it could be theirs, their spouses, or for a dependent. Those payments have to be made within the calendar or plan year in which they occur, and they are — as one would expect — subject to the 402(g) limits ($23,500 in 2025). So presumably those payments are impeding THEIR savings availability. Presumably.

The guidance allows the plan sponsor to take the employee’s word for it — well, at least in the form of an annual certification from the employee[ii] with regard to the amount, payment date, and loan classification, etc. Most of this on annual basis (hassle #1 — see footnote 2 for a potential hassle #2), though technically a plan can impose a reasonable deadline or deadlines for a participant to claim the match (three months after the end of the plan year is deemed “reasonable”). As a practical matter, this means the match cannot be made on a payroll basis, which many employers prefer — so, hassle #3.

Oh, and while there are provisions for a separate ADP/ACP test, that remains a timing issue (hassle #4). What do you do if someone terminates after they’ve made loan repayments, but before you’ve made the match? That would be hassle #5. Oh, and can the employee — if the plan allows workers to designate employer contributions as Roth — request that these matches be Roth as well? Well, yes, as it turns out — but if the employer has already allowed for this option — well, they’re already familiar with that “hassle” (#6).

And then, for plan years starting after Dec. 31, 2023, employers can offer the QSLP match to any employee eligible to participate in the DC plan, even if the employee isn’t contributing to the plan. Which might be another hassle (#7, if you’ve lost count). See where I’m going?

Over the past couple of years there’s been a tendency (if not a trend) to leverage the success of the 401(k) to solve or ameliorate a number of larger financial concerns (emergency savings, retirement income, financial wellness). I get it. One of my favorite aspects of SECURE 2.0 was how many of its provisions were optional — and employers are, thankfully, free to construct their benefit programs in ways that allow them to attract and retain the workers they need in the ways that make sense, and to take advantage of the tax laws to do so.

That said, I’m not surprised that a plan sponsor who has sat down with their advisor and their recordkeeper might well consider implementing a student loan match program to be more “hassle” than it’s worth. 

I guess I’m most surprised that some are trying to make this work, regardless.

• Nevin E. Adams, JD

 

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[i] For a more comprehensive exposition, see What's So Special About College Debt?

[ii] One of the concerns I have heard from plan sponsors is what happens when somewhere down the road it turns out the information provided by the employee turns out to be wrong, and corrections are required? Well, as it turns out, Q&A E-4 provides that the plan is not required to make a correction.