The ‘Best’ of 2021

I’ve been writing a weekly column (and then some) for more than two decades now. Some are easier to write (and read)—and some hold up better (and longer) than others. These are some of my (and perhaps your) favorites from 2021.

Let me know what you think in the comments below… particularly if I have missed one of your favorites… 

What’s So Special About College Debt?

Student loan debt—or more precisely, the forgiveness of some part of it—has dominated the headlines of late—but it’s been on the minds of retirement plan sponsors for a while now. The question is—why? https://www.napa-net.org/news-info/daily-news/whats-so-special-about-college-debt

Bundled Versus Unbundled: 5 Myths

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. https://www.napa-net.org/news-info/daily-news/bundled-versus-unbundled-5-myths

Is COVID-19 a Retirement Story?

A recent paper was titled “COVID 19 Is Not a Retirement Story.” A week later, an article on Forbes.com said: “COVID-19 Is Most Certainly a Retirement Story.” So, which is it? https://www.napa-net.org/news-info/daily-news/covid-19-retirement-story

‘The 37-Year-Olds Are Afraid of the 23-Year-Olds Who Work for Them’

Yes, having lived through the not-so-subtle eye-rolling of younger co-workers (and the more recent dismissive “OK, Boomer” commentary), I couldn’t help but find some small modicum of comfort in the notion that that generation was, essentially, being hoisted on its own generational “petard.” https://www.napa-net.org/news-info/daily-news/37-year-olds-are-afraid-23-year-olds-who-work-them

Attention Getters

I was recently taken to task for a column about retirement savings regrets. https://www.napa-net.org/news-info/daily-news/attention-getters

5 Plan Committee Missteps

There is frequently a difference between doing what the law requires and doing everything that you could do as a plan fiduciary. That said, there are things that plan fiduciaries must do—and things that, while not required, can keep the plan, and plan fiduciaries out of trouble. https://www.napa-net.org/news-info/daily-news/5-plan-committee-missteps

Three ‘Scary’ Things That Give Plan Sponsors Chills

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night—and, for plan sponsors, and those who support them, a good time to think about the things that give us pause—that cause a chill to run down our spine… https://www.napa-net.org/news-info/daily-news/three-scary-things-give-plan-sponsors-chills

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… https://www.napa-net.org/news-info/daily-news/things-you-dont-learn-school

Thanks again for all your shares, likes, support and comments along the way—wishing you all the best in 2022!

- Nevin E. Adams, JD

Three ‘Scary’ Things That Give Plan Sponsors Chills

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night—and, for plan sponsors, and those who support them, a good time to think about the things that give us pause—that cause a chill to run down our spine… 

Things like…

Changing Providers

OK, they may not exactly be “scared” of changing providers, but it’s certainly not a process for the faint of heart—particularly with all of the competing focus priorities confronting plan sponsors on a daily basis. Industry surveys routinely point to a certain amount of regular provider “churn”—indeed, by some counts as many as 10% of the plans change providers in any given year. That said, industry surveys (and excessive fee litigation) are replete with indications that the vast majority of plans not only don’t change recordkeepers, but may not even undertake a formal review of services, fees and capabilities.

Now, any plan sponsor who has ever gone through a recordkeeping conversion knows that, however smooth the transition, and regardless how improved the experience on the new platform, moving is a lot of work. And, as with relocating your home, the longer you have been in a particular location, the harder it seems to be (there are inevitably a lot of “skeletons” in those closets). Knowing that, it’s little wonder that many plan sponsors make those changes only under a duress of sorts, forced by poor service, a lack of capabilities, (relatively) high fees—and sometimes more than one of the above. 

And that, of course, means that the transition, however badly needed or desired, will likely be rougher—and take longer—than anticipated or desired (see also 3 Things Plan Sponsors Should Know About Changing Providers). And who knows how many intentions to pursue a review have simply petered out on the altar of “not enough time” to do so?

ESG

In fairness, it’s probably not Environmental, Social & Governance (ESG) investing per se that seems to “scare” plan sponsors from offering these options, but rather concerns about their level of accountability for choosing to do so. Indeed, there’s plenty of survey data to suggest that workers, particularly younger ones, want these options. That said, workable, consistent definitions of ESG remain fluid, and perhaps as a result, the adoption rate among DC plans has been tepid—and the take-up rate among participants who have the option is even lower. Indeed, fewer than 3% of plan sponsor respondents included that option on their plan investment menu, according to the Plan Sponsor Council of America’s 63^rd Annual Survey of 401(k) and Profit Sharing Plans, and only about 0.1% of plan assets were invested in those options. Those looking for a counterpoint might note that ESG options were more common among the largest plans (those with more than 5,000 participants) and the smallest (fewer than 50 participants), where 4.2% and 4.4%, respectively, offered that option.

The hesitancy likely comes (at least in part) from confusion about how the Labor Department views these options, or more precisely the prudence of including them as a participant investment option. For a long time there had “only” been Interpretive Bulletins (IBs) (in 1994, 2008 and 2016) and, more recently, a 2018 Field Assistance Bulletin (FAB) on this subject. And while the 2016 IB was read as encouraging consideration of ESG factors (or at least not discouraging it), the 2018 FAB was widely viewed as pulling back on that stance, in the process establishing what had been called the “all things equal” standard, which meant that so long as two otherwise identical investments met all the requisite prudence standards, a fiduciary could (prudently) pick the one that (also) had ESG attributes. 

And then, roughly a year ago, the Trump administration weighed in with a proposed rule that was harshly critical of ESG (unless a “pecuniary”—that is, financial—rationale was evident)– and ultimately a final one that moved off that stance a bit, but still left room for caution. 

After first announcing that it had no intention of enforcing that rule, the Biden administration’s DOL has recently provided a (new) proposed rule that—arguably—puts these options in a more positive light. Indeed, in its current form it actually seems more supportive than the “all things equal” standard put forth by the Obama administration, though it remains a proposed rule, with comments being taken for consideration in shaping a final version.    

All of which arguably (still) leaves plan sponsors contemplating a shift to ESG with a lingering uncertainty. They may not be “scared,” but one can certainly understand a bit of as-yet-unresolved apprehension.

Lifetime Income Options

Speaking of apprehension, while DC plan fiduciaries aren’t exactly scared of retirement income, DC plans have long eschewed providing those options. That despite the unquestioned reality that participants need help structuring their income in retirement—and little doubt that a lifetime income option could help.

There are in-plan options available in the marketplace now, of course, and thus, logically, there are plan sponsors who have either derived the requisite assurances (or don’t find them necessary) or feel that the benefits and/or participant need for such options makes it worth the additional considerations. On the other hand, those industry surveys notwithstanding, for the most part participants don’t seem to be asking for the option (from anyone other than industry survey takers)—and when they do have access, mostly don’t take advantage. Let’s face it, even when DB pension plan participants have a choice, they opt for the lump sum. 

It’s ironic that programs designed to provide retirement income pay so little attention to the realization of that objective; only about half of DC plans currently provide an option for participants to establish a systematic series of periodic payments, much less an annuity or other in-plan retirement income option, and that’s despite the 2008 Safe Harbor regulation from the Labor Department regarding the selection of annuity providers under DC plans (which was designed to alleviate, though it did not eliminate, those concerns), not to mention a further attempt to close that comfort gap in 2015 (FAB 2015-02).

Proponents are even more hopeful that the SECURE Act’s provisions regarding lifetime income disclosures (though many recordkeepers already provide some version of this), enhanced portability (a serious logistical challenge if you ever want to move from a recordkeeper that provides the service to one that doesn’t, though solutions are emerging that claim to have made progress on this front) and, perhaps most importantly, an expanded fiduciary safe harbor for selection of lifetime income providers, will—finally—put those “fears” to rest. We’ll see.

The Standard

Don’t get me wrong—there are plenty of things for ERISA fiduciaries—who are, after all, personally liable not only for their actions, but those of their co-fiduciaries—to be worried about. The standards with which their conduct must comply are (as one court has put it) “the highest known to law,” and with good reason. Prudence is often associated with caution, and fiduciaries generally find more comfort in the middle of the trend “pack” than on its fringes.

That said, the standard is to act (solely) in the best interests of plan participants and beneficiaries—and even though it may be “scary” from time to time… the alternative is surely worse…

- Nevin E. Adams, JD

3 Things That (Seem to) Scare Plan Sponsors

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. And sometimes it’s just a good time to think about the things that give us pause—that cause a chill to run down our spine. 

In that category, here are three things to ponder…

Getting Sued

Plan sponsors will often mention their fear of getting sued (actually, their advisors frequently broach the topic), and little wonder. The headlines are (still) full of multi-million dollar lawsuits against multi-billion dollar plans—the pandemic has, if anything, seemed to accelerate the pace. If relatively few seem to actually get to a judge (and those that do have—to date—largely been decided in the plan fiduciaries’ favor), they nonetheless seem to result in multi-million dollar settlements. Oh, and not only has this been going on for more than a decade, the issues raised are evolving as well.

It's not that the fear is unfounded—plan fiduciaries certainly can be sued, and that includes responsibility for the acts of co-fiduciaries, and liability that is personal, to boot (see 7 Things an ERISA Fiduciary Should Know).

Of course, most plan sponsors won’t ever get sued, much less get into trouble with regulators. And those who do are much more likely to drift into trouble for things like late deposit of contributions, errors in nondiscrimination testing, or not following the terms of the plan.

Still worried about getting sued? As one famous ERISA attorney once told me, you might as well worry about getting hit by a meteor. Unless, of course, you have more than $1 billion in plan assets.

ESG

In fairness, it’s not ESG—environmental, social & governance—investing per se that seems to “scare” plan sponsors from offering these options, but rather concerns as to their level of accountability for choosing to do so. Indeed, there’s plenty of survey data to suggest that workers want these options, particularly younger workers. That said, workable, consistent definitions of ESG remain fluid, and perhaps as a result, the adoption rate among defined contribution plans has been tepid—and the take-up rate among participants even lower. Fewer than 3% of plans offer an ESG option, according to the 62^nd annual Plan Sponsor Council of America survey, and less than 0.2% of plan assets have been invested in those options. 

Many think the hesitancy comes from confusion about how the Labor Department views these options, or more precisely the prudence of including them as a participant investment option. For a long time there had “only” been Interpretive Bulletins (IBs) (in 1994, 2008 and 2016) and, more recently, a 2018 Field Assistance Bulletin (FAB) on this subject. And while the 2016 IB was read as encouraging consideration of ESG factors (or at least discouraging the discouraging), the 2018 FAB was widely viewed as pulling back on that stance, in the process establishing what had been called the “all things equal” standard, which meant that so long as two otherwise identical investments met all the requisite prudence standards, a fiduciary could (prudently) pick the one that (also) had ESG attributes. 

And then in June, noting its concern “that the growing emphasis on ESG investing may be prompting ERISA plan fiduciaries to make investment decisions for purposes distinct from providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the plan,” the Labor Department proposed a new rule to “clarify” things.

Now the rule itself is pretty standard stuff—but the Labor Department wrapped that in about 60 pages worth of preamble and impact analysis that conveyed what many (including this writer) saw as a clear sense of skepticism about the prudence of those options, or at least a concern that plan fiduciaries might be inclined to lower the prudence bar in order to accommodate the inclusion of these options. And if there was any doubt as to the concerns of the Trump administration, the rule specifically calls out ESG as unsuitable as a focus in qualified default investment alternatives (QDIA) (not that I am aware of any that have yet taken that step, and perhaps the rule was intended to forestall that). All this at a time when the Labor Department has made a series of (allegedly separate and unrelated) inquiries to both plan sponsors and RIAs about their current  processes regarding ESG consideration and review.

As one might expect in view of the billions of dollars (already) committed to ESG—not to mention its increasing prominence in the focus of a growing number of investment managers—that rule drew a ton  (more than 8,000) of comments (most critical), but is now back for review at the Office of Management and Budget (OMB) in a timeframe so short as to suggest to many that it didn’t undergo much change. 

All of which arguably leaves plan sponsors contemplating a shift to ESG with a great deal of uncertainty. They may not be “scared,” but one can certainly understand a bit of apprehension.

Lifetime Income Options

Speaking of apprehension, while defined contribution plan fiduciaries aren’t exactly scared  of retirement income, DC plans have long eschewed providing those options. There’s no question that participants need help structuring their income in retirement—and little doubt that a lifetime income option could help (certainly with some help from a trusted advisor). 

There are in-plan options available in the marketplace now, of course, and thus, logically, there are plan sponsors who have either derived the requisite assurances (or don’t find them necessary). Or who feel that the benefits and/or participant need for such options makes it worth the additional considerations. On the other hand, those industry surveys notwithstanding, participants don’t seem to be asking for the option (from anyone other than industry survey takers)—and when they do have access, mostly don’t take advantage. Let’s face it, even when defined benefit pension  plan participants have a choice, they opt for the lump sum. 

It’s ironic that programs designed to provide retirement income pay so little attention to the realization of that objective; only about half of defined contribution plans currently provide an option for participants to establish a systematic series of periodic payments, much less an annuity or other in-plan retirement income option, and that’s despite the 2008 Safe Harbor regulation from the Labor Department regarding the selection of annuity providers under defined contribution plans (which was designed to alleviate, though it did not eliminate, those concerns), not to mention a further attempt to close that comfort gap in 2015 (FAB 2015-02).

Proponents are hopeful that the SECURE Act’s provisions regarding lifetime income disclosures (though many recordkeepers already provide this), enhanced portability (a serious logistical challenge if you ever want to move from a recordkeeper that provides the service to one that doesn’t) and, perhaps most importantly, an expanded fiduciary safe harbor for selection of lifetime income providers, will—finally—put those “fears” to rest. We’ll see.

Don’t get me wrong—there are plenty of things for ERISA fiduciaries to be worried about. The standards to which their conduct must comply are “the highest known to law,” and with good reason. Prudence is often associated with caution, and fiduciaries generally find more comfort in the middle of the trend “pack” than on its fringes.

That said, the standard is to act (solely) in the best interests of plan participants and beneficiaries—even though it may be “scary” from time to time…

- Nevin E. Adams, JD

5 Things That (Should) Scare Plan Fiduciaries

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. But what are the things that keep – or should keep – plan fiduciaries up at night?

Well, there are the things like…

Getting Sued
Plan sponsors will often mention their fear of getting sued (actually, their advisors frequently broach the topic), and little wonder. The headlines are (still) full of multi-million dollar lawsuits against multi-billion dollar plans, and if relatively few seem to actually get to a judge (and those that do have – to date – largely been decided in the plan fiduciaries’ favor), they nonetheless seem to result in multi-million dollar settlements. Oh, and not only has this been going on for more than a decade, the issues raised are evolving as well.

As a plan fiduciary, you can be sued, of course; and let’s not forget that that includes responsibility for the acts of your co-fiduciaries, and personal liability at that (see 7 Things an ERISA Fiduciary Should Know).

That said – and more than a decade after the first series was launched – those cases (still) seem to involve a relatively small group of rather large plans. If it’s (still) astounding that some of the plans do the things they are alleged to do (and not do), for those familiar with the math of contingent fee litigation, there’s little mystery to the big plan focus.

Of course, most plan sponsors won’t ever get sued, much less get into trouble with regulators. And those who do are much more likely to drift into trouble for things like late deposit of contributions, errors in nondiscrimination testing, or not following the terms of the plan.

Still worried about getting sued? As one famous ERISA attorney once told me, they might as well worry about getting hit by a meteor.

Plan Costs

Whether you feel that the aforementioned wave of litigation has been a force for good or ill, it has certainly contributed to a heightened awareness of fees by plan sponsors – and one that finally seems to be moving beyond squeezing that extra pound of flesh from recordkeepers (though there’s still plenty of that).

These days it’s as likely to show up in questions about shifting to passive options, or at least an inquiry about a different share class. Questions are good – actions potentially better.

Regardless, it would seem to be difficult to live up to ERISA’s fiduciary admonitions to ensure that the fees and services provided to the plan are reasonable if you don’t know what you’re getting, or how much you’re paying.

Target Date Fund Glidepaths

Remember 2008 – when so many discovered for the first time that target-date funds and their glide paths really are  different? Over the last decade, the sheer amount of money that has been invested in these QDIAs (most defaulted along with the expansion of automatic enrollment) – nearly $2 trillion at the end of 2017 – means that participants are likely better diversified than ever before, with portfolios that are regularly and professionally managed and rebalanced.

With luck, things like the 2008 financial crisis won’t recur in our lifetime. On the other hand, on the offhand chance that that – or something like it – does, this might be a good time to look under the bed – er, glidepath – and make sure that the assumptions incorporated there are consistent with expectations.

Personal Liability

Most of the aforementioned concern about being sued seems borne from a concern about the damage – both reputational and financial – to the organization that sponsors the plan. While that is certainly a well-founded and rational concern, plan fiduciaries, particularly plan sponsors, often seem oblivious to the reality that their liability as an ERISA fiduciary is… personal.

You can, of course, buy insurance to protect against that personal liability — but that’s likely not the fiduciary liability insurance that most organizations have in place. And it may not be enough.

Failing to Engage the Knowledge of a Prudent Expert

ERISA’s “prudent man” rule is a standard of care, and when fiduciaries act for the exclusive purpose of providing benefits, they must act at the level of a hypothetical knowledgeable person and must reach informed and reasoned decisions consistent with that standard.

The Department of Labor notes that “[l]acking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions.”

Indeed.

Because, when it comes to the former, most people do – and as for the latter, many still don’t.

- Nevin E. Adams, JD

4 Things Plan Sponsors Are Scared of – and 3 More They Should Be

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. But what are the things plan sponsors are scared about?

Getting sued.

Plan sponsors will often mention their fear of getting sued, and little wonder. The headlines are full of multi-million-dollar lawsuits against multi-billion-dollar plans, and if relatively few actually get to a judge (and those that do are decided in the plan fiduciaries’ favor), they nonetheless seem to result in multi-million-dollar settlements. Oh, and not only has this been going on for more than a decade, the issues raised are changing as well.

As a plan fiduciary, you can still be sued of course; and let’s not forget that that includes responsibility for the acts of your co-fiduciaries, and personal liability at that (see 7 Things an ERISA Fiduciary Should Know).

That said, those cases seem to involve a rather small group of rather large plans. Most plan sponsors won’t ever get sued, much less get into trouble with regulators, of course. And those who do are much more likely to drift into trouble for things like late deposit of contributions, errors in nondiscrimination testing, or not following the terms of the plan.

Changing recordkeepers.

Any plan sponsor who has ever gone through a recordkeeping conversion knows that, however smooth the transition, and regardless of how much better the experience on the new platform is, moving is a lot of work. And, as with relocating your home, the longer you have been in a particular location, the harder it seems to be. Knowing that, it’s little wonder that many plan sponsors make those changes only under a duress of sorts, forced by poor service, a lack of capabilities, (relatively) high fees, or more than one of the above.

And that, of course, means that the transition, however badly needed or desired, will likely be rougher – and take longer – than desired (see 3 Things Plan Sponsors Should Know About Changing Providers).

Offering in-plan retirement income options.

While surveys suggest that plan participants are interested in the concept of retirement income solutions, and other surveys indicate that plan sponsors are concerned about participants’ abilities to manage their retirement income flows, there has been little movement in the addition to current plan designs, nor little indication that participants, given access to that option, are quick to embrace it. Plan sponsors remain concerned about the cost and operational implications, not to mention an extension of their fiduciary responsibility to a product that is neither required nor requested.

That said, new legislation has been introduced that might at least mitigate some of those concerns – were it to become law (see also, 5 Reasons Why More Plans Don’t Offer Retirement Income Options).

The ‘squeaky’ participant.

We’ve all heard (and likely experienced) the response to that squeaky wheel that every organization has, and that every plan sponsor fears, or at least dreads. Other than sheer human inertia, there is perhaps no more powerful force in freezing proposed plan changes in their tracks than concerns about the response that this individual (and the individuals whose attention they always seem to garner) might wreak on those responsible for those changes.

We all know who they are. We all know what they do. And yet they continue to be a force to be reckoned with in many organizations.

And 3 They Should Worry About

Now, arguably most of the foregoing concerns are overblown – they loom larger in the abstract than they should in reality. But loom large they do. But what about the things they should be “scared” of, but often aren’t?

Their personal liability

Most of the aforementioned concern about being sued seems borne from a concern about the damage – both reputational and financial – to their organizations. While that is certainly a well-founded and rational concern, plan fiduciaries, particularly plan sponsors, often seem oblivious to the reality that their liability is personal.

You can, of course, buy insurance to protect against that personal liability — but that’s likely not the fiduciary liability insurance that most organizations have in place. And it may not be enough.

Participants not having enough money to retire

For much of their existence, workplace retirement plans have been, and been viewed as, voluntary affairs. The focus of plan sponsors was to provide benefits that served to both attract and retain valued workers, and the retirement savings program was high on that list. A variety of discrimination tests served to provide incentives to encourage a certain rate of participation, while others worked to either foster a certain rate of deferrals, or brought with them the pain of restraining the contributions of the more highly compensated. Despite those, encouragements the focus was almost always on the amount of contribution going in, not the amount of income that would eventually come out.

That has begun to shift in recent months amidst the growing evidence that workers, fearful of outliving their savings, are contemplating extending their working careers (the data still suggests that such notions are aspirational compared to the realities) at a point in time where the costs to the employer – both out-of-pocket and organizationally – of that employment are problematic. Moreover, there is a growing sense that concerns about retirement security while employed have costs of their own on productivity, as well as health – which contributes to the costs of things such as absenteeism, etc.

Enter a growing focus on what has been termed “financial wellness” that encompasses not only a focus on financial security post-retirement, but also in taking the steps ahead of retirement that allow individuals to successfully build toward that day. It is perhaps too soon to describe this as a “fear” – but it is a concern, and a growing one for attentive plan sponsors.

Not having the knowledge of a prudent expert

ERISA’s “Prudent Man” rule is a standard of care, and when fiduciaries act for the exclusive purpose of providing benefits, they must act at the level of a hypothetical knowledgeable person and must reach informed and reasoned decisions consistent with that standard. The Department of Labor notes that “[l]acking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions.”

Indeed. Because, when it comes to the former, most people do – and as for the latter, many still don’t.

- Nevin E. Adams, JD