Life's Lessons

Life has many lessons to teach us, some more painful than others – and some we’d just as soon be spared. But as graduates everywhere look ahead to the next chapter in their lives, it seems a good time to reflect on some of the lessons we’ve learned.

Here are some nuggets I’ve picked up along the way….

1. Be willing to take all the blame – and to share the credit.
2. There actually are stupid questions.
3. Shun those who are cruel – and don’t laugh at their “jokes.”
4. Never say you’ll never.
5. Be on time.
6. “Bad” people eventually get what’s coming to them. But you may not be there to see it.
7. Always sleep on big decisions.
8. Sometimes the grass looks greener because of the amount of fertilizer.
9. Never email in anger – or frustration. And be extra careful when using the “Reply All” button.
10. If your current boss doesn’t want to hear the truth, it may be time to look for a new one.
11. Never pass up a chance to say “thank you.”
12. If you wouldn’t want your mother to learn about it, don’t do it.
13. Never assume that your employer (or your boss) is looking out for your best interests.
14. Bad news doesn’t generally age well.
15. There can be a “bad” time even for good ideas.
16. Your work attitude often affects your career altitude.
17. When you don’t have an opinion, “what do you think?” is a good response. And sometimes even when you do.
18. You can be liked and respected.
19. Comments that begin “with all due respect” generally don’t include much.
20. Sometimes the questions are complicated, but the answer isn’t.

Remember as well that that 401(k) match isn’t really “free” money – but it won’t cost you a thing.
And 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.

Got some to add? Feel free to add in the comments.

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

- Nevin E. Adams, JD

First Hand Experience

Our view during Super Bowl XLVII.

There are some things in life that have to be experienced first-hand.
Several years back, my daughter won an all-expenses-paid trip to the Super Bowl for two – and, to my delight, she chose to invite me to go with her.

Now, I’m sure some of you have been to a Super Bowl, but it was my first (and, considering ticket prices, I’m guessing my last). And while I’m sure the view from the comfort of home and a big screen TV offered a “better” view of Beyonce’s halftime show, there are things (and people) you see when you are at the event that don’t make a TV producer’s selection (particularly when you happen to be at the Super Bowl where the field lights went out for 34 minutes). Let’s face it, it’s one thing to say you watched the Super Bowl – and something else altogether to say you were there!

You wouldn’t know it from the headlines, but there’s actually a lot going on here in our nation’s capital. Like a smoldering ember, in no time at all, and with little warning, things can go from (apparent) nothingness to regulation or legislation that can have a dramatic impact on our lives and livelihoods (remember Rothification?). It’s a dynamic that’s easy to miss when you “swing by” for a visit – but one that our Government Affairs team works very hard all year long to keep up – and to keep NAPA members up-to-date and informed.

We’re fast approaching our sixth annual DC Fly-In Forum. I remember attending the first one as a “special guest,” and being struck even then by the quality of the program and speakers. More importantly, the room was full then – as it continues to be – of the nation’s leading retirement plan advisors, networking and engaging not only with each other, but with some of the most influential voices in Washington.
This year – with the ink not quite dry on the SEC’s Regulation Best Interest proposal, and with the status of the Labor Department’s fiduciary proposal unresolved (for the moment), we are slated to have SEC Commissioner Hester Peirce, and have invited Assistant Secretary of Labor Preston Rutledge to join us. We’ve lined up a special session on advisor-focused litigation with the Wagner Law Group’s Tom Clark. And Rep. Richie Neal (D-MA) – a long-time proponent of retirement savings, ranking member of and a potential Chairman of the Ways and Means Committee (should the House “flip”), and author of a “game-changing” retirement plan proposal – will also be part of this year’s Fly-In. We’ll also have what promises to be a highly interactive and engaging discussion about a new proposal to shore up retirement security via mandatory add-on savings accounts.

And that’s not all.

The 2018 mid-term elections are just around the corner — and the keynote speaker at the NAPA DC Fly-In Forum will help approved delegates understand what it might bring. We’re talking about CNN Chief National Correspondent John King, anchor of “Inside Politics.”

And that’s (still) not all.

For me – and for dozens of advisors who have participated over the past five years – the most impressive aspect of our Fly-In Forum is the second day, where delegate-advisors have an opportunity, assisted (and prepped) by the NAPA GAC team, to meet with legislators and their staff on Capitol Hill, to share your perspectives, ideas and concerns, based on your front-line, real-life experiences working with retirement plans, plan sponsors and participants.

Whether you’ve done this a dozen times, or have never had the opportunity, the NAPA DC Fly-In Forum is an amazing “first-hand” experience. For those ready to get off the sidelines and contribute to a real difference in retirement policy, you won’t find a better “ticket” than the NAPA DC Fly-In Forum.

I can’t promise it will be quite like going to the Super Bowl – but then, you never know.

p.s.: Seats are filling up fast for the NAPA DC Fly-In Forum, July 24-25.
PLEASE NOTE: Delegates to the Forum must:

• be a NAPA member;
• be responsible for $100M+ in plan assets, 10+ plans and 2,000+ participants; and
• have 5+ years of experience servicing retirement plans.

You can apply today at http://napadcflyin.org.


- Nevin E. Adams, JD

Crisis "Management"

Rarely a week goes by that a headline, survey or academic paper doesn’t proclaim the reality of a retirement crisis with the certainty generally reserved for topics like the existence of gravity, or the notion that the sun will rise in the east.

And certainly based on the data cited, there would seem to be a compelling case that trouble lies ahead for many. That said – as was pointed out by Andrew Biggs at the recent Plan Sponsor Council of America conference – the reality is that good, reliable data is hard to come by. Indeed, many of the reports cited in those headlines rely on what you would expect to be a reliable source; the Census Bureau’s Current Population Survey, or CPS.¹ Unfortunately, that reliable source turns out to be not-quite-so-reliable. It suffers from relying on what people tell the survey takers, but perhaps more significantly, Biggs, resident scholar at the American Enterprise Institute, pointed out that the survey only counts as income in retirement funds that are paid regularly – like a pension. “Irregular” withdrawals from retirement accounts – like IRAs and 401(k)s – aren’t included.

In fact, when you compare what retirees report to the IRS with what they report to the Census Bureau, only 58% of private retirement benefits are picked up, according to Biggs. Now, who do you suppose gets a more accurate read; the IRS² or the Census Bureau? And yet, the CPS data serves as the basis for a huge swath of academic research on retirement savings.

Social ‘Security’

Biggs noted that IRS data also draws into question some of the “common wisdom” on things such as dependence on Social Security. Consider that the Social Security Administration – who arguably has “skin” in the game – claim that a third of retirees are heavily dependent – to the tune of 90% or more of their income – on Social Security. However, a study based on IRS data found that only 18% of retiree households are heavily dependent on Social Security, and just one in eight retirees receive 90% or more of their income from Social Security. Don’t get me wrong – Social Security is clearly a vital and essential component of our nation’s retirement security – but the IRS data indicates that, for most, it isn’t a primary source at present.

Pundits have long worried that retirees wouldn’t have accumulated enough to live on in retirement, but data suggests that most retirees aren’t exactly burning through their retirement savings. Not that some aren’t drawing down too rapidly, mind you – and that’s a valid concern. But many, perhaps most – aren’t.

Data suggests that today’s retirees are actually in pretty good shape. In addition to the IRS data cited above, that sentiment is borne out by any number of surveys (perhaps most notably the Retirement Confidence Survey, published by the nonpartisan Employee Benefit Research Institute (EBRI) and Greenwald Associates) that continue to find that those already in retirement express a good deal more confidence about their financial prospects than those yet to cross that threshold. And certainly, the objective data available to us suggests that today’s retirees are better off than previous generations, though their retirement – and potential health issues – may at some point take a toll.

Still, in 2014, EBRI found that current levels of Social Security benefits, coupled with at least 30 years of 401(k) savings eligibility, could provide most workers — between 83% and 86% of them, in fact — with an annual income of at least 60% of their preretirement pay on an inflation-adjusted basis. Even at an 80% replacement rate, 67% of the lowest-income quartile would still meet that threshold — and that’s making no assumptions about the positive impact of plan design features like automatic enrollment and annual contribution acceleration.

Not that there isn’t plenty to worry about; reports of individuals who claim to have no money set aside for financial emergencies, the sheer number of workers entering their career saddled with huge amounts of college debt, the enormous percentage of working Americans who (still) don’t have access to a retirement plan at work (though not as enormous as some claim)…

That said, I shudder every time I hear an industry leader or advisor stand up in front of an audience and proclaim that there is a retirement crisis – because, however well-intentioned – they are almost certainly providing “aid and comfort” to those who would like to do away with the current private system as a failure, not a work in process.

What seems likely is that at some point in the future, some will run short of money in retirement, though they may very well be able to replicate a respectable portion of their pre-retirement income levels, certainly if the support of Social Security is maintained at current levels.

However, what seems even more likely is that those who do run short will be those who didn’t have access to a retirement plan at work.

- Nevin E. Adams, JD
 
Footnotes

1. Nor is that the only shortcoming in that widely utilized source. The nonpartisan Employee Benefit Research Institute (EBRI) has pointed out that a change in survey methodology in 2014 has produced some questionable plan participation results from the CPS – a finding subsequently validated by the Investment Company Institute. ↩
2. Not that IRS data can’t be misapplied. ↩

Means 'Tested'

Pundits have long worried that retirees wouldn’t have accumulated enough to live on in retirement, but the data suggests that most retirees aren’t exactly burning through their retirement savings.

I remember my one and only conversation with my father about retirement income. He had already decided to quit working, and had gathered his assorted papers regarding his savings, insurance, etc. for me to review. Determined to “dazzle” Dad with my years of accumulated financial acumen, I proceeded to outline an impressive array of options that offered different degrees of security and opportunities for growth, the pros and cons of annuities, and how best to integrate it all with his Social Security.

And when I was all done, he looked over all the materials I had spread out before him, then turned to me and said – “so how much will I have to live on each month?”

See, my dad, like many in his generation, were accustomed to living within their means. And, according to new research, he isn’t the only one.

The study shows that retirees generally exhibit very slow decumulation of assets. More specifically, the nonpartisan Employee Benefit Research Institute (EBRI) found that within the first 18 years of retirement, individuals with less than $200,000 in non-housing assets immediately before retirement had spent down (at the median) about one-quarter of their assets; those with between $200,000 and $500,000 immediately before retirement had spent down just 27.2%. Retirees with at least $500,000 immediately before retirement had spent down only 11.8% within the first 20 years of retirement at the median.

Those with pensions were much less likely to have spent down their assets than non-pensioners. During the first 18 years of retirement, the median non-housing assets of pensioners (who started retirement with much higher levels of assets) had declined just 4%, compared with a 34% decline for non-pensioners.

The median ratio of household spending to household income for retirees of all ages hovered around 1:1, inching slowly upward with age – a finding that the EBRI researchers said suggests that majority of retirees had limited their spending to their regular flow of income and had avoided drawing down assets, which explains why pensioners, who had higher levels of regular income, were able to avoid asset drawdowns better than others.

Not that that’s necessarily a heartening result, since those pensioners, arguably having guaranteed income for life, such as a pension, doesn’t lead them to spend down their assets. Indeed, of all the subgroups studied, pensioners have the lowest asset spend-down rates – though one might well expect that, with that pension “cushion” they might be more inclined to dip into their savings and “splurge.”

Why are retirees not spending down their assets? The EBRI report offers a number of reasons:

• People don’t know how long they are going to live or how long they have to fund their retirement from these assets.
• Uncertain medical expenses that could be catastrophic if someone has to stay in a long-term care facility for a prolonged period.
• A desire to pass along assets to heirs.
• A lack of financial sophistication – people don’t know what is a safe rate for spending down their assets, and are thus erring on the side of caution.
• A behavioral impediment – after building a saving habit throughout their working lives, people find it challenging to shift into spending mode.

Now, the EBRI research was based on government data from the U.S. Health and Retirement Study to track retirees born between 1931 and 1941 with assets ranging from stocks, bonds, mutual funds, real estate and CDs to savings and checking accounts (individual homes were excluded). That’s “greatest generation” territory – retirees who were, as my father, accustomed to living within their means. Even then, it’s not all sunshine and unicorns; some retirees are indeed running out of money in retirement – though, at the same time, instead of spending down, a large – and to my ears, largely unacknowledged ­– number of retirees are continuing to accumulate assets throughout retirement.

But I’d still argue that the question “how much will I have to live on each month” winds up being a lot easier to answer at retirement – if you’ve been thinking about it pre-retirement.

- Nevin E. Adams, JD

The Chicken or the Egg?

It is a question that has puzzled philosophers and scientists for centuries: which came first – the chicken or the egg? Similarly, an updated version of a classic survey of retirement confidence finds some interesting attributes among those who are more confident about their prospects – but are those attributes a result of that confidence, or is it the confidence that preceded them?

The 28th annual Retirement Confidence Survey (RCS) from the non-partisan Employee Benefit Research Institute (EBRI) and Greenwald Associates found that Americans are feeling a bit better about their retirement prospects.
However, the RCS also found – as it has in previous years – that certain factors are tied to higher confidence, specifically if they have access to a defined contribution plan, are relatively free from debt, are already retired – or, in a new finding from this year’s RCS – that they are healthy.

Now, the connection between access to a retirement plan and savings is well established. An updated analysis by EBRI finds that even those with modest incomes – those making between $30,000 and $50,000 – are nonetheless a dozen times more likely to save if they have access to a retirement plan at work.

More intuitive is the negative impact that debt, particularly heavy debt, can have on retirement savings, not to mention the impact on confidence about that savings, or more precisely, the lack thereof.

As for the new finding in this year’s RCS, 6 in 10 workers who are confident about their retirement prospects say they are in excellent or good health. As for those who are not confident about retirement, only 28% report such good health. The same is true for retirees: 46% of confident retirees are in good health, compared to just 14% who are not confident. What’s less clear is whether they are confident because they are healthy, or healthy because they are confident (or have a reason to be).

In fact, those of us still looking ahead to retirement can draw some comfort that those in retirement are – and have consistently been – more confident about retirement. Indeed, in this year’s RCS, a full three-quarters of retirees are very or somewhat confident they will have enough money for retirement – and that’s as high as that metric has been going all the way back to 1994 (except for last year, when 79% were that confident).

Of course, retirees were also more than twice as likely (39% versus 19%) as workers to have tried to calculate how much money they would need to cover health care costs in retirement – and those who had were less likely to have experienced higher-than-expected health costs and are more likely to say that costs are in line with their expectations.

Ultimately, there’s nothing like actually living in retirement to provide a solid sense of what it costs to live in retirement. When it comes to retirement confidence, it may not always be obvious as to whether the chicken or the (nest) egg came first.

But it seems to me that a "bird" in the hand is nearly always worth two in the bush…

(Too) Great Expectations?

My schedule – and aversion to crowds – means that I rarely see a new movie the first weekend it comes out (a rare exception – Avengers: Infinity War this weekend).

While this means that there are times when I’m the only one in the office the following Monday who hasn’t seen the latest blockbuster (and thus can’t offer an opinion), more often than not, it’s also spared me the time, money (and potential aggravation) of rushing out to see a movie that is more likely to be up for a “Razzie” than an Oscar.

However, I’ve also found myself in situations where the hype surrounding a new blockbuster is so compelling that it builds up my expectations beyond the reality – leaving me… underwhelmed.

Doubtless that was the sense of many in reading the Best Interest Regulation proposal published by the Securities and Exchange Commission last week. Those who had hoped that a uniform fiduciary standard might emerge were surely disappointed, as were those who might have anticipated that the SEC’s proposal might step up and fill a gap potentially created if the 5th Circuit’s ruling was unchallenged. There is, of course, an irony in a Regulation Best Interest that doesn’t define “best interest,” and understandable concerns that a standard that leans so heavily on “reasonable” tests is portrayed as an objective standard.

On the other hand, all will surely find comfort in the acknowledgement that “cheapest” isn’t deemed equivalent with “best,” and some will certainly be reassured by the “principles-based” emphasis, not to mention the acknowledgement of the Labor Department’s fiduciary rule and Best Interest Contract Exemption (BICE) and the latter’s stated objectives as consistent with Regulation Best Interest, even if the latter doesn’t create fiduciary status.

Odds are, if you liked the Labor Department’s fiduciary rule and its structures, you won’t be satisfied with the SEC’s take. On the other hand, if you thought the DOL went too far, the SEC’s proposal might well be more in line with your expectations. And yet, the lingering uncertainty as to the when – or if – of the SEC’s response – and the (at last until lately, relative) certainty of the Labor Department’s approach has led many firms to institute processes and procedures suited for the latter, not the possibility of the former.

Arguably, the vast majority of advisors committed to serving workplace retirement plans were well along the path of satisfying ERISA’s compensation strictures, and the Best Interest Contract Exemption (BICE) – with all its shortcomings – provided a means for the rest to work their way there. What many found most confounding about the Labor Department’s fiduciary rule was its extension of oversight to IRAs, notably the enormous IRA rollover market – and, in that regard at least, the SEC proposal seems to be reasserting its authority. Will that be an area of “compromise” between the agencies? Time will tell.

Ultimately, the current SEC proposal – and bear in mind, this is really just a starting point – is bound to disappoint more than it pleases, if only because it introduces an element of uncertainty at a particularly critical time. Many, having waited nearly a decade for the proposal to emerge, doubtless hoped it would be more proscriptive in scope and/or detail. Indeed the industry commentary thus far seems to be a sense that it feels half-finished, rushed to press, perhaps even opportunistic in its timing, what with the ink on the 5th Circuit’s decision still damp. Let’s face it, even the SEC commissioners who supported its publication did so with cautioning commentary, if not outright reluctance.

That said, having waded through the 1,000-plus pages twice and half again, one can’t be help but be struck by the amount of space in those 1,100 pages dedicated to questions from the proposal’s authors – questions that merit consideration and thoughtful response.

The work may be unfinished, it may be unsatisfying in scope or clarity, but we now have a window (albeit a short one) – and an invitation – to comment, inform, and yes, perhaps even remedy those shortfalls.

- Nevin E. Adams, JD

College ‘Intuition’

Much remains unsettled – and, as yet, largely unadjudicated – in the large, and growing series of excessive fee litigation directed at university 403(b) plans. However, certain trends in the litigation have emerged – some very different than 401(k)s, others not. Here’s what to look (out) for.

The list of these so-called university 403(b) suits – the first were filed in August 2016 – now includes plans at Cornell University, Northwestern University, Columbia University and the University of Southern California, as well as Yale. Meanwhile, some of the earlier suits are just getting to hearings on motions to dismiss, specifically Emory University and Duke University – both of which are currently proceeding to trial – and the University of Pennsylvania, which recently prevailed in a similar case. Another – involving Princeton University’s 403(b) plans – is on hold awaiting an appeal in the University of Pennsylvania litigation.

By my reckoning, here are the grounds upon which the university 403(b) plans that have been sued thus far have in common.

They have more than one recordkeeper.

While not every university 403(b) plan against which a lawsuit has been filed employed the services of more than one recordkeeper, they all seem have done so at one point in their history.

Indeed, a couple of lawsuits filed against university plans that have consolidated to a single recordkeeper have pointed to the consolidation decision as proof that the plan fiduciaries knew that the multiple provider approach was inefficient and costly – and should have acted sooner.

They offer a “dizzying array” of funds (generally from each of the aforementioned recordkeepers).

In the 401(k) world, large fund menus have long been considered a nuisance, if not downright unproductive. We’ve even got a behavioral finance study involving jams to back up the sense that, given too many choices (whatever that may be – with jams, it’s apparently more than 6), people tend not to decide.

With university 403(b) plans – certainly the ones that have found themselves sued – the “norm” seems to be in excess of 100. And frequently they approach that number with each recordkeeping provider.

That said, at least one court presented with the issue has said “Having too many options does not hurt the Plans’ participants, but instead provides them opportunities to choose the investments that they prefer.” And a second one has just held that “plaintiffs have neither alleged that any participant experienced confusion nor stated a claim for relief.”

They offer “duplicative” investments.

One of the reasons the fund menus, at least in total, seem to be so large is that each recordkeeping provider seems to put forth their own optimal menu of choices – and if you have more than one recordkeeper – well, you apparently wind up with “duplicates” in what the plaintiffs frequently claim are “in every major asset class and investment style.”

And in numerous of these cases, the only funds offered are the proprietary offerings of those recordkeepers.

Their recordkeeper choice “tethered” them to certain fund options.

Many, though not all, of the lawsuits involve plans that had TIAA-CREF as recordkeeper, and those all cite how the choice of TIAA-CREF as recordkeeper bound (“locked” and “tethered” are other terms employed to describe the arrangement) the plan to include certain (allegedly inferior) TIAA-CREF investment options on the menu, notably the CREF Stock Account and Real Estate Fund. Other issues unique to some TIAA-CREF investments are certain transfer restrictions, and some differences in their loan account processing.

Share ‘Alike’

There are, of course, elements that these programs share with their 401(k) brethren.

They use retail class mutual funds and/or active when passive would “do.”

Yes, not only are those fund options “duplicative,” they are often retail, rather than institutional class. Or actively managed when passive varieties were available. And thus more expensive, so the argument goes.

They pay for those (multiple) recordkeepers via asset-based, rather than per participant fees.

This wasn’t always an issue in excessive fee litigation, but in recent years – well, it’s become something of a regular “feature” of this type litigation – and it’s been part and parcel of the fabric or 403(b) university plan litigation.

The argument, of course, is that recordkeeping is about keeping up with individual records, and whether that individual account balance is $100 or $100,000, the cost of keeping up with the balance is the same. However, not content to argue with the method of calculation, these days the plaintiffs nearly always take the next step – and proffer what they consider to be a reasonable per-participant fee – on their way to alleging that the fees being charged – are not.

They are big plans.

Nearly all of the 401(k) excessive fee lawsuits filed since 2006 (when the St. Louis-based law firm of Schlichter, Bogard & Denton launched the first batch) have been against plans that had close to, or in most cases in excess of, $1 billion in assets. There’s no real mystery here. Willie Sutton robbed banks for the same reason.

And if you’re a class action litigator, that also happens to be where a large number of similarly situated individuals can be found; a.k.a. plaintiffs.

Less cynically, the plaintiffs generally charge that, despite the plan’s large (“jumbo”) size, rather than “leveraging the Plans’ substantial bargaining power to benefit participants and beneficiaries, Defendant caused the Plans to pay unreasonable and excessive fees for investment and administrative services.”

Where does this leave your “average” multibillion dollar 403(b) university plan? Well, they say that forewarned is forearmed. However, the reality is that corrective actions now may not be enough to keep the plan out of “cite” – but it might be enough to keep your plan out of court.

- Nevin E. Adams, JD
 
Note: It bears acknowledging that the reason that so many of these suits allege the same things is not only that the plans have similar structures and characteristics, but that many of the suits have been filed by the same firm (Schlichter Bogard & Denton) – or by firms that have taken pages (literally in some cases) from the suits filed by that firm.

Parental Guidance

Nevin and his mom.

This weekend will mark the 12th anniversary of my father’s passing. There’s sadness associated with that date, of course, but he left behind a rich legacy in friends, family, and his life’s ministry that manages in the oddest ways to touch me at least once a month, even now.

At 76, Dad lived longer than I think any of the men on his side of the family had to that point (as a lineal descendant, I’m happy to note that on my mother’s side, my grandfather and great-grandfather made it past 90). Ultimately, he was with us longer than he expected to be – but a lot less time than I ever anticipated. However, for all the good that Dad did in this life for others, as I have thought about my father this week, it’s my mother that is more often in my thoughts. Because she, like many women, have spent longer in retirement than their husbands.

As is the case in many families, “Mom” was our family’ CFO. She was the one who encouraged me to start saving in my workplace retirement plan as soon as I was eligible (and I did), and over her lifetime she has continued to practice what she preached.

Now nearly 88, Mom’s still independent, vibrant, financially self-sufficient – and that’s no accident. On top of the expenses of rearing four kids, Dad, a minister, considered self-employed for most of his working life, funded both the employer and employee portions of Social Security withholding and still found a way to set aside money in a tax-sheltered account (he also tithed “biblically,” for those who can appreciate that financial impact).

Mom, a school teacher, took a fairly significant (and unpaid) “sabbatical” so that she could stay at home with her four kids until the youngest was ready to head off to school. When she returned to work she was covered by a state pension plan, albeit one that required from her paycheck a much more significant contribution than most defer into 401(k)s). On top of that she saved diligently to buy back the service credits she had forgone during the years she worked in our home without a paycheck – and then set aside money in her 403(b) account (over Dad’s objections, I might add). Somehow, despite all those draws on their modest incomes during their working lives, they managed to accumulate a respectable nest egg – and bought a long-term care policy before such things were “cool” so as not to be a burden on their kids. Don’t tell me those of modest incomes can’t and won’t save.

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 (lower incomes, more workforce interruptions, both when children are young, and as their parents age), and 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.

Sadly, because we all 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 (or to be part-time workers, and thus less likely to be eligible to participate). Only one in three women use a professional financial advisor to help manage their retirement savings and investments.

Oh, and like my mother, they tend to outlive their spouses –often by far more than the variance in average life expectancy tables suggest.

March has been designated Women’s History Month, and it seems a good time, even as it draws to a close, to acknowledge not only the special challenges that women face, but the amazing women out there – like my Mom, and perhaps yours – who are not only overcoming those challenges, but passing on the good habits of a lifetime to a new generation of savers, to boot.

- Nevin E. Adams, JD

‘End’ Adequate? Are We Getting an Accurate Read on Retirement Readiness?

The title of a new report by the Society of Actuaries poses an intriguing question: “Retirement Adequacy in the United States: Should We Be Concerned?”

When all is said and done, the answer from the report’s authors seems to be “it depends.”

And, as it turns out, it depends on a lot of things: who is asking the question, who you are asking the question about, and what you think the answer should be. And that doesn’t even take into account the questions about the assumptions one makes to come up with the answers.

The SOA report draws some conclusions:

• The current system of voluntary employment-based retirement plans has been largely successful from the perspective of companies sponsoring plans for individuals with long-term employment covered by such plans.
• The mandatory Social Security system has done much to reduce poverty in old age, though adequacy studies using replacement ratios may overstate the success of this safety net for those in the lowest-income groups, because too many rely solely on Social Security as their sole source of support. Moreover, for households that don’t have access to employer-sponsored retirement plans, Social Security alone will not allow them to maintain their preretirement standard of living.
• There is a need for future research that delves into the retirement challenges of particularly vulnerable populations, such as those who are widowed, divorced, long-term disabled or long-term unemployed.

But when it comes to answering the question posed in the title – well, the report’s authors concede that “significant differences in methodologies that are used in retirement adequacy research makes direct comparisons of results more difficult.” Specifically that most studies:¹

• do not adequately account for major unexpected expenses or shocks, such as poor investment performance, long-term care, death of a spouse and unexpected out-of-pocket medical expenses;
• assume that the adequacy objective is to maintain pre-retirement living standards (surveys indicate retirees are willing to live more conservatively);
• assume that people retire at a “normal” retirement age; and
• differ significantly in their treatment of housing wealth (if housing wealth is accessible to meet retirement needs, overall adequacy is higher).

The report also offered some cautionary notes, specifically that:

• You need to consider the source(s). “Different stakeholder groups are asking different questions, offering different solutions and measuring success in different ways.”
• Reliance on replacement ratios can be misleading. While they are easily explained, can be compared over time, and may be used for individuals, groups of individuals or the entire retiree population, “there is no universally agreed-upon definition or consensus on what constitutes an adequate replacement ratio or on how to adjust for differences in individual circumstances.”
• Post-retirement spending patterns can, and do, vary. Lifetime spending needs are also highly dependent on the length of the retirement period, changes that occur over time and whether a household experiences a spending shock during retirement. On the one hand, focus group and survey data show that most retirees are frugal and are satisfied with a lower standard of living in retirement than what is considered adequate in most research studies. However, large expense shocks “have a significant negative effect on retiree finances,” and many models ignore those impacts.

Ultimately, they conclude that some studies conclude that there is a retirement crisis in the United States and while others conclude that the system is in good shape – inconsistent outcomes that the authors say can be shown to be due to differences in research objectives, methodology, assumptions, definition of adequacy and population studied.

“The truth is that our retirement system has both successes and failures.”

Here’s to maximizing the first, and whittling away at the second – and not getting distracted by headlines in the meantime.

- Nevin E. Adams, JD
 
Footnote

1. However inconsistent current reports are, things might be worse when it comes to considering the current state versus future retirements. The report notes that many of the current studies fail to take into account the impact of changes in retirement ages, phased retirement and work during retirement. And that most studies focus on the retirement adequacy of current and near retirees, although retirees of the future may face more difficulty than today’s retirees “because of demographic issues, high debt load, lower likelihood of being married and owning a home, potential future reforms to Social Security, shifts in employment, and changes in the structure of employee benefit plans.” ↩

Missing 'Inaction'

While it’s hardly a new topic, the subject of missing participants is much in the news today – and arguably a growing concern for plan sponsors, particularly with the expansion of automatic enrollment.

Earlier this year the Government Accountability Office published a report – and some recommendations – on the subject of (re)connecting participants with their “lost” account balances. That report noted that from 2004 through 2013, more than 25 million participants in workplace plans separated from an employer and left at least one retirement account behind, “despite efforts of sponsors and regulators to help participants manage their accounts.” The report acknowledged that there are costs involved in searching for these “lost” participants, going on to note that there are no standard practices for the frequency or method of conducting searches.

Once upon a time the IRS provided letter-forwarding services to help locate missing plan participants, but with the Aug. 31, 2012, release of Revenue Procedure 2012-35, the IRS stopped this letter forwarding program. Moreover, while the Labor Department has provided guidance to plan sponsors of terminated DC plans about locating missing participants and unclaimed accounts, they have yet to do so regarding ongoing plans.

That said, the GAO reported that they had been informed by DOL officials that they are conducting investigations of steps taken by ongoing plans to find missing participants under their authority to oversee compliance with ERISA’s fiduciary requirement that plans be administered for the exclusive purpose of providing benefits.¹

In fact, the Labor Department’s Employee Benefit Security Administration’s Chicago Regional office adopted a “missing participant” regional initiative in fiscal year 2017, and – working with the PBGC, has reportedly recovered nearly $6.3 million for 133 participants, according to Bloomberg Businessweek.

More recently Sens. Elizabeth Warren (D-MA) and Steve Daines (R-MT) reintroduced the bipartisan Retirement Savings Lost and Found Act, noting that many Americans leave their jobs each year without giving their employers directions with what to do with their retirement accounts – a trend the bill’s sponsors say has increased with the expansion of auto enrollment. The legislation calls for the creation of a national online lost and found for Americans’ retirement accounts – and claims to leverage data employers are already required to report to do so (though the devil may lie in the details). The legislation also purports to clarify the responsibilities employers and plan administrators have to connect former employees with their neglected accounts.

Indeed, in such matters, plan sponsors often feel trapped between the proverbial rock and the hard place – pressed hard on the one hand by regulators to locate these former participants (and potential beneficiaries) – on another by state agencies with an avid interest in the escheatment of those funds – and often squeezed by the growing costs not only of trying to locate these participants, but the costs of distributing a wide assortment of plan notices, not to mention the ongoing costs of maintaining these accounts in potential perpetuity.

Little wonder that among its recent recommendations, the GAO recommended that the Secretary of Labor “issue guidance on the obligations under the Employee Retirement Income Security Act of 1974 of sponsors of ongoing plans to prevent, search for, and pay costs associated with locating missing participants.”

Said another way, what’s “missing” is more than former participants – it’s some safe harbor guidance that would provide some comfort and structure to those trying to reasonably fulfill their duties as plan fiduciaries – an ongoing concern for plans² that are an ongoing concern.

- Nevin E. Adams, JD
 
Footnotes

1.  Speaking of missing participants, the headlines of late have focused on issues regarding defined benefit participants. Most notably perhaps, MetLife disclosed last year that it failed to locate some group annuity clients that had likely moved or changed jobs. Nor was this a recent problem – the issue, which the firm said involved some 13,500 pension clients, was attributed to a “faulty system” that the firm had been using for a quarter century – a system that assumed that if the firm was unsuccessful in contacting participants twice that the individual would never respond, and that therefore weren’t going to claim benefits. In fact, the Labor Department’s push for companies sponsoring pension plans to find missing participants cited above reportedly influenced MetLife’s decision to conduct the review. Enter Secretary of the Commonwealth William F. Galvin, who just announced that his office discovered “hundreds of Massachusetts retirees” who are owed pension payments by MetLife. Galvin noted that the regulator planned to look into what MetLife had done in the past to locate and pay the retirees. 

• He also said his office’s investigation has been expanded to look into other firms who provide  retirement payments, including Prudential, Transamerica, Principal Financial, and Mass Mutual. ↩

1. You may recall that last fall the Pension Benefit Guaranty Corporation (PBGC), the nation’s private pension plan insurer, announced the expansion of its Missing Participants Program beyond its historical focus on PBGC-insured single-employer plans as part of the standard termination process to cover defined contribution plans (e.g., 401(k) plans) and certain other defined benefit plans that end on or after Jan. 1, 2018. However, this only deals with terminating defined contribution plans. ↩

‘False’ Start?

There’s a new proposal being floated that proponents say would “increase retirement income security and reform Social Security.” And yes, a mandate is involved.

The proposal involves something tagged “Supplemental Transition Accounts for Retirement” (a.k.a. “START”), and it’s being touted by AARP. The proposal is the work of Jason Fichtner of George Mason University, Bill Gale of the Brookings Institute and Gary Koening of AARP’s Public Policy Institute. The basic concept is to help people postpone claiming Social Security benefits (the most common age to start claiming remains 62) since – as an executive summary of the proposal indicates – between the ages of 62 and 70, monthly Social Security benefits increase by about 7% to 8% for each one-year delay in claiming.

This is accomplished by creating the aforementioned START accounts, which are funded by a new layer of mandated withholding: 1% each from workers and employers (2% combined) up to the annual maximum subject to Social Security payroll tax (self-employed individuals pay both parts, as they currently do with Social Security). Worker contributions are post-tax and employer contributions are pre-tax – oh, and there is a federal government contribution for lower income workers (up to 1% for married filing jointly with adjusted gross income less than $40,000) as well.

Individuals wouldn’t be directing these investments. Rather, they would be “professionally managed in a pooled account with an emphasis on keeping administrative fees as low as possible,” with the oversight of an “independent board” that would “select the private investment firm(s) responsible for managing START assets” and setting the investment guidelines.

So, what would this mean for retirement security? Well, START’s proponents claim that the proposal would “reduce poverty significantly for people ages 62 and over “under current law’s scheduled benefits,” raising the net per-capita cash income the most for older Americans with the lowest lifetime earnings by 10% on average and 15% at the median in 2065 compared to scheduled benefits under current law.

Now, it’s not hard to imagine that an additional 2% mandated savings would improve outcomes – certainly postponing drawing on Social Security benefits alone would serve to increase the monthly benefits by some factor (though actuarially speaking, it shouldn’t have much impact on the fund itself). Not to mention those who aren’t currently saving at all (we’ll just assume they can come up with the 1% mandate) – and there’s that additional government “match” for lower income workers to add to the outcome mix.

And yet, the proposal’s authors would appear to claim more. While they make their comparison to “scheduled benefits under current law,” which would seem to infer a comparison of the additional mandate and timing to that available under Social Security, the executive summary of the proposal notes that the Urban Institute analyzed the proposal based on assumptions ranging from one where employees reduce their contribution either to zero or by the amount of the START contributions, whichever is smaller.

Said another way, the analysis – and those rosy outcomes – assumes that workers confronted with the mandate will not reduce their workplace contributions by an amount larger than the mandate. Nor is it clear from the report that the analysis makes any allowance for the reduction in employer matching contributions that might accompany reductions by workers in their 401(k) savings – not to mention employers who might well see a need to reduce their workplace savings plan match because they are now required to put an additional 1% into these new mandatory accounts.

As retirement income security projections go, that doesn’t seem like a very good place to… start.

- Nevin E. Adams, JD

5 Key Industry Trends You May Have Missed

The Plan Sponsor Council of America recently released its 60th Annual Survey of Profit-Sharing and 401(k) Plans, documenting increases in participation, deferral rates, target-date funds, automatic enrollment and advisor hiring, among other key trends.

Here are five key trends highlighted in the survey that you may have missed.

Automatic enrollment is still (mostly) a large plan thing.

One of the most celebrated plan design features of the 401(k) era is automatic enrollment. Nearly as old as the 401(k) itself, once upon a time (when it wasn’t as popular) it was called a “negative election.” Regardless of the name, the concept has been extraordinarily effective at not only getting, but keeping, workers saving via their workplace retirement plans. However, adoption of the design, after a surge in the wake of the passage of the Pension Protection Act of 2006, now seems to have plateaued.

A decade ago, only about a third (35.6%) of respondents to the PSCA survey offered automatic enrollment. Now more than half (60%) do – and that increases to 70% among plans with more than 5,000 participants. However, only a third of plans with fewer than 50 workers do.

For some potential explanations – see Why Doesn’t Every Plan Have Automatic Enrollment?

Auto-escalation is escalating.

An incredible three-quarters of plans with automatic enrollment auto-escalate the deferral rate over time, compared with less than half (49.7%) a decade ago, according to the PSCA survey.

However, only one-third do so for all participants.

As for the rest, one in eight do so for under-contributing participants, and a third do so only if the participant elects to do so.

Plans are curing a fault with the default.

While you see surveys suggesting that a greater variety of default contribution rates is emerging, the most common rate today – as it was prior to the PPA – is 3%. There is some interesting history on how that 3% rate originally came to be, but the reality today is that it has been chosen because it is seen as a rate that is small enough that participants won’t be willing to go in and opt out – and, after the PPA, we have some law to sanction that as a target.

Sure enough, the PSCA survey found that the most common default deferral rate remains 3% (36.4%). However, more than half of plans now have a default deferral rate higher than 3%. Indeed, the second most common default (22.2%) is now 6%.

Roths remain on the rise.

Nearly two-thirds of plan sponsors now provide a Roth 401(k) option. In fact, in just a decade, the percentage of plans offering such an option has more than doubled; from about 30% in 2007 to 63.1% now.

Pre-tax treatment has, of course, been the norm in 401(k) plans since their introduction in the early 1980s. On the other hand, the Roth 401(k) wasn’t introduced until the Economic Growth and Tax Relief Reconciliation Act of 2001, and even in that legislation wasn’t slated to become effective until 2006 (and at that time was still slated to sunset in 2010). Significantly, participant take-up, which just a few years ago hovered in the single digits, is now in the 15-20% range (18.1% according to the PSCA survey, somewhat higher among smaller plans).

While industry surveys during the tax reform debate (including a flash poll from PSCA) indicated a fair degree of employer concern about the potential impact of so-called “Rothification” on participation, that doesn't seem to be slowing the opportunity for individuals to take advantage of tax diversification.

It’s (still) what goes in, not what comes out that ‘matters.’

It’s said that what’s measured matters – and yet, despite all the buzz around financial wellness, and a growing emphasis on outcomes, the latter still has a way to go in terms of being an established plan success benchmark.

Consider that in this year’s PSCA survey, a whopping 89.6% of plans cite participation rate as a benchmark to determine plan success – and even more (93.2%) of the largest plans rely on that gauge. Deferral rates were a distant second (72.6%), and average account balances ranked third (55%).

What about outcomes? Only a quarter of plans used that as a benchmark, though a third of the largest plans (33.8%) did.
Industry surveys, particularly those with a broad range of plan types and providers, and with the perspective of decades such as the PSCA survey provide an invaluable sense not only of where we are, but where we have been.

However, their real value lies in helping us see where we need to be.

- Nevin E. Adams, JD

More information about the Plan Sponsor Council of America’s 60th Annual Survey of Profit Sharing and 401(k) Plans is available at www.psca.org.

NOTE: There will be a special workshop exploring the survey results and the implications for advisors at the NAPA 401(k) SUMMIT, April 15-17, 2018 in Nashville, Tennessee. If you haven’t registered, there’s still time (but the hotel blocks are filling) at http://napasummit.org.

5 Things Plan Sponsors Should Know Before Hiring an Advisor

About a year ago, I was asked by an advisor if we had ever written anything about the potential pitfalls of hiring a relative as a plan advisor.

We hadn’t, as it turns out, in no small part because some things just seem (painfully) obvious to me – but it resulted in a column that, as I tried to point out at the time, was applicable to more than just familial relations.

In recent weeks I have received similar requests: one from an advisor looking for something on the hazards of “tying” bank business to providing services to a retirement plan, and another looking for validation of the wisdom of using a qualified 401(k) advisor on a plan rather than a part-timer.

Now, as someone who has been involved with ERISA and its fiduciary strictures his entire professional life, the responses to these questions are nearly self-evident. But let’s face it: Many, perhaps most, plan fiduciaries haven’t had that much exposure.

Before making a decision to hire an advisor – or for that matter, any decision involving the plan – here are some key considerations that plan fiduciaries should bear in mind.

If you’re a plan sponsor, you’re an ERISA fiduciary.

If you have discretion in administering and managing the plan, or if you control the plan’s assets (such as choosing the investment options or choosing the firm that chooses those options), you are a fiduciary to the extent of that discretion or control. Ditto if you are able to hire individuals to control or invest those assets.

If you’re an ERISA fiduciary, you have specific legal responsibilities.

There are several specific duties under the law, but the primary one is that the fiduciary must run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.

Note the words “solely” and “exclusive purpose.” Now consider a plan fiduciary who decides to hire a service provider based on services they provide outside the plan. Would that be a decision solely in the interests of participants? For the exclusive purpose of providing benefits?

ERISA fiduciaries must avoid conflicts of interest.

ERISA fiduciaries must also avoid conflicts of interest – meaning, according to the Labor Department, “they may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers or the plan sponsor.”

That means that a plan sponsor must not cause the plan/participants to pay for services if it results in free and/or discounted services for the employer/plan sponsor. Oh, and that’s even if the price the plan/participants pay is deemed reasonable.

As an ERISA fiduciary, you’re expected to be an expert — or to hire help that is.

It’s one thing to find yourself in a job for which you are not immediately trained, or perhaps even qualified, but there’s no beginner track for ERISA fiduciaries. You’re not only directed to act for the exclusive purpose of providing benefits, but to do so at the level of an expert. The DOL has said that “Unless they possess the necessary expertise to evaluate such factors, fiduciaries would need to obtain the advice of a qualified, independent expert.”

There’s nothing that says that a relative can’t meet that standard, nor should providing other, unrelated services to the organization preclude a firm from consideration for offering services to the plan. And, of course, there is nothing that says a part-time advisor couldn’t provide a full-time level of service and attention.

On the other hand, as an ERISA fiduciary you need to be sure that they do, in fact, meet that standard.

As an ERISA fiduciary, your liability is personal.

ERISA holds plan fiduciaries to a high legal standard. Indeed, at least one federal court has described it as “the highest known to the law.”

There are any number of things that can go wrong in running a workplace retirement plan. That’s why it’s important to hire experts – and to keep an eye on them. But don’t forget that you, as an ERISA fiduciary, can be held personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions.

It is, of course, possible that a brother-in-law, a banking relationship, or an individual who is only committed on a part-time basis is, in fact, an expert in such matters, that they bring real value to your plan and the participants and beneficiaries it serves, and that the decision to engage those services is based solely on your desire to fulfill your fiduciary obligations – for the exclusive benefit of the plan, its participants and beneficiaries.

Just make sure that you have made that determination independent of other factors, and that, perhaps particularly if those other factors are present, that your process and analysis is documented.

Your advisor-to-be will understand.

- Nevin E. Adams, JD

The 3 Biggest Mistakes Fiduciaries Make

A recent Alliance Bernstein survey found that plan sponsors’ awareness of their fiduciary role, much less the responsibility, has deteriorated significantly in recent years. In fact, their survey found that less than half of plan sponsors knew they were fiduciaries.

Here are, in my estimation, the three biggest mistakes fiduciaries make.

Not knowing they are fiduciaries.

As noted above, a significant – and apparently growing – number of individuals who are, in fact, plan fiduciaries are oblivious to that reality. The reasons for that are varied, though the Alliance Bernstein survey suggests that knowledge gap is wider among those who serve on a plan committee than with those who have primary responsibility for the plan.

Of course, fiduciary status is based on one’s responsibilities with the plan, not a title. Simply stated, if you have discretion in administering and managing the plan, or if you control the plan’s assets (such as choosing the investment options or choosing the firm that chooses those options), you are a fiduciary to the extent of that discretion or control. If you are able to hire a fiduciary, you’re almost certainly a fiduciary.

Speaking of committees, if you’re responsible for selecting those who are on the committee(s) that administer the plan, you’re a fiduciary. Not to mention if you happen to be on a committee that makes decisions regarding the plan’s assets…

Not knowing the liability that comes with being a plan fiduciary.

ERISA fiduciaries are personally liable, and may be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. That’s right, the legal liability is personal (you can, however, buy insurance to protect against that personal liability – but that’s not the fiduciary liability insurance some have in place, nor is it typically covered by your standard corporate director liability insurance).

What does that liability mean? Consider that, in the Enron case, the outside directors and committee members settled for about $100 million, most of which was paid by the fiduciary insurer. However, the individuals also had to pay approximately $1.5 million from their own pockets.

And all fiduciaries have potential liability for the actions of their co-fiduciaries. So it’s a good idea to know who your co-fiduciaries are – and to keep an eye on what they do, and are permitted to do.

Thinking that they can outsource their fiduciary liability.

Even when they aren’t fully aware of their liability exposure – and certainly once they are – plan fiduciaries have a strong interest in shielding themselves from the consequences of that exposure.
They often think that by hiring another plan fiduciary – and frequently that’s a financial advisor –  they have managed to absolve themselves from that responsibility.

As it turns out, ERISA has a couple of very specific exceptions; more precisely, ways in which you can limit – but not eliminate – your fiduciary obligations. One exception has to do with the specific decisions made by a qualified investment manager – but even then, the plan fiduciary remains responsible for the prudent selection and monitoring of that investment manager’s activities on behalf of the plan.

The second exception has to do with specific investment decisions made by properly informed and empowered individual participants in accordance with ERISA section 404(c). Here also, even if the plan meets the 404(c) criteria (and it is by no means certain it will), the plan fiduciary remains responsible for the prudent selection and monitoring of the options on the investment menu.

It is important to remember that 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. Fiduciaries who are concerned that they fall short of that standard – and let’s face it, many, perhaps most, are placed in those roles without training – may want to look to the counsel of the Department of Labor, which has said that “[l]acking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions.”

Doing so may not insulate you from all liability – but turning to experts is not only prudent, it surely minimizes the likelihood of making big mistakes.

- Nevin E. Adams, JD

Why the Match Matters – to Employers

It has been heartening in recent weeks to see a number of employers announce plans to expand and increase benefit programs, offer bonuses, and increase the employer match. Better still, a recent survey indicates that more positive changes could lie ahead.

A decade ago, the headlines were filled with stories about a number of large firms announcing that they were cutting, and in some cases eliminating altogether, the employer match. While the vast majority of employers didn’t reduce those matches, it was nonetheless a stark reminder that those defined contributions are “defined” annually, not in perpetuity.

The Match Matters

There are a number of things that we know about the importance of the employer match; there’s the obvious (though sometimes glossed over) impact that an employer contribution means in terms of retirement security in simple dollars, for one thing. Indeed, the nonpartisan Employee Benefit Research Institute (EBRI) has estimated that if future employer contributions were eliminated for Gen Xers, their retirement readiness rating would decline from 57.7% to 54.6% – and that doesn’t consider what might happen to employee contributions as a result.

And then there’s the reality that those who it save in a retirement plan at work appear to save at/near the level matched (though the amount of the match matters less than the existence of the match), suggesting that it provides a savings target of sorts for workers.

There’s little question that the match does good things for workers and their retirement security – but, let’s be honest, the employer match that is “free” for workplace savers is anything but for the employers that provide it. Here’s why it’s worth the money.

Better Finances Mean Better Work

A 2017 Mercer study found that on average, people spend about 13 hours per month worrying about money matters at work – about 5 hours at the median, suggesting that some spend a lot more time than others thinking about such things.

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

Little wonder that more than 8 out of 10 (82%) finance executives surveyed by CFO Research with Prudential Financial, Inc., believe that their companies benefit from having workforces that are financially secure – and nearly as many believe that employers should assist employees in achieving financial wellness during their working years.

Better Benefits Attract Better Workers

Okay, every time somebody talks about the reasons to offer a retirement plan, “attract and retain qualified workers” is on, if not at the top of, that list. Thinking about that next generation of workers? Well, the 2018 Millennial Benefit Trends Report from Pentegra found that, asked if they take into account whether a job offers benefits when considering applying – well, pretty much everyone (96.77%) said yes. And, asked to rate five general benefits categories in order of importance, “401(k) Retirement Savings” easily outpaced the others, with about 4 in 10 rating it “extremely important.”

The CFO Research survey noted above also found that nearly two-thirds (63%) say that employee satisfaction with benefits is important for their company’s success, and 65% believe that employee benefits are critical to attracting and retaining employees.

Better Benefits Keep Workers

By far, the finance executives surveyed consider higher employee satisfaction (59%) and increased retention (53%) as the most important benefits of a focus on financial wellness.

State Street Global Advisors’ 2016 research suggests that there is a noteworthy interplay between people’s happiness with their working life and their financial well-being. In fact, reports indicate that financial wellness actually influences an employee’s happiness at work.

Poor Savings Postpones Retirements

A report by Prudential (aptly titled “Why Employers Should Care About the Cost of Delayed
Retirements”) found that a one-year increase in average retirement age results in an incremental cost (the difference between the retiring employee and a newly hired employee) of over $50,000 for an individual whose retirement is delayed.

Moreover, the report notes that it results in an incremental annual workforce cost of about 1.0%-1.5% for an entire workforce. This represents the incremental annual cost of a one-year delay in retirement averaged over a five-year period. Prudential notes that for an employer with 3,000 employees and workforce costs of $200 million, a one-year delay in retirement age may cost the employer about $2-3 million.

It’s been great to see so many employers announce enhancements to their benefits programs, cash bonuses and – most particularly – increases to their 401(k) matches. However, every year tens of thousands of employers commit to helping their workers save for retirement by committing to making a company match – and they have done so in good times and times that weren’t so good.

It’s a commitment that makes a huge difference – and one that shouldn’t be taken for granted.

- Nevin E. Adams, JD

Are Stocks Swayed by the Super Bowl?

Will your portfolio soar with the Eagles, or get pummeled by the Patriots?

That’s what adherents of the so-called Super Bowl Theory would likely conclude. The Super Bowl Theory holds that when a team from the old National Football League wins the Super Bowl, the S&P 500 will rise, and when a team from the old American Football League prevails, stock prices will fall.

It’s a “theory” that has been found to be correct nearly 80% of the time — for 40 of the 51 Super Bowls, in fact. Though last year’s big comeback by the AFC Champion Patriots (who once were the AFL’s Boston Patriots) against the then-NFC champion Atlanta Falcons — alongside the 2017 market surge — surely places its validity in question. Not to mention 2016, and the AFC’s (and original AFL) Broncos 24-10 victory over the Carolina Panthers, who represented the NFC.

It was an unusual break in the streak that was sustained in 2015 following Super Bowl XLIX, when the New England Patriots (yes, those same Patriots) bested the Seattle Seahawks 28-24 to earn their fourth Super Bowl title. It also “worked” in 2014, when the Seahawks bumped off the Denver Broncos, a legacy AFL team, and in 2013, when a dramatic fourth-quarter comeback rescued a victory by the Baltimore Ravens — who, though representing the AFC, are technically a legacy NFL team via their Cleveland Browns roots.

Admittedly, the fact that the markets fared well in 2013 was hardly a true test of the Super Bowl Theory since, as it turned out, both teams in Super Bowl XLVII — the Ravens and the San Francisco 49ers — were NFL legacy teams.

However, consider that in 2012 a team from the old NFL (the New York Giants) took on — and took down — one from the old AFL (the New England Patriots). And, in fact, 2012 was a pretty good year for stocks.

Steel ‘Curtains’?

On the other hand, the year before that, the Pittsburgh Steelers (representing the American Football Conference) took on the National Football Conference’s Green Bay Packers — two teams that had some of the oldest, deepest and, yes, most “storied” NFL roots, with the Steelers formed in 1933 (as the Pittsburgh Pirates) and the Packers founded in 1919. According to the Super Bowl Theory, 2011 should have been a good year for stocks (because, regardless of who won, an NFL team would prevail). But as you may recall, while the Dow gained ground for the year, the S&P 500 was, well, flat.

There was the string of Super Bowls where the contests were all between legacy NFL teams (thus, no matter who won, the markets should have risen):

• 2006, when the Steelers bested the Seattle Seahawks;
• 2007, when the Indianapolis Colts beat the Chicago Bears 29-17;
• 2009, when the Pittsburgh Steelers took on the Arizona Cardinals, who had once been the NFL’s St. Louis Cardinals; and
• 2010, when the New Orleans Saints bested the Indianapolis Colts, who had roots back to the NFL legacy Baltimore Colts.

Sure enough, the markets were higher in each of those years.

As for 2008? Well, that was the year that the NFC’s New York Giants upended the hopes of the AFL-legacy Patriots for a perfect season, but it didn’t do any favors for the stock market. In fact, that was the last time that the Super Bowl Theory didn’t “work” (well, until this past year – oh, and the year before THAT).

Patriot Gains

Times were better for Patriots fans in 2005, when they bested the NFC’s Philadelphia Eagles (yes, it’s a rematch this year of sorts) 24-21. Indeed, according to the Super Bowl Theory, the markets should have been down that year – but the S&P 500 rose 2.55%.

Of course, Super Bowl Theory proponents would tell you that the 2002 win by (those same) New England Patriots accurately foretold the continuation of the bear market into a third year (at the time, the first accurate result in five years). But the Patriots’ 2004 Super Bowl win against the Carolina Panthers (the one that probably nobody except Patriots fans remember because it was overshadowed by Janet Jackson’s infamous “wardrobe malfunction” with Justin Timberlake - who, as it turns out, is back to perform in this year's Super Bowl) failed to anticipate a fall rally that helped push the S&P 500 to a near 9% gain that year, sacking the indicator for another loss (couldn’t resist).

Bronco ‘Busters’

Consider also that, despite victories by the AFL-legacy Denver Broncos in 1998 and 1999, the S&P 500 continued its winning ways, while victories by the NFL-legacy St. Louis (by way of Los Angeles) Rams (that have now returned to the City of Angels) and the Baltimore Ravens did nothing to dispel the bear markets of 2000 and 2001, respectively.

In fact, the Super Bowl Theory “worked” 28 times between 1967 and 1997, then went 0-4 between 1998 and 2001, only to get back on track from 2002 on (“purists” still dispute how to interpret Tampa Bay’s 2003 victory, since the Buccaneers spent their first NFL season in the AFC before moving to the NFC).

Indeed, the Buccaneers’ move to the NFC was part of a swap with the Seattle Seahawks, who did, in fact, enter the NFL as an NFC team in 1976 but shuttled quickly over to the AFC (where they remained through 2001) before returning to the NFC (see below). And, not having entered the league until 1976, regardless of when they began, can the Seahawks truly be considered a “legacy” NFL squad? Bear in mind as well, that in 2006, when the Seahawks made their first Super Bowl appearance — and lost — the S&P 500 gained nearly 16%.

As for Sunday’s contest, the Patriots have been here before (to put it mildly), the Eagles (just) twice – but not since 2004 (when they lost to the Patriots) and before that in Super Bowl XV against the Oakland Raiders — but are 0-2 in those appearances.

On a separate note, despite (technically) being the home team, the Patriots will (again) be wearing white jerseys. Not that they’re superstitious or anything, but 12 of the last 13 Super Bowl winners were wearing white jerseys — and, according to CBS, not only were the Pats in white the last time they beat the Eagles, they are (only) 2-2 when wearing blue jerseys in the Super Bowl, and 3-1 when in white (Bears fans at least will recall what happened when the Patriots wore red in Super Bowl XX).

All in all, it looks like it will be a good game. And that — whether you are a proponent of the Super Bowl Theory or not — would be one in which regardless of which team wins, we all do!

- Nevin E. Adams, JD
 
Note: Seattle is the only team to have played in both the AFC and NFC Championship Games, having relocated from the AFC to the NFC during league realignment prior to the 2002 season. The Seahawks are the only NFL team to switch conferences twice in the post-merger era. The franchise began play in 1976 in the NFC West division but switched conferences with the Buccaneers after one season and joined the AFC West.