'Hacking" Stances

A couple of Saturdays back I discovered that one of my online accounts had been “hacked.” 

The good news is that I “discovered” this via transaction emails confirming what appeared to be purchases—a half dozen of them… for various, small-ish (though not small) amounts… all about 4:00 a.m. on a Saturday morning. And trust me, while the pandemic has certainly fueled my online purchases, both the number and the timing were not normal behaviors (nor was the Chinese text in those emails).

The even better news was that I was able to flag those transactions via the provider—and via my credit card company—almost immediately (apparently the foreign hackers and I were the only ones awake at that hour). Even though there was no damage done by this incursion (aside from some temporary heartburn), it brought home to me again the importance of protecting all of my online accounts.

Like many, perhaps most, of you, I have long found managing the sheer volume of online passwords and varying criteria daunting. Oddly, the ever more complex (and varying) password requirements—different lengths, different combinations of caps, numbers and “special” characters, not to mention forced resetting of those passwords—has, if anything, tended to leave me being more casual than I should be regarding some of the practices I know are important. That said, and while I am far from a cybersecurity expert, I try to stay current on the latest advice from those who are—and trust me, it’s a moving target. 

As it turns out, the Labor Department recently issued a set of guidance on the issue of cybersecurity,[i] and while our more immediate focus here has been on the expectations of plan sponsor/fiduciaries, advisors and recordkeepers (particularly in view of the recent reports of Labor Department audits on these practices), my recent experience reminded me that it’s worth noting—and sharing here—the list of “online security tips” for participants included in that guidance. 

Use Strong And Unique Passwords

The most detailed of the tips is also perhaps the most important. The Labor Department recommends that you “use letters (both upper and lower case), numbers, and special characters”—which is increasingly mandated anyway—and to “use 14 or more characters.” We’re also advised not to use letters and numbers in sequence (like “1234” or “abc”), to change passwords every 120 days (or if there’s a security breach—p.s. you probably won’t hear about it until at least 30 days after it’s been detected), and—despite all these strictures—to not only not write it down, but not to “share, reuse, or repeat passwords.”

This is both the most obvious—and in my experience—most nettlesome of the recommendations. Of course, the more complicated the password, the less likely a hacker is to be able to “hack” it. And, unfortunately, the less likely you are to be able to remember it. I’ve seen suggestions on how best to manage this—most commonly these days (including from the Labor Department) the suggestion to use a password “manager.” 

But for those who find that process intimidating (or inconvenient), what I’ve found most useful is the idea of using phrases that are familiar or meaningful to you, but would amount to gibberish in a password field. Something like (for those who took typing classes in high school) “thequickbrownfoxjumped,” particularly if combined with some kind of numerical reference (perhaps “thequickbrownfoxjumpedh1.” You can also use a random combination of words like “fleetwoodChicago1978” (which happens to be when/where I saw Fleetwood Mac perform), or maybe a random combination of month and year (though avoid birthdates, anniversaries, and such)—perhaps something like “januarY2019” (I try to capitalize something other than the first letter). One other neat trick is to use spellings that may mean something to you, but aren’t in the dictionary—like dixshunary, or Septimber. 

The challenge, of course, will be remembering which (random) combination(s) you used for what. But if that leads you to write it down, keep that in a safe place—and don’t store it on your computer! 

Use Multi-Factor Authentication

The very first thing I did with the account that had been hacked (once I had reestablished control) was to set up multi-factor authentication. I have made a practice of doing this with all my accounts, and can only assume that years back, when I set up the account in question, they either didn’t have it available, or I considered it too much of a hassle to set up. No more.

Basically, this means that when you log on and/or initiate a transaction, the system requires the confirmation of a second credential. The most common set up would be to send you a code via text (to a phone number you’ve established on file) or to an email address. If you don’t have this set up yet on your online accounts—do it right away. It’s a life (and savings) saver. And always, always, always, be sure that you are set up to receive notifications any time your account or account information has been changed! Oh—and it bears noting here that the password to your email account is perhaps the most important—because if they hack your email account as well, they can intercept those confirmation emails, and delete them before you even know it has happened! 

Keep Personal Contact Information Current

Odds are the accounts you access with some frequency have current contact information. The problem is, retirement savings often don’t fall into the “with some frequency” category. Let’s face it, we’ve long been advised that we shouldn’t be constantly checking in on our retirement savings, but there’s nothing that says you can’t look without touching. Particularly if you have left some 401(k) balances “behind” with a prior employer.  

Close Or Delete Unused Accounts

It’s unfortunately not uncommon for folks to use the same password(s) for multiple accounts—but using those same passwords for accounts you don’t use (or perhaps don’t even remember using) and ones with current, and perhaps monetary implications, can leave you exposed. You may have gotten one of those (badly spelled) emails from individuals who claim to have accessed your webcam and/or planted some kind of “trojan horse” on your PC, and by way of proof—show you the password that they’ve stolen. While those kind of intrusions are certainly possible, odds are what they did instead was tap into your email—and password—from an old blogging account or such that you simply walked away from years ago. 

There are a couple of easy ways to check out your potential vulnerability—https://haveibeenpwned.com/ or https://monitor.firefox.com/. 

One the DOL ‘Missed’

Now, for all the value in the tips provided, there is some irony in one they missed—the importance of logging on to your 401(k) account(s) regularly. 

If you have an online account—and these days you may have more than one—and particularly following a change in recordkeepers (and with the recent wave of consolidation there’s been a lot of that[ii]), it is imperative to log on ASAP, and not only establish the unique password noted above, but also set up the multi-factor authentication, provide answers to key security questions, and make sure that you are set up for electronic notifications of any changes to your account. Did I say ASAP? I mean now. 

After all, if you don’t lay claim to that account—quickly—it’s all the easier for a hacker to do so.   

- Nevin E. Adams, JD

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[i] It’s worth acknowledging here that recently there have been numerous situations where plan fiduciaries have been sued for various account intrusions, including participant accounts at Abbott Laboratories (Split Decisions in 401(k) Theft Suit for Plan Sponsor, RK), Estee Lauder (Recordkeeper, Plan Sponsor Charged in 401(k) Account Theft), MandMarblestone Group (Court Backs TPA Counterclaim on Plan Sponsor in 401(k) Cyber Theft Case) and Boeing (Man Charged with Retirement Account Thefts).

[ii] As an additional note of caution, I have now had two of my 401(k) accounts converted (by and from different providers) without the beneficiary information. Now, sooner or later, should it become necessary, the paperwork I submitted once upon a time will surely suffice (and since my spouse is my beneficiary, it shouldn’t matter)—but it’s a good idea to double check such things while you are setting up that password, etc.

The 'End' in Mind

I was discussing the subject of retirement over the long holiday weekend with family. 

There was a lot of talk about Social Security (or the looming lack thereof), the impact(s) of inflation, and how the markets (stock and housing) had boosted prospects, but ultimately decided we weren’t sure when that would happen, we weren’t even positive that it would happen (the so-called “great resignation” notwithstanding), or if it might consist of a gradual slowdown/pullback. Moreover, we really didn’t know what “it” would be like if and when it did happen, or where we might be living even if and when. Finally—it had been a pretty hectic week, after all—I somewhat playfully suggested that the best definition of retirement would be the absence of time-critical deadlines and Zoom meetings. Ah, now that’s something to look forward to!

However, and as those who are already ensconced there can attest, retirement has its own set of pressures, and they go well beyond bucket list “bingo.” But the “difficulty” that my family discussion had in actually describing what we would “do” is a real problem in retirement planning. After all, if you don’t know what you are going to “do” (or from where you will be doing it), it’s really hard to develop a plan, certainly not an effective one. Let’s face it, the things we are accustomed to saving for—a car, a house, the kids’ college tuition, a vacation trip—generally are not only things we can envision, they have a very specific price tag—and sometimes a specific deadline.

Now, of course, retirement—more precisely, living in retirement—also has a price tag, if not a specific deadline (though the latter can certainly influence the former). Anyone who has an interest in knowing what that is can turn to any number of readily available calculators capable of revealing that number, or at least a range of numbers. Unfortunately, those disembodied figures don’t shed much light on defining what we’ll get for our money—and even then they tend to be so large that the normal reaction is, “Isn’t there a cheaper model?” (or perhaps a higher assumed return).

The sad reality is that too few take the time to make that calculation before making that decision. In fact, according to the Employee Benefit Research Institute/Greenwald & Associates’ 2020 Retirement Confidence Survey, just over 4 in 10 (44%) have (ever) estimated[i] how much income they and your spouses would need each month in retirement—a pretty consistent finding from the RCS, which began asking that question way back in 1993. 

Doubtless some of the reluctance is the sheer complexity of the “ask” (not to mention the variables), the press of more immediate concerns, perhaps even a fear of what the answer will be. For years now, a number of providers have produced an estimate of how much monthly income one’s current account would yield on participant statements, a feature (somewhat) codified in the SECURE Act. That said, and with its many assumptive flaws, I’ve never found that focus particularly useful, though it’s an improvement over the traditional lump sum “need” that most calculators provide, and certainly better than a mere account balance. Personally, I think we’d do a better job of paying that retirement “bill” if participants set an annual target—a budget for retirement, just like we have for the mortgage or the car payment. That would give them a shorter-term target that could still be part of the larger, often apparently unassailable goal. Too often, retirement savings is a function of what is left over after everything else is paid. And that means that, too often, particularly when things like health care costs, groceries, and filling the tank cost more than we had planned, we not only don’t pay that retirement “bill,” we don’t even see it as overdue. 

Retirement planning needs to start with the “end” in mind, of course—but to be effective it also needs a constructive road map to help chart the way there. 

- Nevin E. Adams, JD

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[i] Worse—and this data point was not in the 2020 RCS—when you ask how people had made some kind of assessment of their retirement income needs, a jaw-droppingly large percentage indicated they… guessed.

History’s Lessons for Plan Fiduciaries

 

The study of history is a passion of mine, and while it seems a bit trite, the old adage that those who don’t remember the past are doomed to repeat it seems more apropos by the day. Regardless, I never cease to be touched by the experience of walking the grounds where famous individuals or great historic events took place. 

A few years back I had the opportunity to be in Philadelphia for a few days beyond the customary speaking event “fly-by,” and was thrilled to be able to tour Independence Hall where, in 1776, the Continental Congress crafted what we will shortly celebrate as the Declaration of Independence. Those who think that partisan divides, cynical self-interest, and political acrimony are recent “innovations” in government would perhaps be shocked to learn that regional tensions have always been part-and-parcel of our republic… even before it was a republic. 

The room was smaller than I had imagined—and I couldn’t imagine what it must have felt like on a July day with no air conditioning. The chairs (though doubtless replicas) looked… uncomfortable, to say the least. The idea that the debates—and ultimately the consensus (of sorts) that was wrested from this group of disparate individuals with varied (and competing) objectives in that room was—to me, anyway, nothing short of extraordinary. To this day the reality that our nation was born from—and has survived—those contradictions is a testament to the power of the ideals expressed on that July day in 1776, even if some would require the passage of time (and a Civil War) to achieve. 

But, as we commemorate this Independence Day holiday, there are, I think, lessons to be learned from that experience that can be applied to our work with retirement plans, particularly those who serve those plans as fiduciaries. 

Inertia is a powerful force.

By the time the Second Continental Congress convened, the “shot heard round the world” had already been fired at Lexington, but many of the representatives in Philadelphia still held out hope for some kind of peaceful reconciliation. Little wonder that, even in the midst of hostilities, there was a strong inclination on the part of several key individuals to put things back the way they had been, to patch them over, rather than to take on the world’s most accomplished military force.

As human beings we are largely predisposed to leave things the way they are, rather than making abrupt and dramatic change. Whether this “inertia” comes from a fear of the unknown, a certain laziness about the extra work that might be required, or a sense that advocating change suggests an admission that there was something “wrong” before, it seems fair to say that plan sponsors are, generally speaking, and in the absence of a compelling reason for change, inclined to rationalize staying put.

Little wonder that we often see new fund options added, while old and unsatisfactory funds linger on the plan menu, a general hesitation to undertake an evaluation of long-standing providers in the absence of severe service issues, and reluctance to adopt potentially disruptive (and, admittedly, often expensive) plan features like automatic enrollment or deferral acceleration.

While many of the delegates to the Constitutional Convention were restricted by the entities that appointed them in terms of how they could vote on the issues presented, plan fiduciaries are bound by a higher obligation—that their decisions be made solely in the best interests of plan participants and their beneficiaries—regardless of any other organizational or personal obligations they may have outside their committee role.

Selection of committee members is crucial.

The Second Continental Congress was comprised of representatives from what amounted to 13 different governments, with delegates selected by processes ranging from extralegal conventions, ad hoc committees, to elected assemblies –with varying degrees of voting authority granted to them, to boot. Needless to say, that made reaching consensus even more complicated than under “ordinary” circumstances.

Today the process of putting together an investment or plan committee runs the gamut—everything from simply extrapolating roles from an organization chart to a random assortment of individuals to a thoughtful consideration of individuals and their qualifications to act as a plan fiduciary. But if you want a good result, you need to have the right individuals—and, certainly in the case of ERISA fiduciaries, if those individuals lack the requisite knowledge on a particular issue, they need to access that expertise from individuals who do.

Know that there are risks.

Those that gathered in Philadelphia that summer of 1776 came from all walks of life, but it seems fair to say that most had something to lose by signing on to a declaration of independence. True, many were merchants (some wealthy, including President of Congress John Hancock), and perhaps they could see a day when their actions would accrue to their economic benefit. Still, they could hardly have undertaken that declaration without a very real concern that in so doing they might well have signed their death warrants. As Ben Franklin is said to have commented just before signing the Declaration, “We must, indeed, all hang together, or most assuredly we shall all hang separately.”

Despite the threat of litigation, it is not quite that serious for ERISA plan fiduciaries. However, there is the matter of personal liability—not only for your actions, but for those of your fellow fiduciaries—and thus, you might be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. So, it’s a good idea not only to know who your co-fiduciaries are—but to keep an eye on what they do, and are permitted to do.

It’s important to put it in writing.

While the Declaration of Independence technically had no legal effect, with the possible exception of the Gettysburg Address (which was heavily inspired by the former), its impact not only on the establishment of the United States, but as a social and political inspiration for many throughout the world is unquestioned, and perhaps unprecedented. Putting that declaration—and the sentiments expressed—in writing gave it a force and influence far beyond its original purpose.

Plan fiduciaries are sometimes cautioned (often by legal counsel) about committing to writing certain decisions, notably an investment policy statement. In fairness, the law does not require one, though ERISA basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, plan sponsors (and the advisors they work with) find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those standards are in writing—rather than being crafted at a point in time when you are desperately trying to make sense of the markets. That said, and in the defense of caution, if there’s something worse than not having an IPS, it’s having an IPS that isn’t followed.

There is an old ERISA adage that says, “Prudence is process.” However, an updated version of that adage might be “prudence is process—but only if you can prove it.” To that end, a written record of the activities of plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations. More significantly, those minutes can provide committee members—both past and future—with a sense of the environment at the time decisions were made, the alternatives presented and the rationale offered for each, as well as what those decisions were. 

Those might not serve to inspire future generations—but they can be an invaluable tool in reassessing those decisions at the appropriate time(s) in the future and making adjustments as warranted—properly documented, of course.

Actions can speak louder than words.

As dramatic and inspiring as the words of the Declaration of Independence surely were (and are), if they never got beyond the document in which they appeared, it’s unlikely we’d be talking about them today. Indeed, it’s likely that, without the actions committed to in that Declaration, their signatures on the document would have only ensured that they wound up on the gallows.

Anyone who has ever had a grand idea shackled to the deliberations of a moribund committee, or who has had to kowtow to the sensibilities of a recalcitrant compliance department, can empathize with the process that produced the Declaration of Independence we’ll commemorate this week.

Yes, Independence Day is a great opportunity to reflect and remember that our actions have consequence(s)—and that while plan committee meetings and deliberations may sometimes seem like little more than obligatory (and tedious) reviews of arcane information, it’s worth remembering that those decisions affect people’s lives—and, ultimately, their financial independence. 

- Nevin E. Adams, JD

Does Financial Wellness (Still) Need an ROI?

The ROI for financial wellness has always been elusive—but a new survey suggests that it might not matter.

Asked “Why are you creating or expanding your financial wellbeing program?”, respondents to Alight’s 17th edition of Hot Topics in Retirement & Financial Wellbeing said that not only was financial wellness their top priority, more than half (56%) said that the importance of financial wellbeing has increased at their organization over the last two years, and none said the focused has decreased. 

But—asked why they were creating or expanding their financial wellbeing program, the respondents largely ignored the traditional ROI metrics. The most common answer was nothing more concrete than to “enhance the overall employee experience (85%), and right behind that was the simple proposition that “we believe it is the right thing to do (84%). Even HR’s traditional favorite—“increase employee engagement”—at 72%—was well behind those arguably subjective gauges. 

“Engagement” isn’t exactly a new measure—but even that requires equating employee utilization with a return of value to the organization’s bottom line. It’s not that it doesn’t have value, but it’s darned hard to quantify. Indeed, some experts argue that we shouldn’t even try.

Goals Posts

Well down the list for these plan sponsors were common goals such as improved retirement statistics (e.g., improved adequacy, decreased leakage, higher participation rate), cited by fewer than half (49%), or the traditional “to increase attractiveness and/or differentiate ourselves as an employer,” which was identified by just 47%. The goals that many early advocates of financial wellness had touted—to “decrease employee time spent addressing financial issues (either on the job or through absenteeism)” was mentioned by just 43%, and as for “decreased medical costs”—a mere 14% indicated that was a rationale. Nor was it a matter of responding to worker interest—just 38% cited employees asking for these types of benefits as a factor.

Don’t get me wrong—it’s not as though there haven’t been attempts made to quantify the return on the time and monetary investment in these programs, certainly by the firms that promote these services—but getting to those results generally involves adopting not just the methodologies, but the calculus employed in assigning value to those results. 

Measure ‘Meants’

Despite the well-intentioned efforts of many, financial wellness remains one of those concepts that is still, largely anyway, (just) a concept—one with varied definitions, inconsistent applications, and disparate providers—and thus one that is notoriously frustrating to assign a dollar value[i] to—other than the cost of such programs, which when, done properly, we’re assured, costs money.

In fact, asked how they intended to measure the results of their financial wellbeing program, far and away the most common response—cited by 85%—was employee usage of benefits. As metrics go, it’s certainly an important one—because if the program isn’t being used, there can be no real impact. That said, the kinds of impact that have been more commonly associated with a quantifiable ROI—improvements in retirement statistics (55%), medical costs (e.g., health care, disability, workers compensation) (12%) and reductions in absenteeism (5%)—followed distantly. Even employee engagement—as noted earlier, a notoriously difficult aspect to quantify—was cited by only about half (52%) of plan sponsors—and 6% admitted that they did not intend to measure the results of their program.

Now, these survey results are drawn from a relatively small group of relatively large plan sponsors: 116 of them, albeit with a median employee base of 19,300 (average of 47,000). On the other hand, the patterns at evidence among larger employers have long been seen as a something of a precursor for what will eventually take hold “downmarket.” 

What remains to be seen is whether the apparent diminution of focus on traditional ROI measures among these plan sponsors suggests that those contributions to the bottom line were always illusory—or perhaps that they weren’t a necessary affirmation of the pursuit of financial wellness after all. 

- Nevin E. Adams, JD

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[i] That said, a couple of years back (see Building a Bottom Line for Financial Wellness), I was able to cobble together a formula of sorts, that looked something like “Projected reduction in turnover times current turnover rate times the estimated cost of replacing a worker times the number of employees.” That said, while it’s a calculation with discernable variables, those are still fraught with “fill in the blank” assumptions. 

Things You Don't Learn in School

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

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

ASAP is never as soon as people think.

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

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

Bad news doesn’t improve with age.

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

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

Don’t be afraid to pick up the phone.

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

Book some quiet time in your day.

Most meetings really could be replaced with an email.

You’re either early—or you’re late.

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

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

Generalizations are (almost) never accurate.

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

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

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

Never say you’ll never…

Always sleep on big decisions.

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

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

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

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

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

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

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

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

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

- Nevin E. Adams, JD

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

Second Opinion(s) on Health Cost ‘Coverage’

 

As if retirement savers didn’t have enough to worry about, last week a report reminded us how much money they’re going to need in retirement… just for health care.

In fact, Fidelity Investments’ 20th annual Retiree Health Care Cost Estimate claims that a 65-year-old, opposite-gender couple[i] retiring this year can expect to spend a whopping $300,000 in health care and medical expenses throughout retirement—an 88% increase since 2002. 

This year’s estimate is a new high, and even if it’s up just 1.7% from 2020 ($295,000), it’s 30% higher than 10 years ago when the amount was $230,000.

What Are the Odds?

Now, if you’re finding all that a bit depressing, you might turn instead to the work that the Employee Benefit Research Institute (EBRI) did a year ago, when the group examined those needs. However, they found that the overall projected savings needed to have a 90% chance of having enough money to pay for premiums, Part B deductibles and out-of-pocket drug expenses for retirement at age 65 in 2020 for a couple with drug expenses at the 90th percentile was then estimated at $325,000—that said, it was down from $363,000 in 2019 and $399,000 in 2018.[ii]

Not feeling any better? 

The ‘Spread’

Well, consider that for a typical 65-year-old woman, a Mercer-Vanguard model predicts an annual health care expense of (just) $5,200 in 2018. And then there is that interesting report from 2019 (aptly titled “A New Way to Calculate Retirement Health Care Costs”) by T. Rowe Price’s Sudipto Banerjee who suggested then (and presumably would again today) that it may be more practical to look at health care as an annual expense incurred over the 20-30 years you’ll actually incur those expenses, rather than as a lump sum. 

More recently, Banerjee points out another aspect of these large lump sum totals that is easy to overlook—and that’s the impact of “health care shocks”—those really high health care cost increases (say in excess of $25,000) that many worry about, but that don’t usually affect younger retirees.[iii]

Confused?

Well, even if you aren’t, you can surely understand why your “average” retirement saver might be. Worse, my guess is that the only takeaway most would get from all this is the first headline[iv]—that they’re going to need more for health care expenses in retirement alone than many have accumulated for the totality of their retirement expenses.

Ultimately, these types of projections serve to remind us that health care costs need to be contemplated as a part of retirement expenses—and that, at the extremes, those costs can quickly wipe out funds set aside for living expenses. Little wonder that concerns about the costs of health care in retirement dominate the concerns of those not yet across that threshold. 

But as you’re sharing these headlines with savers—doubtless hoping they’ll take it as a wake-up call, an incentive and an encouragement to plan, and perhaps to save more—we should keep in mind that those attention-grabbing lump sum numbers are, at best, an estimate that attempts to put a framework around a very specific aspect of retirement spending—one that for the vast majority won’t come due all at once, but over decades, one that may well not emerge until much later in retirement, one that may never ever arise in that projected magnitude. 

Bear in mind as well that, however eye-opening or jaw-dropping the headline, presented out of context it might have the opposite effect—discouraging and even disincentivizing the very behaviors we hope to inspire.

- Nevin E. Adams, JD

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[i] For single retirees, the 2021 estimate is $157,000 for women and $143,000 for men.

[ii] Fidelity’s estimates above assume both members of the couple are enrolled in traditional Medicare (which between Medicare Part A and Part B covers expenses such as hospital stays, doctor visits and services, physical therapy, lab tests and more), and in Medicare Part D, which covers prescription drugs. Neither includes the potential impact of long-term care costs, though EBRI routinely does in it modelling of retirement savings needs.

[iii] Indeed, not only does he write that they are more prevalent among those who reach their 80s and 90s, but that—even then—it’s (only) a very small percentage of people (3.6% of those ages 80-89, and 8.4% for those ages 90-99—however, overall, even for those between ages 90 and 99, less than one-third experienced an increase of more than $2,000, he notes).

[iv] To their credit, having gotten your attention with that headline, the press release accompanying it does offer a perspective on how that financial need could be satisfied taking advantage of a health savings account. Ahh, the magic of compounding!

Guidance 'Counseling'

 When the Labor Department issued last month what it called “new guidance” that it further described as “the first time the department’s Employee Benefits Security Administration has issued cybersecurity guidance”—well, I, for one, was expecting… guidance. 

However, rather than an advisory opinion, information letter or even a field assistance bulletin, it turned out instead to be three documents outlining what were termed “best practices for maintaining cybersecurity.”

The issue of cybersecurity has, of course, loomed large in recent months, reportedly emerging as a focus in Labor Department audits and as a point of contention[i] in participant lawsuits. In fact, even the preamble to the final e-delivery regulations stated a year ago that “…the Department expects that many plan administrators, or their service or investment providers, already have secure systems in place to protect covered individuals’ personal information.” 

Now, in fairness, the Labor Department press release did state that it was guidance on those best practices—not that there wasn’t guidance on cybersecurity to be found in those documents. 

Consider that in the component labelled “Cybersecurity Program Best Practices,” none other than the Labor Department itself says, in no uncertain terms, “Plans’ service providers should…” and then proceeds to enumerate 12 precise and distinct elements. The first of these is no less than to “have a formal, well documented cybersecurity program,” followed immediately by “conduct prudent annual risk assessments.” 

Doubtless there are some who would prefer to have a more detailed expectation as to the particulars of those practices, some specific sense as to exactly what constitutes a “cybersecurity program,” the criteria for “strong access control procedures” and what is required in order to “appropriately respond” to past cybersecurity incidents. 

Make no mistake: Plan fiduciaries that aren’t attentive to the issue, much less the best practice guidance and its detailed outlines as to what would constitute “best” practices—well, perhaps the high-level admonitions leave too wide open the determination as to how those mesh with ERISA’s fiduciary standard. That said, and even if the Labor Department has yet to turn a sharp eye upon such things, the plaintiffs’ bar soon surely will.

The elements outlined, while broad, seem to offer at least a basic structure and specifics sufficient to validate an existing program, or—should one not yet be in place—begin its construction. And so, even if there are some specific criteria not yet detailed, plan fiduciaries can know, it seems to me—regardless of this particular guidance—for a certainty that the standards of considering, hiring and monitoring the processes and practices of those who provide support to their plan and its participants require—as they always have—a standard of care and loyalty that has been described as “the highest known to the law.” 

And surely that includes pursuing best practices in protecting both the information and account balances to which they are entrusted. 

- Nevin E. Adams, JD

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[i] Other recent cases have involved participant accounts at Abbott Laboratories (Split Decisions in 401(k) Theft Suit for Plan Sponsor, RK), Estee Lauder (Recordkeeper, Plan Sponsor Charged in 401(k) Account Theft), MandMarblestone Group (Court Backs TPA Counterclaim on Plan Sponsor in 401(k) Cyber Theft Case) and Boeing (Man Charged with Retirement Account Thefts).

The Problem(s) with Financial ‘Literacy’

April is, of course, National Financial Literacy Month—and for as long as I can remember, the retirement industry has been talking about the need for some kind of personal finance education in public schools—there’s just one problem.

First off, there actually are such programs already in existence at the moment. Half the country (25 states) now requires high school students to take a course in economics, and 21 states now require high school students to take a course in personal finance. Granted, they may still be too well dispersed to show up on your normal “radar”—but they’re growing in number and dispersion. 

Those efforts[i] notwithstanding—and while there’s some anecdotal evidence that this has helped (some) with regard to better decisions with regard to college financing—I’ve little sense that it’s moved the needle much with regard to participant knowledge or financial decision making (feel free to disagree in the comments below, if you’ve had a different experience—or if you haven’t).

In fact, a 2014 paper by from three professors reviewed 168 different papers[ii] covering some 200 studies on the topic of financial literacy and financial education—and found that what they termed “interventions to improve financial literacy” accounted for “only about 0.1 percent of the variance in the financial behaviors studied.” 

Or said another way, “not much.” 

A more recent paper titled “High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses” echoes those findings, concluding, “there is little evidence that education intended to improve financial decision-making is successful.” These authors pose the question “Can good financial behavior be taught in high school?”, only to conclude that, “It can, though not via traditional personal finance courses, which we find have no effect on financial outcomes.”

While the findings in those two studies have some limitations—not the least of which is their determination of the outcomes measured, and the aggregation of a wide variety of scholarly work (and assumptions) - as someone who has long been one of those voices advocating for greater financial literacy—this has been a bit of an eye-opener. With this broadening exposure to personal finance in school, why aren’t[iii] these programs—why isn’t financial literacy—taking root in a meaningful way?

Turns out there might actually be a reason.

The researchers who had examined those 200+ studies did offer a perspective: “like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention,” they write.

In fairness, there are a number of classes I took in high school (and college) that I quickly dismissed as soon as the final exam was concluded—because I didn’t much like the subject (or the teacher), but often because I just didn’t get the point (beyond passing the exam, and ensuring that I would never again have to consider the subject—particularly among the classes I was required to take. Might that be the case with these personal finance offerings? It seems reasonable. 

So, what can we do? 

Well, considering that the time gap between that high school personal finance class (if there is one, and I’m not sensing any movement to require such things on college campuses) and employment is frequently longer than 20 months, it’s little wonder that the needle hasn’t moved much, certainly not as much as one who is trying to engage with these individuals in financial planning might wish. Rather, as the researchers note, “There must be some immediate opportunity to enact and put to use knowledge or it will decay. Moreover, without a ready expected use in the near future, motivation to learn and to elaborate may suffer.” 

Said another way, you have to “use it or lose it.”

The paper offers some possible remedies. Specifically, they suggest that future education might be more productively focused on teaching “soft skills like propensity to plan, confidence to be proactive, and willingness to take investment risks more than content knowledge about compound interest, bonds, etc.” They note that in their meta-analysis, “measured knowledge of financial facts had a weak relation to financial behavior….” Which, I have to say, seems to validate my sense of the inadequacy of current financial “literacy” measures. 

They also suggest that content knowledge “may be better conveyed via ‘just-in-time’ financial education tied to a particular decision, enhancing perceived relevance and minimizing forgetting.” They acknowledge that it “may be difficult to retrieve and apply knowledge from education to later personal decisions… particularly decisions coming years after the education.” The authors of the second paper cited suggest additional mathematics training, which they found “leads to greater financial market participation, investment income, and better credit management, including fewer foreclosures.”

All of this seems to suggest that our industry needs to quit holding out as some panacea the notion that financial education programs in school will “solve” the 401(k) education problem.[iv] However, that doesn’t mean we should abandon those efforts, certainly not in core areas like budgeting, debt management and saving. 

The “problem” with financial literacy may well be that many still lack that exposure—but more significantly that even for those who get that exposure, there’s been little opportunity for applying that personal finance knowledge in high school and college, though arguably it shouldn’t be.

In sum, true financial “literacy” is perhaps not so much whether you can talk the talk—but being given both the knowledge—and the opportunity - to walk that walk.

- Nevin E. Adams, JD

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[i] Another problem in evaluating the impact is defining what constitutes “financial literacy” in the first place. Noted academics have boiled that complicated concept down to three fairly fundamental questions—though personally I don’t see how knowing the answers to those particular questions would help anybody make a financial decision in the real world, much less a decision about saving or investing in a 401(k) plan. Which brings to mind questions not only what the personal finance curriculum covers, but what kind of contribution it is making to financial “literacy.”

[ii] The reference list alone runs 26 pages! And there are more to go with the multiple appendices.

[iii] At this point, I’ll align my opinion with that of the authors of the second paper: “Our findings do not necessarily imply that financial literacy does not matter, or that financial education is never effective.”

[iv] Not that it wouldn’t help to slip in some basic understandings of the markets and investing alongside those math problems about two trains heading toward each other at variable speeds.

Does Health Care Need a Behavioral Finance ‘Fix’?

An important decision, made in minutes.

No, that’s not retirement plan savings—though various consumer surveys have suggested that many spend more time mapping out their annual vacations than how they’ll fund their retirement needs. 

Rather, that’s how a new whitepaper by Voya’s Thought Leadership Council and SAVVI Financial LLC characterizes the 17 minutes that the average employee spends enrolling in benefits—including health plan selection, voluntary benefits and more. 

Now, in fairness, health care plan choices are, in my experience, less complicated that those associated with retirement. Not that they aren’t complicated, mind you—and there’s certainly concern associated with that choice (and “do overs” are hard to come by). But I suspect for most they are really “only” choosing between two, or at most three, different options—essentially packages carefully constructed by their HR groups (likely with the assistance of a benefits broker). 

When it comes to that individual decision—that choice between packages—anecdotally, at least, it seems often driven by a couple of key considerations: coverage of one’s physician(s) of choice—and cost. With regard to the latter, it is often focused on one particular aspect—premiums—though, as we’ll see in a minute, co-pays and deductibles can also factor in. Regardless, the choice is almost inevitably a “here and now” decision—one that has financial consequence, to be sure—but one that requires only that one look out no further than the year ahead. 

Or does it? That’s ultimately the premise behind that new whitepaper, “Retirement at Risk: The Relationship Between Overspending on Health Care and Retirement Readiness.” The whitepaper’s authors point out that it is a (short-term) decision with long-term consequences—and one that, with the growing consensus of the important links between health and wealth, bears consideration.

The paper basically presents the mathematical consequences of spending (too much) on health care versus how those savings could add up if instead invested for retirement. The math is—well, math. You could apply those financial choices to just about any individual financial decision and the trade-offs represented. 

But where things get interesting is the apparent rationale behind those choices—which, based on spending data, would appear to be somewhat “irrational.”

Simplistically, behavioral finance—something that has been employed so successfully in retirement plans to provide better outcomes—has yet to be applied to health care decisions. For example, the paper notes that when plans were branded to include the phrase “high deductible,” almost two-thirds of study participants chose the PPO plan, despite the fact that the high-deductible plan used in the study scenario was the more optimal financial choice. Strip out that label, and participants were just as likely to pick the plan formally known as high-deductible as the traditional Preferred Provider Option (PPO) plan (47% versus 53%)—because, after all, who wants a “high” deductible? 

The other challenge, of course, is that these HDHPs are (still) the “new” option. And here, as with retirement savings, inertia proves to be a powerful force. In fact, the paper cites a study that found that 89% of study participants… just chose the same plan they had in the previous year.[i]

In fact, while health care (and health insurance) costs have surely been rising, the paper echoes not only the conclusions, but the causations highlighted in “What’s Holding Back HSAs?”, a whitepaper the Plan Sponsor Council of America published in 2019. 

Now, in a perfect, rational world, folks would sit down and ponder the likelihood of filing a medical claim during the coming year—and perhaps think about the out-of-pocket costs if they did. They’d be aware that in 2018, nearly 60% of employees had less than $2,000 in claims—and, according to the Voya whitepaper, approximately 16% had no claims at all. They might even know that, according to a study published in the Quarterly Journal of Economics, the majority of employees at a Fortune 100 company who chose the plan with the lowest deductible—despite the premium costs—ended up spending 24% more on health insurance than they “needed” to. 

That, of course, is not the world we live in—and, helpful as the data presented in the Voya report is—well, health needs and health insurance costs tend to loom large(r) as a here-and-now concern that frequently trumps the (relatively) distant obligations of retirement. The Voya report should serve as a reminder that health care and health care costs are, and should be, an integral part of planning for retirement—and one that can, and should, be part of our current planning as well.

And for those for whom it isn’t yet, a reminder that applying some structural changes a la behavioral finance could help us all make better decisions about health—and retirement—and health care costs in retirement.

- Nevin E. Adams, JD

See also: 5 Ways to a Better HSA.

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[i] Indeed, a recent study by the Employee Benefit Research Institute (EBRI) and Greenwald Research found that 32% of those with a traditional health plan did not know whether they were offered an HDHP.

Could the Super Bowl Batter or Burnish Your 401(k)?

Will your 401(k) be bumped up by a Buccaneers victory—or chipped by the Chiefs?

That’s what adherents of the so-called Super Bowl Theory would likely conclude, after all. The theory is 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 54 Super Bowls, in fact. 

Not that it hasn’t had its shortcomings. One need look back no further than last year’s win by the AFC’s Kansas City Chiefs (yes, these Kansas City Chiefs) over the NFC Champion San Francisco 49ers to refute the applicability (or did your 401(k) miss that 18.4% rise in the S&P 500?). Or how about the year before that when the AFC’s New England Patriots (who once were the AFL’s Boston Patriots) bested the NFC champion Los Angeles Rams (the S&P 500 was up more than 30% in 2019).

Or, looking the other way, the year before that a win by the NFC champion Philadelphia Eagles against the AFC Champion Patriots turned out to be a loser, marketwise, with the S&P 500 down more than 6% (though for most of the year it was quite a different story). Ditto the year before when the epic comeback by those same AFC Champion Patriots against the then-NFC champion Atlanta Falcons failed to forestall a 2017 market surge. 

Now, one might think that the real “spoiler” to this market “theory” is the New England Patriots—but the year before that, the AFC’s (and original AFL) Broncos’ 24-10 victory over the Carolina Panthers, who represented the NFC, also proved to be an “exception.”

Market Makings

You might well wonder why, in view of that consistent string of “exceptions” that we’re still talking about this “theory”—but, as it turns out, that’s been an unusual (albeit consistent) break in the streak that was sustained in 2015 following Super Bowl XLIX, when the AFC’s New England Patriots (yes, they show up a lot) bested the Seattle Seahawks 28-24 to earn their fourth Super Bowl title. It also “worked” in 2014, when the Seahawks bumped off the legacy AFL Denver Broncos, 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 (yes, they moved to Baltimore in 1995—though the NFL still views them as an expansion team—filling the hole left by the Colts’ 1984 “dead of night” move to Indianapolis. The Browns, sadly, are still waiting for a Super Bowl trip[i]). 

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—yes, those 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, a legacy NFL team would prevail). 

But as some may recall, while the Dow gained ground for the year, the S&P 500 was, well, flat.

And then 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 (those old Baltimore 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, as we’ve already noted, had roots dating 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 (yes, those 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—and the year before…).

Patriot Gains

Times were better for Patriots fans in 2005, when they bested the NFC’s Philadelphia Eagles 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 the 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 and disappointed Panthers advocates remember because it was overshadowed by Janet Jackson’s infamous “wardrobe malfunction”) 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 since returned to the City of Angels) and the Baltimore Ravens (those former “Browns”) 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 (though “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.[ii] 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 Buccaneers have been here before—but while it’s been a while for the team, QB Tom Brady certainly knows his way around a Super Bowl (playing in nine of them—and with this one, regardless of outcome, he’ll be the oldest player to suit up for that game)—and they’re not only the home team, they’re actually the first home team in Super Bowl history to actually play in their home stadium. Just to confuse matters a bit, they have exercised their prerogative as the home team to choose their jersey—and they have elected to wear their white “away” jerseys (and pewter pants). That happens to be the jersey they have won throughout the playoffs, having played all of their games to this point “on the road”—the first wild card team to make it to the Super Bowl since the 2010-11 Green Bay Packers. 

The Chiefs have been here before as well—as recently as a year ago (though before that, not since Super Bowl IV), and they’ll be wearing the same red “home” jerseys (and white pants) they wore in Super Bowl 54. In case you’re wondering why that matters, dating back to 2005 with the Patriots in Super Bowl XXXIX, the team wearing white jerseys has won 12 times. Though not last year, of course.

All in all, it looks like it should 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

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[i] Four current NFL teams have never appeared in a Super Bowl, including franchises that have relocated or been renamed: the Cleveland Browns, Detroit Lions, Jacksonville Jaguars, and Houston Texans, though both the Browns (1950, 1954, 1955, 1964) and Lions (1935, 1952, 1953, 1957) had won NFL Championship Games prior to the advent of the Super Bowl.

[ii] 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.

Groundhog "Ways"

February 2 is the day upon which America turns its attention to Punxsutawney, PA (and what seems to be a rapidly expanding array of Punxsutawney Phil wannabes) to get a read on the duration of winter.

The theory, of course, is that if your local groundhog sees his (or her?) shadow when he/she emerges from his/her burrow, it will send him/her scurrying back inside, and with that action foretell six more weeks of winter, whereas no shadow portends a timely/early spring. However, like weather forecasters everywhere, Phil is often wrong in his predictions. Indeed, by some estimates (and going back to 1887) he’s only been right… 39% of the time (and since 1969, only about 36%[i]).

As complicated as it surely must be to accurately predict the end of winter, that at least is an event in the relatively near term. And one that (for Punxsutawney Prognostication, anyway) requires only the emergence from one’s burrow. Predicting retirement outcomes… well, that’s a whole other thing. 

Surveys routinely show that most Americans have not even tried to guess how much money they will need to live on in retirement, much less actually made an educated guess. In fact, according to the Employee Benefit Research Institute/Greenwald & Associates’ 2020 Retirement Confidence Survey, just over 4 in 10 (44%) have (ever) estimated how much income they and your spouses would need each month in retirement. That’s a pretty consistent finding from the RCS, which began asking that question way back in 1993.

Worse—and this data point was not in the 2020 RCS—when you ask how people had made some kind of assessment of their retirement income needs, a jaw-droppingly large percentage indicated they… guessed.

Guessing might well be deemed a superior approach than ignoring the matter altogether, but consider that heading toward “retirement”[ii] with no idea of how much you might need is a bit like going on a long trip in an unfamiliar vehicle with a fuel gauge that isn’t working—oh, and with no real certainty as to exactly where you’re going, or when you need to get there. 

Many allow themselves the luxury of postponing this focus for another day—ignoring two harsh realities. The first is that time is (literally) money—the longer it’s put off, the steeper the financial “hole” to fill. Second—and one that ignores several harsh realities of its own—thinking that date of “retirement” will be of our choosing.[iii] If nothing else, the events of the past year should serve as a fresh reminder of that point (see also 6 Things People Get Wrong About Retirement).

Several years back, the RCS asked individuals how much they need to save each year from now until they retire so they can live comfortably in retirement. One out of five put that figure at between 20% and 29%, and nearly one-quarter (23%) cited a target of 30% or more. Those targets are larger than one might expect, and larger than the actual savings reported by RCS respondents would indicate.[iv]

All of which brings to mind this question: Were the savings projections so high because so many workers didn’t do a savings needs calculation—or did participants avoid doing a savings needs calculation because they thought the results would be too high?

Or both?

Let’s face it, if you’ve never tried to figure out how much you’ll need to live in retirement, you may not live very comfortably in retirement. 

And you don’t need to consult a Pennsylvania groundhog to know that could make for a really long retirement “winter.” 

- Nevin E. Adams, JD

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[i] Which still seems to put him ahead of most local weather forecasts.

[ii] And we are all, one way or another, even if you want to just think of it as a time post-employment.

[iii] Fewer than half of the retiree respondents to the RCS retired “about when” they had planned, and only 6% later than planned. Roughly half—and this has been true through the long life of the RCS—retired earlier than expected.  

[iv] And considerably larger than the record high savings numbers reported in the Plan Sponsor Council of America’s Annual Survey.

Mile "Markers"

It may just be because I’ve got a birthday this week, but it would be hard to miss all the “fuss” about age and retirement during the NFL playoffs, a topic that now seems sure to carry on into the Super Bowl.

This past weekend we got to see two “old” quarterbacks fight it out for the NFC title—Tom Brady (43) and Aaron Rodgers (37)—and two young quarterbacks—Josh Allen (24) and Patrick Mahomes (25) lead their teams in the AFC championship. The inevitable comparisons will surely now carry into Super Bowl 55, as Brady becomes the oldest quarterback to reach that pinnacle (he was already tied with Peyton Manning for that status) and Mahomes (already) one of the youngest. (Ben Roethlisberger, at 23, holds the distinction of being the youngest, having wrested it in 2006 from… Tom Brady.) 

Their ages notwithstanding, this past weekend it seems fair to say that Brady played with the skill and energy of a younger man (even a younger version of himself), while Mahomes demonstrated the maturity and field generalship of one much older.

One’s age is a notoriously unreliable marker for progress and maturity, and yet it often serves as a milestone for many of our significant life points. For example, there’s the age at which you begin school (when that wasn’t a stay-at-home experience), that all-important 13^th birthday when one becomes a teenager, the age at which you are permitted to drive (one that generally also “ages” your parents), the age at which you can vote… and, of course, the one after which you can expect to be “carded” without incident. Prior to those “markers,” new parents can likely recite for you the various developmental timetables at which infants are expected to crawl, walk, talk and sleep through the night (the latter a particularly valued milestone). 

The preparation for retirement also has key milestones. ERISA provides certain age (and service) parameters for participation, of course, but down the road there’s: 

• age 50, when you can “catch up” on contributions you might have missed making when you had other obligations; 
• age 59½, when you can make untaxed savings without subtracting from them that 10% penalty for “early” withdrawal;
• age 62, when many (still) decide to begin drawing Social Security; and
• age 65, which is (still) considered to be something of an official age for retirement (even though those who are now that age will find that Social Security considers your full retirement age to be age 66 and change). 

More recently, we now have 72 (not so long ago, 70½), the age at which the IRS insists that you begin drawing what it deems to be a required minimum distribution of those as-yet-untaxed retirement savings.

Milestones—those numbered markers you can find along most major highways these days—date back to the early days of the Roman Empire. They were not only designed to tell you how far, but also to confirm that you were on the right road—and to provide some sense of the distance remaining to the desired destination. They can, of course, also serve as a handy reference point on traffic issues ahead.

For those on that road to retirement—and those who help them get there—these milestones can provide a valuable reminder of the opportunity, if not the need, to reassess and (re)evaluate regularly. 

However, they should also remind us all that this is a journey—one that has not only mileposts along the way, but a destination—and one where the timing of arrival may well be dictated by factors other than age, and beyond our control.

- Nevin E. Adams, JD

‘Missing’ Inaction?

Recent DOL guidance on missing participants seems to fall short of what plan fiduciaries want/need—but may offer fiduciaries some key insights to avoid future problems.

On Jan. 12, 2021, the Department of Labor (DOL) released a triple dose of guidance related to helping retirement plan fiduciaries meet their obligations under the Employee Retirement Income Security Act (ERISA) to distribute retirement benefits to missing participants.

Arguably the guidance, while welcome, is less than plan sponsors might have wished (and previously asked) for—and it concerns an issue that most plan sponsors of my acquaintance continue to insist isn’t one, though the Labor Department is clearly of a different mind. In fact, in the first of the three pieces of guidance, the Employee Benefit Security Administration (EBSA) cautions: “The first step in addressing any problem often is knowing that there is one.”[i]

The “issue,” of course, is fulfilling the fiduciary obligation to not only keep accurate records, but to take “appropriate steps” to ensure that the participants and beneficiaries are paid their full benefits when due. The question—and one that it seems remains, following the “guidance”—is, what are the “appropriate” steps?

To that end, the first document in the trio—titled “Missing Participants—Best Practices for Pension Plans”—purports to outline just that, the “best” practices. That’s helpful, of course—and if the steps outlined are familiar ground to most (and by no means the “safe harbor” that folks are hoping to get), it is perhaps at least nice to have the bulleted list. 

However, that it is issued alongside a Compliance Assistance Release (which, among other things, also describes the types of records and documents that EBSA has requested during its investigations in the recordkeeping or administration of benefits for terminated vested participants and beneficiaries and the red flags that it looks for) should heighten attention, even though the third component—a Field Assistance Bulletin—actually provides a temporary enforcement policy under which DOL will not pursue a fiduciary breach claim against a plan fiduciary that transfers the accounts of missing participants in a terminating DC plan to the Pension Benefit Guaranty Corporation (PBGC) as part of the PBGC’s missing participant program. 

All in all, it feels like something of a “warning”—alongside a checklist of things to look for in determining if, in fact, a plan fiduciary is living up to ERISA’s standard of care with regard to ensuring that those who have earned those promised benefits actually receive them.

In fact, the guidance does make certain “allowances.” For example, it notes that “not every practice below is necessarily appropriate for every plan,” and that “responsible plan fiduciaries should consider what practices will yield the best results in a cost effective manner for their plan’s particular participant population.” It also acknowledges that, “in deciding what steps are appropriate, plan fiduciaries should also consider the size of a participant’s accrued benefit and account balance as well as the cost of search efforts,” and that “the specific steps taken to locate a missing participant, or to obtain instructions from a nonresponsive participant, will depend on facts and circumstances particular to a plan and participant.”

That said, it also notes as a “best practice” that plan fiduciaries should have in place a written policy with respect to the plan's procedures on locating missing participants. 

And, taken in totality, as far as “guidance,” it’s hard not to see a cautionary element—and sense that the Labor Department is effectively cautioning plan fiduciaries/advisors that if such a policy is currently “missing” from your current plan toolkit—well, you might be well-advised to (re)consider it.

- Nevin E. Adams, JD

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[i] In fairness, In unveiling the guidance, Principal Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson noted that, “In fiscal year 2020 alone, EBSA’s investigators helped missing and nonresponsive participants recover benefits with a present value in excess of $1.4 billion.”