A Mother's Day Without Mom

  This weekend — for the first time in my life — I’ll spend Mother’s Day without Mom.

For most of my adult life I lived too far away for a trip home for Mother’s Day to be…practical. Not that I didn’t look for — and find — ways to connect with her during the year. But in my heart, Mother’s Day called for a special level of acknowledgement. That said, there’s an emptiness this year where that phone call should be. No need to time it around church or Sunday lunch — or the other calls she’d get.

Since her passing last December, these past months have been…rough. My siblings and I have, at various times, made trips to go through Mom’s house — she was a “gatherer” of family mementos across generations — much of which might, in other eyes, be characterized as “junk.” And yet, in going through the multitudinous boxes of photos and “stuff,” the elementary school awards (and grade cards), not to mention the cards and letters — so many letters — that we wrote to her over the years before things like Facetime, texts and emails took their place (Mom also printed a bunch of the emails) - it's provided lots of opportunities to remember and reflect. 

She was conscious of how many of her friends had, over the years, taken a bad fall from which they never quite recovered. Ironically, despite her caution, that was ultimately the event that led to her passing. I’ve noted before how — above pretty much everything else — Mom didn’t want to be a burden to her family. Not just on the financial front — though she’d been remarkably prescient in her preparations there. Somehow, miraculously, and even through COVID, a pacemaker and a heart valve, she managed to retain her independence. 

Indeed, generally speaking, women face many more challenges regarding retirement preparation than men. They live longer (and thus are likely to have longer retirements to fund), tend to have less saved for retirement (a result of lower incomes, as well as more workforce interruptions, both when children are young, and as their parents age). In addition to longer retirements, those longer lives mean that they are also more likely to have to fund what can be the catastrophic financial burden of long-term care expenses.  And then, among the unexpected expenses in retirement — as parents all know, are those related to your kids — because, even after they leave home and have kids (and expenses) of their own — they’re still your kids.

Sadly, because we know how much difference it can make in retirement savings, women are less likely to work for an employer that offers a retirement plan at work — to be part-time workers, and thus, less likely to be eligible to participate in those plans even when they do have access.

Oh, and like my mother, they tend to outlive their spouses — often by far more than the relatively modest variance in average life expectancy tables suggest. Mom lived on her own for nearly two decades without my Dad. So many times over the past several months she told me how she never thought she’d spend so many years… alone. 

So, if you’ve still got your mom with you this Mother’s Day, don’t wait. Don’t assume there’s time. Send the card. Make the call. Take the picture. Make the trip. Not just because you’ll want the memory someday — but because she deserves it now. And you’ll treasure it one day.

And if, like me, this year finds you standing in the soft ache of absence — know this: a mother’s love doesn’t leave. It lingers. It lives on in the habits she passed down, the values she taught, and in the many quiet ways she shaped the world around her — and you.

Happy Mother’s Day, Mom. I miss you.

- Nevin E. Adams, JD

Missing the Mark

 A recent survey posed an intriguing question: Why are employees not participating in their 401(k)s? The answer(s) were jaw-dropping.

Now, I’ve previously expressed skepticism regarding workers’ perception of things like retirement savings needs, much less retirement savings balances, and over the years there has been plenty of anecdotal evidence to suggest that workers think they have a pension, despite plenty of actual data to indicate that’s a misguided fantasy. In sum, it seems that many, if not most, workers have a pretty distorted view of their financial circumstances, certainly as it relates to retirement.

That said, a recent survey by Principal takes that to a whole new level. 

That survey found that more than half — 59% — of workers who were not saving for retirement — thought they WERE saving for retirement. Nearly half (49%) thought they had been automatically enrolled, but nearly as many (41%) thought they had signed up on their own. And three-quarters (77%) said they had started saving as soon as they were eligible for the plan!

And if that wasn’t enough — turns out that while 83% say that they’d start contributing if they received a match ... 78% of those respondents are actually in plans that DO offer a match. Oh, and 70% of those who thought they were contributing (but weren’t) actually thought money was being deducted from their paychecks for that purpose.

Oy vey!

Some of this confusion might be a consequence of turnover — 40% said they had had more than one job in the past five years, after all. Let’s face it, it’s easy to lose track of things like benefit enrollment when you’ve changed jobs that often (or to assume that just because you were saving at your old job transferred to the new one). Some can doubtless be attributed to the industry’s growing reliance on automatic features — both by plan sponsors and workers — that lessens or eliminates the traditional need to be attentive to such things. Ultimately, a big part of it is likely nothing more than a combination of both the complexity of the process and the “distractions” of daily life.   

Now, I’m not quite sure how to remedy the passivity of those relying on their employer to sign them up, much less the myopia of individuals who aren’t even paying attention to the deductions on their paystubs. Maybe we should start mailing out statements to non-participants that showed a $0.00 balance (in red) that confirms their lack of an account — though my guess is they’d just file it away. 

Whatever the reason(s), this survey suggests that messages about the importance of saving for retirement — much less saving more — are likely going right over the heads of people who seem to think they already are. 

And in that sense, this survey also suggests that OUR assumptions about the efficacy and impact of our communications in inspiring better efforts — could be missing the mark as well.

- Nevin E. Adams, JD 

Do Roth and 401(k) Pre-Tax Holders Really Spend Differently?

An interesting—and somewhat counterintuitive—report came out last week, one that cast doubt on the “common wisdom” regarding Roth versus traditional pre-tax savings.

The assumption underlying the research[i] was that those who had not yet paid taxes on their savings (the traditional pre-tax savings) would be hesitant to tap into those savings and trigger taxes, certainly more so that individuals that had already paid those taxes. Instead, the research suggested that the opposite occurred; that individuals who had saved on a pre-tax basis actually withdrew more/sooner—but with a twist. 

This they hailed as good news. They noted that the research suggests investing in a CT (current-taxed, or Roth) plan could help ease concerns about outliving funds—because they spend at a lower rate (though they saw this as a negative for those who saved on a deferred tax (DT) basis).  They even managed to find a silver lining in the “cloud” of faster spending by the pre-tax crowd because those individuals appeared to be trying to adjust for the effect of taxes (with the caveat “despite our findings that they do not appear to adjust sufficiently, if at all”). And they saw as a positive this report’s contribution to the “accounting literature exploring the effectiveness and consequences of incentivizing behaviors through tax policy, by highlighting how past decisions motivated by taxes (e.g., retirement plan type) may continue to affect one’s quality of life long into the future.”

A few words of caution would seem to be in order, however. This wasn’t based on the patterns of actual people spending their actual money in the real world. Rather, and to their credit, they constructed a laboratory environment of sorts; they selected a group of volunteers, gave them certain criteria—basically a role they would “play” in the experiment—and set out a spending scenario. They then had them read about various spending choices—and, well—recorded how the individuals chose.

As for their conclusions, when you probe into the results more carefully, what you see is that even though those who had pre-tax accounts ostensibly feel the “pain” of taxes due on their retirement withdrawals—and that appeared to restrict their spending—it seemed to be offset by another reality. That, for reasons not understood/explained, those same individuals appeared to relish the expected benefits of consumption more than Roth holders. Said another way, their “reservations”— the cognizance of taxes—didn’t seem to constrain their spending because they were (more) enamored of the benefits of spending. Indeed, the researchers commented that those with “equivalent nominal balances” actually spent at the same rate.

I’ll just comment that it’s an interesting premise—and that the test environment created struck me as detailed and complex to map out, establish and execute. That said, I would be hesitant to draw any substantive conclusions on actual human behavior from this analysis. To me, all it seemed to “prove” is that people selected for an experiment tend to spend to the perceived “limits” of their hypothetical account, regardless of taxation. It didn’t strike me that Roth holders spent less (as many headlines covering the report suggested), but rather that pre-tax holders spent the same, even though they were going to have to deal with a tax bill at some point (hypothetically, of course).

And that, to me, isn’t a positive thing for Roths so much as it is a cautionary note for pre-tax savers—who may have forgotten that tax deferral is just that.

 - Nevin E. Adams, JD

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[i] How Does Tax Timing Affect Spending in Retirement?  

Bundled Versus Unbundled: 5 Myths

 As human beings, we’re often motivated to seek simpler solutions to life’s challenges. But sometimes “simpler”… isn’t. 

While there are some amazing bundled solutions, ERISA’s admonition to act solely in the interests of plan participants (and beneficiaries), alongside the requirement that those be reasonable in terms of cost and value, call for a careful and considered evaluation. 

In that vein, there are some “myths” that seem to be prevalent regarding those choices, perceptions that persist even today. Here are some points to consider:

An unbundled approach is more expensive.

The reality is, it can be—depending on the point of comparison. If all other things are “equal,” then certainly engaging another level of service and compliance oversight can bring with it additional costs. Then again, engaging the services of a third-party administrator[i] (TPA)—at least the right TPA—is hardly an “all other things equal” comparison. Their involvement and engagement may well streamline the time involved in reconciling data and contribution flows, could provide insights on plan design that could save money and enhance benefits, positions them to coordinate communications on plan audits—and, significantly, likely forestalls the need for plan corrections, fees and fines. 

It might appear to cost more on the front-end—but it could more than pay for itself in other ways.

With bundled solutions, there is a single point of contact.

With most bundled solutions, it’s probably more accurate to say that there is a single starting point of contact. No matter how gifted, talented and powerful the designated point of contact for a given plan is, there are inevitably silos of information and resolution. For example, legal questions are routinely passed along to other departments, payroll reconciliations in another—those resources are not only in another department, they may often be in another state—or time zone. 

That doesn’t mean there’s no value in that single designated contact—but it’s rarely a “one-stop” shop. 

Using a third party complicates communications.

Without question, adding a TPA to the plan’s “phone tree” does add another point of contact when it comes to communications regarding plan compliance or administration. On the other hand, the right TPA can actually centralize and even streamline critical communications between the plan sponsor and recordkeeper, or with payroll. It might look like another point of contact—but it could actually simplify and consolidate the number of calls that have to be made—and, more importantly, could reduce the need for calls to correct the misunderstandings inevitable in telephone “tag.”

TPAs are best suited for smaller plans.

Smaller plans—where plan designs frequently take into account specific objectives of the business owner (including complications of things like top-heavy testing)—are certainly a good fit for the expertise of a TPA. That said, issues with payroll, compensation definitions, eligibility evaluation and vesting determination are issues with which plans of every size and shape must deal—not to mention the correction process with the DOL and IRS when things don’t happen as they are supposed to. A good TPA can mitigate the former, and smooth the way with the latter, should the need arise. 

All TPAs are the same.

All of the responses above are conditional—on engaging the “right” TPA, or a good TPA. But TPAs, like bundled providers (and advisors), are comprised of individuals of varying levels of skill, talent, experience and commitment. It’s important to find the one(s) that fit your needs—and those of your plan sponsor clients. 

Things—administration, compliance, and yes, correction—have grown significantly more complicated over the years and today TPAs not only keep up with participant accounts, they can be an invaluable resource to plan sponsors—and advisors—on issues like regulatory compliance and plan design.  

That makes it hard to obtain an apples-to-apples comparison. Indeed, the fact that each record keeper has a different process for… just about everything, makes it easy for things to fall by the wayside if you don’t have a clear assignment of responsibilities with every party involved.

Those looking for a good place to start that assessment can find it in this year’s NAPA-Net Black Book listing of TPAs—or among the membership of our sister association, the American Society of Pension Professionals and Actuaries (ASPPA). 

Because sometimes the best way to keep things “together” is to break them apart…  

See also “What’s in a Name?” and Resource ‘Full’?

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[i] It’s worth noting that your recordkeeper is a TPA.