Independence 'Gaze'

A week from today the nation will celebrate Independence Day—though of course independence didn’t actually occur on July 4.

Let’s face it, the Declaration of Independence[i] was little more than that—a declaration. One that had yet to be backed by anything beyond the artfully crafted and narrow consensus of a handful of delegates appointed by a wide variety of means and mechanisms, with correspondingly disparate levels of responsibility and accountability for their alignment with the principles outlined in that document. 

As practically meaningless as that declaration might have been, we commemorate and celebrate those actions because, eventually, events transpired that made those aspirations a reality. But it came only after years of hard-fought fighting, and while we don’t often talk about this, it ultimately divided the nation between those who wanted to be free from what they viewed as tyranny—and those who viewed those actions and aspirations as nothing less than treason.

That said, the deliberations that produced that declaration are in many ways emblematic for how groups—including retirement plan committees—move forward—though it’s important to keep these things in mind:

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 (not to mention putting their own lives and fortunes at risk).

Indeed, 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 fear that advocating change suggests an admission that there was something “wrong” before, it seems fair to say that plan fiduciaries 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 problems, and a reluctance to adopt potentially disruptive (and, admittedly, sometimes expensive) plan features like automatic enrollment, deferral acceleration, or more recently—retirement income.

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.

Consensus can be hard to achieve.

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 they should be aligned around a singular purpose—decisions made with the exclusive purpose of the best interests of plan participants and beneficiaries.

It’s important to put it in writing.

Before the delegates at the Second Continental Congress were united in purpose, there was a sense by those favoring independence that putting those thoughts in writing would help crystalize, as well as formalize, that proposition. And while the Declaration of Independence technically had no legal effect, putting that declaration—and the sentiments expressed—in writing gave it a force and influence far beyond its original purpose. It also provided a focus for the debate and discussion of those delegates—and an opportunity to tweak and shape those thoughts to be in alignment with the whole group.

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 not only in validating the results, but also the thought process behind those deliberations (not to mention that there WAS a 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 (re)assessing those decisions at the appropriate time(s) in the future and making adjustments as warranted—properly documented, of course.

You can delegate authority—but not responsibility.

When it came to drafting the declaration itself, there was an acknowledgement that some delegates were better writers than others. But while the primary responsibility for the draft fell to Thomas Jefferson, he was teamed with several other key individuals to help assure that the draft took into account the sensibilities of the entire delegation—and even then, when presented there were additional edits.

Ultimately, however, the responsibility for the declaration fell to all the delegates. 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.”

It’s 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 not only permitted, but expected, to do.

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, rather than the history books.

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 ultimately produced the Declaration of Independence we’ll commemorate next week.

Yes, Independence Day is a great opportunity to reflect and recall 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

 

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[i] Ironically, despite the celebrations on the 4th, the resolution that declared that “these United Colonies are, and of right, ought to be, Free and Independent States” was approved by the Continental Congress on July 2. In fact, only President of Congress John Hancock and Charles Thomson, secretary, signed it on the 4th (the former famously in a hand “large enough for King George to read without his spectacles”). Most of the 56 delegates didn’t sign it for another month. One didn’t sign until 1781.

 

Baby 'Steps'

I recently ran across a survey that claimed 7 in 10 DC plan sponsors were “taking steps” to solve the retirement income challenge… but that looks to have been “aspirational.”

While the survey’s[i] intro cautioned that there was more to be done, that struck me as a remarkably high (and reassuring) finding, though it didn’t mesh with my sense of the world at present. Sure enough, turns out, there is apparently a retirement income “journey”—one that apparently has several stages—all of which were (apparently) classified as “steps.” Those included:

• 34% – INITIAL (my emphasis, their wording) stages of learning about retirement income approaches
• 14% – in the process of better understanding participants’ retirement income needs
• 8% – in the process of evaluating specific retirement income solutions/products
• 7% – implementing/implemented a retirement income solution/product

Indeed, the survey goes on to comment that another 8% have evaluated these type solutions, and decided not to pursue them. And more than a quarter (27%) say retirement income is “not currently a topic of interest or need.”  

So, not to put too fine a point on it, but that looks to me like (only) 15% are taking actual steps to solve the problem, though I suppose there’s something to be said that nearly half are at least keeping an open mind on the subject.    

And even those who are considering a solution seem a bit confused. Consider that when it comes to products and solutions designed to support retirement income, plan sponsors cited stable value funds (70%). The income fund in a target-date series was a distant second (46%), though products most likely to be considered for future inclusion in 401(k) plans include annuities, long-duration fixed income funds, and managed accounts that support decumulation.

Don’t get me wrong—despite some significant legislative enhancements in SECURE 1.0 (and some modest encouragements in SECURE 2.0)—there remain plenty of legitimate, rational reasons why a plan fiduciary might rationally defer or delay action here. While today there are (more) solutions available, and more regulatory/legislative clarity—the traditional concerns (still) loom large in rationalizing inertia.  Mostly I think it still boils down to a question as to whether it’s the employer’s responsibility to provide these options (and to take on additional fiduciary exposure), particularly if nobody is asking for it.

More’s the pity, because in my experience if you want employees to feel comfortable about retiring, they need to know how much income they will have to live on. For most, that’s going to be a function of their Social Security benefit (diminished by their Medicare premiums), and what kind of income stream their retirement savings can produce. The latter isn’t hard math, but it’s more complicated than most participants will want to pursue (particularly with their financial future at stake). They may not be lining up at HR’s door demanding these solutions, but the physical—and fiscal—reality is that they need them. 

It's been said that “a journey of a thousand miles begins with a single step.”

The sooner, the better. 

- Nevin E. Adams, JD

 

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[i] The research was conducted by Coalition Greenwich from May 23 to Aug. 26, 2022, using an online, quantitative approach with 155 DC plan sponsors who have at least one 401(k) plan and at least $100 million in 401(k) assets. Plan breakdown by AUM: 36 plans with $100-$249M AUM; 37 plans with $250-$499M AUM; 31 plans with $500-$999M AUM; 32 plans with $1-$4.9B AUM; 19 plans with over $5B AUM.

A Father's Footsteps

“A father is a man who expects his children to be as good as he meant to be.” – Carol Coats

Like many, perhaps most, of you, as a parent I’ve tried to compensate for the ways in which I felt that my parents could have done . . . “better.” 

My parents led mostly through example—and powerful as that can be, as a kid those messages are often too subtle to be noticed, much less appreciated. Indeed, my dad was a man of few words—spoken words, anyway.

At 6’ 5” he was an imposing figure, all the more from the pulpit from which he did speak. He was a good speaker, but not a natural one. A minister, he worked hard at it, studied his subject matter, practiced his presentation relentlessly, each and every week. I always thought it amazing that such a quiet, introverted man would choose that career—but, and though it can’t have been easy, it was something he felt called to do at an early age. He had opinions, but didn’t impose them on others. Indeed, it was difficult (and sometimes frustrating) to wrest opinions from him. Significantly, he walked his “talk”—his faith, his love and respect for all people, even those with whom he disagreed—and those were attributes in short supply, even then. But this quiet “giant” found his true gift in writing—and in the process extended his influence and his ministry well beyond a single congregation. And yes, gentle reader no one was more thrilled than Dad to see THIS son “stumble” into writing for a career, albeit with a different focus.   

For all that fine example, I didn’t learn anything about finance from my dad—he avoided big purchases with the fervor of Ebenezer Scrooge, though he’d spend that much (and more) on small things (mostly books, much to my mother’s chagrin). Like many in his generation, my dad wanted to “hold” the checkbook, but it was Mom who always made sure that there was money in the account. And while Dad tithed “biblically,” Mom was the one who started setting aside money from her paycheck in her 403(b) plan at work—and continued to do so, even when my father was convinced they couldn’t afford it—and made no secret of THAT opinion. Or did until he got a glimpse of the statement that showed Mom’s retirement account growth—and then, inspired by that example—he began setting money aside for retirement as well.

His impact on me, and my life notwithstanding, I’m a different person than my dad, though his example is never very far from my thoughts. As a parent, I’ve tried to share with my kids the lessons I’ve learned (and continue to learn), tried to spare them the pain that came with many of those (though some I still can’t bear to admit aloud), but also tried to give them the room they need—and deserve—to learn their own on the life path(s) they chose—though that’s a life lesson of its own, and one with which I still sometimes struggle.

That said, I’ve tried to be more expressive in my love for them, and pride in their accomplishments, and more vocal in my support when they’re going through the inevitable “rough” patches of life. Tried to provide more direction, without imposing my decisions—tried to share with them some sense of money, and its management, the thrill of having work that gives you joy (even if the where and who you do it with don’t always), the importance of having the right partner in life…

Sometimes we follow in our parents’ footsteps—and sometimes we go a different way. But here’s hoping that the footprints we leave along the way—intentional and unintended—make other’s lives…better.

Happy Father’s Day, Dad.

- Nevin E. Adams, JD

A Need to 'Know' Basics

Back in the middle of the pandemic, my then 91-year-old mother was presented with two options—one a specialist recommended, the other favored by her trusted general practice physician. And of course, it was to be…her decision.

This kind of thing happens all the time in the medical field where such things often seem as much art as science, with a myriad of factors to consider, not the least of which is the skill and experience of the medical professionals putting forth their recommendations. Not that it’s limited to life-and-death decisions. Indeed, it’s the kind of decision with which we’re often presented; when that annual auto inspection detects a hitherto undetected major repair need, when that leaky toilet repair uncovers some long-standing, but unobserved water damage, when that last minute call to fix a water heater or air conditioner reveals that it might—but might not—last the season. Those things routinely involve experts of one sort or another turning to us relative (or complete) amateurs, presenting us with complicated choices that often involve a complex weighing of factors we may not even understand. And yet we do.

Or, if you’re a 401(k) participant these days, we just do it for you. 

But don’t retirement plan participants need to have some idea about what’s going on with their retirement savings? In a “do-it-for-you” default enrollment/investment paradigm, aren’t we basically creating a generation that simply trusts and accepts the decisions of their “betters”—who, to be honest, aren’t always deserving of that trust. Said another way, where’s the “check engine” light for your 401(k) account?

That brings me to the continued focus of the need for “financial literacy.” Long touted as something of a panacea for the apparent shortcomings of our education system when it comes to practical financial applications, I remain skeptical.[i] Not that it wouldn’t be nice to have participants who had a basic appreciation for the markets, the impact of fees, the balance between equity and fixed income, and perhaps even a fundamental understanding of what a mutual fund is. But I think financial “literacy”—though its definition is surely fluid—is perhaps a higher bar than needed for most.

I still think effective financial education begins early, and at home. Not about the markets, perhaps—but the basics of a budget, the discipline of an allowance—better still, one anchored on household obligations.[ii]    

That said, a recent acquaintance has suggested what I think is an outstanding idea—and perhaps a way to not only expand the knowledge of the current generation of savers, but to build for the future; take that financial literacy training you may already be doing for your 401(k) clients—and expand it (in a separate session) to include…their kids!

Odds are you’ll not only provide valuable insights to that next generation of savers—but I wouldn’t be at all surprised if you find that help fulfill their “need” to know as well!

What do you think? 

- Nevin E. Adams, JD

 

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[i] See The Problem(s) with Financial ‘Literacy’.

[ii] Don’t get me wrong—IMO kids should also have things they do around the house to help as members of the family. 

The Fear of Finding Out

I hadn’t been to the dentist in a long time. A VERY long time.

Two weeks ago, and at the encouragement of my wife, I finally went back to the dentist. I hadn’t been since COVID, and that period provided a very good excuse for avoiding that visit. Turns out, I hadn’t been for quite a while before COVID—not so much intentionally, just life getting in the way.

That’s not completely accurate, of course. On the best of visits, trips to the dentist had never been exactly “pleasant,” though I’ve been fortunate to be in the hands of friendly, patient and—gentle—staff over the years. That said, my last visit had involved what wound up being a unexpected and relatively involved procedure that, while it remedied a painful (and potentially dangerous) situation, left me with a certain, shall we say, “fear of finding out”…

Now, avoiding the dentist didn’t prevent problems, of course. And many’s the day over the past several (gulp!) … years when I would tell myself that it would be better to catch—and fix—a problem early. But, concerned about what such a visit would find … well, I kept on finding reasons not to … find out.

I wrote recently about the 33^rd Annual Retirement Confidence Survey, published by the Employee Benefit Research Institute (EBRI) and Greenwald Research, which found both workers’ and retirees’ confidence in having enough money to live comfortably throughout retirement dropped—and while it was the sharpest decline in confidence since the so-called Great Recession—it wasn’t as sharp as one might have expected under the circumstances (high inflation, volatile markets, uncertain job environment).

But below that headline (and, let’s face it, “confidence” can be a fluid sentiment), that same survey found that (only) about half of workers have “tried to figure out how much money” they would need to have saved by the time they retire so that they could live comfortably in retirement. Which calls to mind the question; is their confidence (or lack thereof) a function of them having made that assessment[i]—or is it more a case of “ignorance is bliss?” Or are they simply afraid to find out?

Well, as Greenwald Associates CEO Lisa Greenwald recently reminded me, not only are those already in retirement more confident about their prospects, retirement confidence also tends to be higher among those who have actually made the assessment—even when, based on the limited objective information available (including the aforementioned “guessing”)—there might not be a “rational reason” underpinning that sentiment at the moment. 

As it turned out, my trepidations about my return to the dentist weren’t unfounded; there was some work that needed to be done that wasn’t pleasant, and yes, it might have been less unpleasant if I had made that visit earlier. On the other hand, now that I’ve been, I have a sense of how things stand, and I no longer have to worry about how bad it MIGHT be. Yes, I have already made my next six-month checkup—and yes, I’m not nearly as concerned about that visit as I was this past one.

Yes, despite the “fear of finding out”—be it a trip to the dentist, the doctor, or a retirement needs assessment—there is something to be said for having a professional assessment, of having a sense of what has to be dealt with—so that you can. 

- Nevin E. Adams, JD 

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[i] On the other hand, in previous years when that question was asked (and the number having made an effort to determine need nearly identical) the RCS found that the most common method of ascertainment was—guessing (45%).

Survey Says—Or Does It?

When you see a headline that confirms your sense of the world, you’re naturally predisposed to embrace, remember (and these days “share”) it as a validation of what you already perceive reality to be.

Indeed, as human beings, we’re drawn to perspectives, surveys, and studies that validate our sense of the world. This “confirmation bias,” as it’s called, is the tendency to search for, interpret, favor, and recall information in a way that confirms our preexisting beliefs or hypotheses. It also tends to make us discount or dismiss findings that run afoul of our existing beliefs—even if the grounds supporting that premise are shaky, sketchy, or (shudder) downright scurrilous.

Here are some things to look for—likely in the fine print or footnotes—as you evaluate those findings.

There can be a difference between what people say they will (or might) do and what they actually will.

No matter how well targeted they are, surveys (and studies that incorporate the outcome of surveys) must rely on what individuals tell us they will do in specific circumstances, particularly in circumstances where the decision is hypothetical. When you’re dealing with something that hasn’t actually occurred, or doesn’t actually exist, there’s not much help for that, but there’s plenty of evidence to suggest that, once given an opportunity to act on the actual choice(s), people do, in fact, act differently than their response to a survey might suggest.

Let’s face it, people tend to be less prone to action in reality than they indicate they will be—inertia being one of the most powerful forces in human nature. Also, sometimes survey respondents indicate a preference for what they think is the “right” answer, or what they think the individual conducting the survey expects, rather than what they might actually think (particularly if it’s something they haven’t previously thought about). That, of course, is why the positioning and framing of the question can be so important (as a side note, whenever possible, it helps to see the actual questions asked, and the responses available).

Now, survey takers will inevitably champion the higher accuracy rate of in-person surveys (or at least phone calls) versus online surveys, though the latter are ever more common (and less expensive to conduct).  

The bottom line is that when what people tell you they will do, and if you later find that they don’t—just remember that there may be more “powerful” forces at work.

There can be a difference between what people think they have, what they say they have, and reality.

Since, particularly with retirement plans, there are so few good sources of data at the participant level, much of what gets picked up in academic research is based on information that is “self-reported,” which is to say, it’s what people tell the people taking the survey. The most prevalent is, perhaps, the Survey of Consumer Finance (SCF), conducted by the Federal Reserve every three years.

The source is certainly credible, but it’s based on phone interviews with individuals about a variety of aspects of their financial status, including a few questions on their retirement savings, expectations about pensions, etc. In that sense, it tells you what the individuals surveyed have (or perhaps wish they had), but not necessarily what they actually have.

Perhaps more significantly, the SCF surveys different people every three years, so it pays to be wary of trendlines that are drawn from its findings—such as increases or decreases in retirement savings. Those who do are comparing apples and oranges—more precisely the savings of one group of individuals to a completely different group of people… three years later.

The survey sample size and composition matter.

Especially when people position their findings as representative of a particular group, you want to make sure that that group is, in fact, adequately represented. Perhaps needless to say, the smaller the sampling size—or the larger the statistical error—the less reliable the results.

Case in point: Several months ago, I stumbled across a survey that purported to capture a big shift in advisors’ response to the Labor Department’s fiduciary regulation. Except that between the two points in time when they assessed the shift in sentiment, they wound up talking to two completely different types of advisors. So, while the surveying firm—and the instrument—were ostensibly the same, the conclusions drawn as a shift in sentiment could have been nothing more than a difference in perspective between two completely different groups of people—at two completely different points in time.

When you ask may matter as much as what is asked.

Objective surveys can be complicated instruments to create, and identifying and garnering responses from the “right” audiences can be an even more challenging undertaking. That said, people’s perspectives on certain issues are often influenced by events around them—and a question asked in January can generate an entirely different response even a month later, much less a year after the fact.

For example, a 2020 survey of plan sponsor sentiment on a topic like ESG litigation is unlikely to produce identical results to one conducted in the past 30 days, any more than an advisor survey about the potential impact of the fiduciary regulation prior to its publication would likely match that of advisors dealing with those realities six months after publication. Down in those footnotes about sample size/composition, you’ll likely find an indication as to when the survey was conducted. There’s nothing wrong with recycling survey results, properly disclosed. But things do change, and you need to be careful about any conclusions drawn from old data.

Consider the source(s).

Human beings have certain biases—and so do the organizations that conduct and pay to conduct surveys and studies conducted. And sometimes the organizations paid to conduct such surveys are aware of those biases, and—consciously or unconsciously—that filters in to the way questions are posed, or in the way results are evaluated.

Not that sponsored research can’t provide valuable insights. But approach with caution the conclusions drawn by those who tell you that everybody wants to buy the type of product(s) offered by the firm(s) that have underwritten the survey.   

Be wary of sentiment ‘aggregation.’

It’s rare that the authors of a particular survey don’t have a preferred/expected outcome in mind—but legitimate surveys, objectively worded, sometimes receive a more tepid response than those authors might prefer. Typical are those that claim a “majority” are in favor of a certain outcome—a majority that requires combining what is generally a small minority who are strongly in favor with a (much?) larger number who are (only) somewhat in favor (for example, 16% strongly in favor, 35% somewhat favor turns into “A Majority Favor…”). 

It’s not exactly exaggerating to say that the combined result is at least somewhat supportive—but it can produce a result that is positioned far more enthusiastically in favor of a particular outcome than a discerning look at actual adoption/take-up later reveals.

Compound ‘Interests’

One of the more obvious ways to get people’s attention is to publish a survey/study that purports to find a dramatic impact of some kind. Basically, the authors will state an assortment of assumptions (and they’ll make no bones about THAT), and then take those assumptions, multiply them and…voila a gigantic impact that warrants attention (or at least clicks, likes and shares). 

The math checks out, so next thing you know it’s a headline where, as Mark Twain once noted, a “lie” travels around the world while the truth is still getting its boots on. It does so by being picked up, uncritically, by news media outlets which (apparently) draw comfort from the academic credentials of the authors—and their ability to lay the veracity of the claims at THEIR feet. 

When, in fact, all they’re doing is compounding the problem(s).     

- Nevin E. Adams, JD

Commencement "Address"

This is the time of year when the nation’s graduates line up for accolades (and their diplomas). It is, for them, a beginning—a commencement of a new phase in their life. 

But ahead of that, most are given the “opportunity” to hear some words of wisdom and inspiration from an individual that they have likely never heard of (though their parents may have). In that spirit, I’d like to offer the graduates of 2023 some lessons I’ve picked up along the way:

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. 

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.

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

There actually ARE stupid questions.

If your current boss doesn’t want to hear the truth, it may be time to look for a new one.

There can be a “bad” time even for good ideas.

Your work attitude often affects your career altitude.

When you don’t have an opinion, “what do you think?” is a good response. And sometimes even when you do.

People who ask for something ASAP probably want it sooner than you think is possible.

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

Don’t be afraid to pick up the phone—BEFORE it rings.

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.

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

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

Never say you’ll never…

Always sleep on big decisions.

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

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

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

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

A New Fiduciary Standard?

Resistance to retirement plan innovations (like automatic enrollment) have long been excused as being “too paternalistic” – but there might be a better standard.

We’ve all heard it – concerns that imposing certain default choices on participants (and sometimes plan sponsors) are, however well-intentioned, intrusive and demeaning. Generally speaking, such concerns aren’t challenged – we “get it,” after all – most of “us” are do-it-for-myself types.

Of course, most participants aren’t – and there’s plenty of anecdotal evidence that workers, and particularly younger workers, WANT that kind of proactive support from their employer.

All of which calls to mind a new standard – one first (to my ears, anyway) articulated in the Nevin & Fred podcast by none other than Fred Reish. See, Fred was talking about explaining to his daughter what a fiduciary was – and she quickly grasped the concept, applying it to her mother and her support for her kids in looking out for them, and their best interests. It’s something I suspect just about every mother (or everyone who has had a mother) can relate – the notion that you’d do anything for your kids. No matter how old they (or you) are. A maternal standard of care, if you will.

How might that manifest itself in plan design? Well, immediate participation and automatic enrollment, for sure – though the latter likely at a rate higher than the 3% threshold that’s been established (first by tradition, then by law) as a minimum. And, depending on that starting rate, contribution acceleration – but one that follows automatically, not dependent on a separate affirmative election. These are not big stretches from where things stand at present of course – but it took the Pension Protection Act of 2006 to bring these structures to the fore – and years longer to lift those initial thresholds – years that higher levels of participation and savings could have been accumulating. 

Now, there were – and in some cases still are – legitimate reasons for plan fiduciaries to hold back on such things. For automatic enrollment, there were concerns that it imposed a financial decision that participants don’t need or can’t afford. There were (and are) administrative costs and burdens attendant with them all – and if there’s anecdotal evidence to suggest participant support, the concerns regarding negative reactions are just as real. And yet, how many have been left on the savings sidelines by those rationalizations?

Of late, I’ve been thinking about another plan design “hesitation” – retirement income. There’s little argument that those solutions are a need – but no real consensus that providing it is, or should be, a plan sponsor’s responsibility. As with the PPA, the SECURE Act provided encouragement; some much-needed (1) legislative structure and guidelines to provide fiduciary comfort with the selection and review of potential provider(s), (2) a safe harbor for the portability of benefits – and even (3) presentation on the participant statement of an amount designed to remind them of what their accumulated balance could produce in retirement income. In fact, those elements were specifically crafted to overcome the traditional objections to considering these options.

To date, the adoption rate – by plan sponsors AND participants – has not been what proponents would hope. Of course, those guidelines and provisions became law just ahead of COVID-19, and there have been a lot of other employment/benefit concerns that arguably, and even rightfully, took precedence. Participants are not, in fact, asking for these features (at least not to their employers), and there remain real fiduciary and operational concerns remaining, even with the guardrails. 

That said, I wonder if it’s not time for plan sponsors to take a more “maternal” approach to plan design – to consider anew – but still prudently and thoughtfully – plan designs like retirement income – to do more than just what the law requires, but what those whose interests they are charged with considering – need. 

I suspect it’s what Mom would do.

- Nevin E. Adams, JD

A Tale of a (Wobbly) Seat at the Table

 

I recently met some friends for lunch – but the only seats available were those high-back stools you basically have to climb up to in order to sit. But that wasn’t the worst of it.

As it turned out, my seat…wobbled. Which is to say that it basically rocked even as I sat there. Now, I’m all about rocking chairs in the proper setting, but when you’re trying to eat a meal (or enjoy a cold beverage), it’s annoying – particularly if you are one of those lean on the table types – and especially when your seat is high off the ground.   

And as I was sitting there desperately attempting to maintain my balance (it didn’t help that my companions found my predicament humorous), it called to my mind that retirement security has long been said to be based on the concept of a three-legged stool.

While the reference is somewhat dated, Social Security benefits were said to be one leg of a three-legged stool consisting of Social Security, private pensions and personal savings/investment.[i] There were, of course, some fallacies in the comparison, not the least of which was that those three legs[ii] (like that of my wobbly stool) weren’t equal, but they were all seen as essential to the overall stability of the end result. Time may have passed, and the components may have shifted, but crafting a credible, sustainable retirement income plan continues to require multiple prongs of support – and yet today, even those traditional legs are in need of some attention. 

Secure the Foundation

As with my initial attempts to correct the stool’s wobble, first and foremost, Social Security (and Medicare) needs to be shored up. 

To fully appreciate just how essential this program is, and how integral to a complete solution, just try finding a retirement income needs projection that doesn’t have as a foundational baseline Social Security benefits. Or consider that an emerging strategy to compensate for retirement savings shortfalls is to use those savings to postpone Social Security claiming in order to maximize those benefits. Indeed, considering how many Americans rely on Social Security as their sole – or at least a primary – source of retirement income, you’d think addressing the looming shortfall would be a matter of high priority for policy makers.

With all its funding shortcomings and demographic challenges, the “solution” is straightforward[iii] (raise FICA withholding rates and/or the income levels to which those rates are applied, or means-test and or reduce benefits). That said, the cost – political and economic – and will to do more than talk about the need to do more – remains sadly lacking.

It is, quite simply, “job #1” – and a foundation upon which everything else depends. Needless to say, perhaps – the sooner the better.

Open More ‘Doors’

The simplest solution to my wobbly stool was to find – another stool. Arguably, that just transfers the problem to another future diner, but... as it turned out, there were none available. Indeed, despite the protestations of a distinct, though all-too-readily published minority, the current private retirement system works well – but only for those who have access to it. While there’s little (other than human nature) preventing folks from simply going online and opening an individual retirement account – few do. In fact, data consistently shows that even modest ($30,000-$50,000 salary) income workers are twelve times more likely to save for retirement if they have access to a plan through work than those who don’t. But many – and these days that’s primarily those employed at smaller businesses – still don’t.  Our retirement vision of the future simply has to include universal availability. In the private sector only about half of full-time workers have that opportunity, and that’s a problem.

Now, small businesses are kept pretty busy just trying to stay IN business, but they have the same need to attract and retain talent as the Fortune 50, and a retirement plan benefit can certainly play a role. The recently passed SECURE 2.0 Act of 2022 provides massive incentives to do so (tax credits that, for those with 50 employees or less, basically make the plan free for the first three years), and, for those put-off by the potential complexity of providing those benefits, a “Starter K” that’s significantly streamlined compared with the traditional 401(k). Yes, there’s a provision that will require new plans of most businesses formed after Dec. 29, 2022, to offer automatic enrollment – but that will certainly help those workers save, and save more effectively. 

Let’s face it – even when you build it, they don’t always come. My guess is that all this will be effective to some degree – but that it won’t completely close the so-called “coverage gap.” But, as the dramatic new incentives in SECURE 2.0 have only just come online, we should probably give them a little time to sink in and take hold.

Improve the ‘Offramp’

At one point in my annoyance with my stool (yes, I had unsuccessfully attempted to remedy the situation with a wadded up paper napkin, but couldn’t quite get the balance correct) – and I gave serious thought to simply walking out and trying a different establishment (one that had better seating). But the food had been ordered, and I was the only one (apparently) struggling with the imbalance, so I decided to tough it out (though I have to say that dining whilst trying to maintain one’s balance doesn’t make for good digestion).

It is ironic that plans ostensibly designed to (ultimately) provide income in retirement, do such a poor job of providing…income in retirement. Now you can argue that the focus of these plans is to help workers accumulate savings FOR retirement, and that after that, they’re on their own – but there’s plenty of evidence to support the need for helping workers save and invest properly. And trust me, that’s a lot simpler than trying to figure out how to structure withdrawals in retirement. It may not be a legal obligation, but there’s a case to be made for employers who want to help assure that these workers save.    

All one has to do is look at the tremendous success of target-date funds – not only in the rate of adoption by plans and participants, but in how much better diversified 401(k) accounts are today versus a generation ago when everybody was making individual investment decisions. Already popular, that pace of take-up was spurred by the guidelines contained in the Pension Protection Act of 2006, and subsequent guidance from the Department of Labor. The question that needs to be answered then is, how/can we do something similar for helping get those retirement savers invested in a retirement income solution – but perhaps more critically, how can we get plan sponsors comfortable enough with the concept to adopt it the way they have target-date funds.      

The original SECURE Act took several key steps – helping address concerns about portability – how a retirement income account could be transferred during a recordkeeping conversion, or during an employee termination, as well as putting some additional clarity around a safe harbor to provide comfort to plan fiduciaries. At the same time, some intriguing new approaches emerged, as well as some refurbished solution – but then COVID-19 struck, and plan sponsors had much more to deal with than adding a retirement income feature to their plan, as they worried about the Great Resignation, navigating the sensitivities around working from home, and volatile markets.

The bottom line is that we don’t yet know how much these solutions – and the new legislative structures – will move the needle here. What we do know is that we need solutions that are cost-effective, relatively simple to explain, and readily available – and I know the retirement plan of the future will include those.

Accident ‘Tell’

While some still maintain that things like the 401(k) were an “accident,” in the space of a few decades it has become America’s retirement savings plan – in a way that the traditional defined benefit pension plan never really did in the private sector. That said, the past several years have seen dramatic improvements in access, efficacy, and participation in these programs – and it’s not been an accident.  The retirement system’s traditional three-legged stool has certainly undergone some needed rebalancing over time – and let’s face it, there may once have been three-legs to that stool, but they were NEVER equal.

There are many factors that influence these directions – legislation certainly plays a role, as does regulation – but ultimately it comes down to having goals, realizing that employers and the workers they employ are dealing with a wide variety of needs and circumstances, and trying to find a balance between them. To that end, the guidance and technical assistance of retirement plan advisors and third-party administrators are, and will continue to be, essential voices.     

Before our meal was finished, a table nearby opened up, and I was able to swap my wobbly stool for a more secure seat. Similarly, while a full resolution might not come to be as soon, or as well as we might hope/think – it seems to me that there are changes afoot and in place that have, and are continuing to move us in the right direction(s). Those will come to fruition all the sooner with the support and encouragement of trusted advisors, TPAs, recordkeepers, and the retirement industry generally.

Because if there’s anything more annoying than trying to sit on a wobbly three-legged stool, it’s not having any place to sit at all.

- Nevin E. Adams, JD 

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[i] These days, it’s arguable that private pensions and personal savings have been combined into retirement plan savings accounts, such as 401(k) and 403(b). Others have opined that there’s really a FOUR-legged stool, with that other leg being home equity.

[ii] According to Social Security, “the earliest use of this metaphor which we have been able to document was by Reinhard A. Hohaus, who was an actuary for the Metropolitan Life Insurance Company. Mr. Hohaus, who was an important private-sector authority on Social Security, used the image in a speech in 1949 at a forum on Social Security sponsored by the Ohio Chamber of Commerce. Hohaus, however, had a slightly different "stool" in mind than came to be understood in later years. His three-legged stool consisted of: private insurance; group insurance; and Social Security.”

[iii] I was no fan of this in 1983 when all of this was done either – but…

 

Could Employer Contributions Actually Lead to Leakage?

I recently stumbled across an academic study that claimed to find a correlation between higher employer contribution rates and leakage.

I will confess to a certain skepticism at that finding. There are, after all, a well-established series of things that contribute to leakage, broadly defined as distribution of retirement savings prior to retirement – but employer matching contributions – and certainly more generous matching contributions – have never been on that list.

The study – innocuously titled “Cashing Out Retirement Savings at Job Separation” – spends most of its 20-odd pages talking about leakage, its impacts on retirement security, and some possible solutions.  That said, one needs read no further than the abstract of this paper to find its surprising conclusion regarding one such underlying cause; its authors “estimate that a 50% increase in employer/employee match rate increases leakage probability by 6.3% at job termination.” More specifically, “The higher the proportion of one’s 401(k) balance contributed by the employer, the more likely employees are to cash out, holding constant balance and covariates.”

Proportion ‘Ate?’

That latter part is significant, since we know that participants with lower balances are more likely to have their balances distributed at job separation (so-called “force-outs” being typical at $1,000 or less). In fact, the paper acknowledges that “A higher balance discourages leakage holding all else constant.” Even so, a 6.3% increased probability might be “statistically significant,” but it most assuredly isn’t significant in economic terms. But to see any kind of connection between a more generous employer match and leakage just seemed – unusual. Particularly since – and as the study’s authors acknowledge – “Employers with more generous matches care about their employees’ well-being in retirement, but unintentionally nudge employees to cash out when they change jobs.”

The research cites a relatively robust sample (162,360 employees terminating from 28 retirement plans form 2014-2016 from a recordkeeper “that covers 15% of the U.S. workforce”), from a variety of industries. They acknowledge that the cash-out percentage (41.4% of employees cashing out at job separation) in this sampling is “strikingly high,” although in this group[i] – though interestingly “only 27.4% of terminating employees ever carried a loan, and only 3% of those defaulted.” The latter data point stands out because previous studies have found that outstanding loans defaulted at job separation are a significant cause of leakage. And – while averages are notoriously unreliable datapoints, the terminating participants in this sample had an average account balance of $46,556.[ii]

Reasons Able?

Of course, these researchers were looking for a connection between employer contributions and leakage – and, having found one – held out four possible rationales for that connection. First, they considered a scenario where workers, cognizant of the higher match actively planned to “leak” – basically “over-saving” to obtain the match, cutting into the income they actually needed for current expenses, and then needing the leakage to fill that hole. Secondly, they opined that a higher employer contribution rate during employment might engender a higher level of job security, and a correspondingly higher spending rate by the worker – that, upon termination, might then need to be funded by higher rate of withdrawal/leakage. Thirdly, they thought that workers might retain a sense of mental accounting that compartmentalized the employer match as “free” money, rather than sums set aside specifically for retirement (though the leakage impacted more than that account). Finally – and this is the rationale they landed upon to explain this “account composition” effect – that individuals who contributed a smaller proportion of their 401(k) balance (relative to the match) may be prone to think of their accounts at job separation as a readily spendable pile of cash (less so if one contributed more).

All of this felt to me like they were trying (too hard?) to rationalize behavior that wasn’t “rational.” That said, the researchers nonetheless conclude that “exiting one’s firm and being told that a sum is available can transform a perceptually illiquid source of long-term retirement security into a psychologically liquid pile of cash. Terminating employees spend the money when, arguably even for the minority of employees involuntarily terminated, there are good options of reducing household spending, adding gig forms of employment, or leveraging home equity lines of credit to supplement unemployment benefits until back in the workforce.”

Ultimately, it was impossible to really get inside the numbers and assumptions presented to ascertain how much of this conclusion was data-based versus “extrapolation.” The contributions labeled as matching looked to be more than just standard matching, perhaps including QNECs or safe harbor contributions as well, but there wasn’t enough detail in the paper’s tables to confirm that. As noted above, the withdrawal rates were high, and the “average” account balance presented clearly covered a wide variety of possibilities. And let’s not forget that, even with those considerations, the additional rate of leakage attributed to these generous employer contributions was pretty small.

There is, however, at least one conclusion worth drawing from this – and that’s that if the worker considers these accounts “free” money – and goodness knows, the employer match has long been positioned as such – they might well not realize the price they will pay, both at the point of distribution (taxes and penalties) – and ultimately at retirement – for spending those retirement savings…now.

- Nevin E. Adams, JD  

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[i] Another aspect of this group that struck me as odd – only about two-thirds of this group took a one-time total cashout, whereas another 21% depleted their 401(k)balances in two or more withdrawals within eight months.  One would normally expect traditional leakage patterns to be tied to a single withdrawal, rather than a series.

[ii] With an understandably large standard deviation of more than $97,000 – I say understandably because individuals with that size account balance tend to stay with the plan (an easy default) or rollover to an IRA or other plan). As the authors acknowledge, “A higher balance discourages leakage holding all else constant.”

The Big Retirement Question

I’ve been honored with a lot of praise and congratulations over the past couple of months about my “retirement” (and not a little skepticism about my understanding of the term) — but in quiet moments, there’s been one question that keeps coming up.

That question — and it generally arises once topics like “what are your plans,” “are you going to move,” and “can your wife really stand having you around all the time” have been broached — is, quite simply, “how do you know when it’s time to retire?”

Honestly, it’s a complicated question, and one to which the answer is deeply, even intimately, personal.  For many it’s not their choice, of course. Surveys suggest that for significant minorities the timing is imposed on them by external factors; a job layoff, a physical impediment, or perhaps caretaking responsibilities. While none of those were factors in my decision, at the outset, it’s worth bearing in mind that the “when” is not always in your control.

For most people — including THIS person — the calendar plays a role. Sixty-five is one of those milestone markers to which folks (and plan documents) still “anchor” — I say “still” because full retirement age under Social Security for today’s retirees is no longer 65. You don’t actually have to be retired in order to claim Social Security — but as I eyed that decision point, I had Social Security’s marker in mind. The reality is that there remains a certain age range in which thoughts of retirement can be considered “normal.”

Regardless of age (or Social Security) considerations, a big focus of my retirement timing was about finances. More specifically, first knowing how much our monthly living costs (and that knowledge is a lot more accurate closer to actual retirement than it would have been 30 years ago). That said, it remains something of a moving target, what with surging gas prices, and the reemergence of inflation. We tend to live within the bounds of a known paycheck, one that often (though not always) makes an effort to keep pace with such things. As one contemplates the uncertain “certainties” of a more-or-less “fixed” income — well, when you’re looking out over a financial future that is likely to be twenty years — or more — even the most prescient crystal ball gets a little fuzzy.      

All that starts with a baseline, of course, and thanks to my wife’s spreadsheeting and budgeting skills, it was pretty easy to extrapolate what our baseline expenses would be once work-related expenses (including things like 401(k) contributions) were behind us, including a cushion of sorts for the travel we have in mind, and some “new” considerations for things like healthcare.[i]    

With that financial floor established, we then had “only” to see what regular sources of income[ii] we had to meet those expenses. In that regard, we were fortunate — able to structure regular streams of retirement income that exceeded our baseline expenses while still preserving the larger pools of retirement savings that we had set aside over our working careers for things beyond that baseline out into a distant future. 

At that point we had dealt with what for many is the big obstacle — knowing that we could afford to walk away from that regular paycheck, and that we could maintain our current lifestyle. Now, that wasn’t the first time we had run through those estimates — doing so had already helped us establish savings goals over the years — but the calendar provided a specific focus with regard to timing.

And then COVID hit. 

That turned out to be a mixed blessing. For all the awful, scary things that came with the pandemic, it gave me and my wife of (then) 35 years an extended period of time together in close quarters. Our nest was empty, but for two four-legged children — and it affirmed not only our relationship, but the comfort of knowing that I could be not only content, but happy being at home. Make no mistake, if there’s one big regret that one hears retirees express, it’s that they weren’t ready for the shift to a home focus (not to mention their spouses). COVID provided me with a real-world preview of that experience — and even with the interruptions of incessant Zoom and Teams calls (or perhaps because of them?) — I could tell I was … ready.

So, how do you know when it’s time to retire? Well, for my money (literally), you need to have the interest — the motivation — to seek less of the “what you have to do” so that you have more time for the things you want to do. That needn’t be age-related, of course — but life’s ongoing obligations sometimes require a deferral of the latter in the interests of the former. 

To that point you also need to have the money figured out — because the things you want to do may not put food on your table or a roof over your head. That said, you might find that you can live more simply, or live elsewhere — and enjoy life more with…less. It’s easy to get caught up in the pace of work and life — and to push off for another time the opportunity to “smell the roses” — all the more so if you love and enjoy your work.     

Finally, it’s really important to have the right mindset to be ready to step outside the confines of a W-2 employment structure — that you have people or interests or hobbies that can (continue to) provide meaning, fulfillment, and joy in this next chapter of life.

It’s still early days for me in this new chapter — and I’ll concede that by most outward appearances I haven’t retired at all. Trust me, like any new “job” there’s a learning curve. And I’m working on it.

- Nevin E. Adams, JD

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[i] We didn’t appreciate it initially, but to date Medicare planning has proven to be the most stressful because, while the coverage is surprisingly good, premiums are income-based — and Medicare starts with the last official income number it has — your 1040 AGI…FROM TWO YEARS AGO. Perhaps needless to say (except to Medicare), my post-retirement income is less than it was two years ago — but, fortunately, we were successful in making our case on that point.

[ii] I (finally) consolidated my 401(k)s. I’m happy to say that the depositing of those savings has gotten a LOT more efficient over the years. However, I’m disappointed to say that getting those funds OUT is about as tedious as it has always been (one of the reasons I had put off consolidation) — and EVERYONE, it seems still insists on doing so via a hardcopy check that has to get to you via the U.S. mail (though you CAN pay a ridiculous premium to expedite that delivery) — UNLESS you’re rolling it over to an IRA on their platform. Gee, I wonder why… 

Reminders and Remberances

As we headed to San Diego last week, two things were uppermost in my mind.

The Summit, of course — you don’t spend 10 months of your life focused on pulling together (and executing) the nation’s largest (and for my money, best) retirement plan advisor conference without running through your mind a constant list of things to be done, things that you think were done, but you’re not sure, and, of course — the things you COMPLETELY forgot about until the day before you fly out.

The other thing was my father. See, April 1 was the anniversary of my father’s passing, and while it’s been 17 years, I still remember that day. It was unexpected — on a Saturday morning when such calls are inevitably good or awful news. I had just wrapped up my weekly column when I got that call — from my sister. My father, who had been battling cancer for several years now, had suffered a series of heart attacks. By the end of the day and, sadly, several hundred miles away from our home — he had passed.

He had, by then, had nearly a decade’s worth of retirement — not as long as most hope for, but to that point he had outlived any of the men in his family line — and he was, as they say, prepared to meet his Maker. There’s a great peace with knowing such things amidst the sorrow and heartache, and I was grateful for it, and the comfort it gave my mother.

We know that, as ironic as it sounds, death is a part of life. Thoughtful individuals prepare for the possibility of death — through faith and, with luck, sound financial planning. Most don’t dwell on those realities on a daily basis, and that’s doubtless a good thing. In my Dad’s case, he — thanks to my mother’s example — had done what they needed to do to sustain their then-current, albeit modest, lifestyle in retirement — in no small part a result of the sacrifices they made during their working lives.

In this business, we spend a lot of time worrying about the risks of outliving our retirement savings. Participants increasingly seem to rely on an assumption that they will work longer, or save more later, to make up for their current shortfalls. Seventeen years later my Mom continues to benefit from those earlier decisions. Don’t bother telling me that those of modest incomes can’t or won’t save.  

As we leave San Diego this week — chock full of inspiring keynotes, insightful content, and amazing networking experiences — I’ve been reminded, anew and afresh, of just how important what WE do, and how we do it — as individuals, and as industry professionals, is in terms of helping provide a sustaining post-career lifestyle. And how lucky I am to be part of that effort.

To this day my parents’ example reminds me that those results come from decisions — big ones, and a zillion small daily ones — to set aside for the post-career life we hope to have. It is a decision, a choice.

Here’s hoping more of us make the right one — while we can — so that those we leave behind will have better, easier ones.

- Nevin E. Adams, JD

A ‘Value’ Proposition

A few weeks back, an industry friend commented that, while we had certainly done a great job promoting the NAPA 401(k) Summit, that campaign hadn’t fully captured the essence of what makes “the Summit” different. Let me try here.

There are, admittedly, a lot of conferences out there — and most promote — as we do — the great content, compelling keynotes, robust networking and great accommodations.  Some of them actually deliver on those promises. But since everyone says they do, how do you know the difference?

The most obvious metric is, perhaps growth. Time-pressed advisors don’t waste their time going to conferences that don’t deliver the “goods.” The Summit has now been around for more than 20 years — and it’s challenging to sustain consistent growth over that long a stretch. That said, when I arrived here back in 2014, my first Summit “here,” we had about 1,300 attendees — and about a third were advisors.  And we were pretty darned proud of that ratio.

But this year we’re looking at about 2,400 — and almost exactly half are advisors. You can do the math. 

Now, that’s the what — but it’s also part of the “why.” And for my money, a big part of the “why” is because of the “who.” I’ve long referred to the Summit as the nation’s retirement advisor convention for one simple reason; everybody who is anybody in the retirement plan space will be there — and they don’t just swing by to do a quick “drive by” presentation — they stay.[i] So, whether you’re looking to reconnect with old friends, to connect with new ones, or to meet and/or learn from others — the Summit has you covered on all fronts.

We do approach our content a bit differently than most, I think. While it’s gotten to be pretty common for events to boast of their steering bodies, many, perhaps most — are just figureheads to the actual agenda development. They’re a group to whom the folks doing the “real” work of planning, structuring and implementing the event keep updated, mostly for a sense of validation and the occasional course correct. Oh, and so that the event can “show off” the luminaries that have agreed to lend their name (and face) to promote its bona fides.

Our steering committee is informed not only by their own experience and perspective as some of the industry’s leading advisors, but by the reader polling that provides insights from you. We don’t just ask them what they think we should include (or merely ask for that affirmation of a sponsored agenda platform), we ask them what session(s) they are willing to “own” — and by that we literally mean carrying responsibility not only for panel/speaker selection, but for ensuring that those chosen fulfill their responsibilities — up to and including making sure that the session delivery itself lives up to the high standards of the nation’s retirement plan advisor convention. They literally have skin in the proceedings. And, unlike many events, we choose the topics, and only THEN do we match speakers/perspectives with those topics. The result? Well, despite a solid diversity of topics, attendees often “complain” that they want to attend two or three “competing” sessions all at the same time.     

There are, of course, a myriad of ways to build and structure events — note here that I haven’t said a word about our keynotes, or even NAPA After Dark (that has in just a few short years become the pinnacle of networking events). But, aside from the practical information, valuable insights, vibrant networking — and yes, world-class entertainment — it’s worth remembering that among all the (other) things that set the NAPA 401(k) Summit apart — unlike every other advisor conference out there — your NAPA 401(k) Summit registration helps support the activities of NAPA — your advocacy, information and education organization — not the bottom line of some corporate media organization or some private equity firm. NAPA not only informs and educates — it literally is your voice with regulatory agencies and legislative bodies both here in the nation’s capital — and across the nation. 

And more importantly, your attendance at the NAPA 401(k) Summit remains a unique investment in your future — and the future of your profession.

See you in San Diego!

 - Nevin E. Adams, JD

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[i] And there’s no better testimonial to the value of the Summit and the commitment to be part of it than the numerous courageous (and sometimes harrowing) efforts undertaken by many to get to Summit — see “Planes, Trains, and …U-Hauls?”

"Stuck" in the Muddle?

This weekend most of America will undergo a rather painful change.

I’m talking about the legally mandated move to Daylight Saving Time (for most of us). That’s right, at 2 a.m. on March 12, clocks around the nation will “spring ahead” to 3 a.m., reversing course from last fall when the move was to “fall back” to standard time. It’s a “movement” laid at the feet of none other than Benjamin Franklin who, in what’s been characterized as a “satirical” letter to the editor of The Journal of Paris in 1784 pitched “the economy of using sunshine instead of candles.”

Mr. Franklin may have been satirical, but the economic rationale for this artificial time contrivance lingers on. It was certainly a factor in 1916 when Germany saw adjusting the time as helpful to its war effort.  Great Britain embraced the same logic the following year, and by March 1918[i] the (now at war) United States was on board — well, sort of. It only lasted till the end of that war, was picked up again (briefly) during WWII (when it was called “War Time”), though afterwards it was optional (that must have been fun)[ii] — and then pretty much faded from sight until the mid-1960s.      

This decision is often laid at the feet of agriculture (more specifically farmers, who generally speaking abhor it), but that business tends to be driven by the actual patterns of the sun, rather than the artificial constraints of a clock (as anyone who has pets that expect to be fed at certain times whatever the clock may show can attest). The reality is that the science on cost savings related to these shifts remains contradictory at best. In fact, there’s a better case to be made for the negative effects these shifts have on our body’s natural circadian rhythms, with studies suggesting it has led to increased traffic accidents and even heart attacks. 

What About Retirement?

Regardless of its origins, DST remains something of an artificial constraint, founded on one set of (arguably) archaic assumptions of (certainly now) questionable validity. It’s not entirely unique in that respect. Consider, for example, the idea of a starting contribution rate of 3% for automatic enrollment plans. Now, since the enactment of the Pension Protection Act of 2006, we’ve at least had a legislative “anchor” for an assumption that is, and has long been, almost uniformly seen as insufficient (not just to achieve retirement security, but in many cases to maximize the employer match). 

But for decades before that (harkening back to a time when some marketing genius labeled it “negative election”), 3% became a de facto default rate. Sure, there was some logic (rationalization?) that it was small enough to discourage participant opt-out (and, looking at the opt-out rates for state-run IRAs with a higher default, there’s perhaps some merit to that concern) — but mostly it anchored on long-standing practice — that was, in turn, anchored on an obscure reference in an example in an IRS bulletin.[iii] One that, as it turns out, was carried over into the automatic-enrollment requirement for new plans as part of the SECURE 2.0 Act of 2022.   

That said, and despite those traditional, limiting strictures, it’s encouraging to see plan sponsors take the initiative (likely with the encouragement and direction of plan advisors) to go beyond that minimum — so much so that 3% is no longer the most common default deferral rate among 401(k) plans, according to the Plan Sponsor Council of America’s 65th Annual Survey of Profit Sharing and 401(k) Plans. 

We seem to be stuck with DST and its implications for yet another season, despite what appear to be annual legislative attempts to undo it. And so, come Monday morning most of us will spend the rest of that week (and perhaps part of the following) a bit discombobulated. 

As for automatic enrollment defaults, it’s a good time to remember that we aren’t “stuck” with the traditional defaults — and there are plenty of good reasons to do “better.”

Nevin E. Adams, JD 

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[i] Fun fact: In 1920, The Washington Post reported that golf ball sales in 1918 — the first year of daylight saving — increased by 20%.

[ii] Daylight saving time didn't become standard in the US until the passage of the Uniform Time Act of 1966, which mandated standard time across the country within established time zones. It stated that clocks would advance one hour at 2 a.m. on the last Sunday in April and turn back one hour at 2 a.m. on the last Sunday in October. States could still exempt themselves from daylight saving time, as long as the entire state did so. In the 1970s, due to the 1973 oil embargo, Congress enacted a trial period of year-round daylight-saving time from January 1974 to April 1975…in order to conserve energy.

[iii]Page 8 — an example regarding "negative election" used 3%... https://www.irs.gov/pub/irs-irbs/irb98-25.pdf

A Swan Song? Hardly.

As you have (hopefully) heard by now, as of tomorrow (March 1), I am entering a new phase of life, one still affectionately referred to as “retirement.” 

Not retirement in the traditional sense, though I do hope to work less hours, forego trips to the office, and spend more time doing the things I want, rather than the things I must. In recent months much has been made of how difficult it is for younger workers to grasp the reality of retirement—but the reality is that retirement “myopia” is not limited to younger workers. Indeed, the reality is that I am not 100% certain what that will be like, though I have described my vision of mine as being akin to Saturday mornings—no alarm, no commute, no meetings, and a much-reduced volume of email to read/respond.  Here’s hoping.

I’ve done the math (lots of times), so the finances are fine. COVID gave me and my wife plenty of time together, so I’m not worried that I’ll drive her nuts by being around all the time—quite the contrary, even after nearly 37 years of marriage. We’ve got family to visit, a short, but growing bucket list of places we want to see—and a book I want to write. I’ll still have the opportunity to write for NAPA (at least until the plaintiffs’ bar moves on to other things and/or we actually manage to close the coverage gap!), to be involved in the NAPA 401(k) Summit, and to continue my podcast series with Fred Reish.  Indeed, for those of you on the “outside” it may not look like I have retired at all.

That said, a big part of being able to “retire” (at least in good conscience) is to know that you’re leaving things in good hands, and I am blessed to be able to do so. Not just to hand the “keys” (so to speak) to John Sullivan, who is already a known force for good in this industry, but the capable hands that have long comprised the editorial team here—Ted Godbout & John Iekel—as well as Tony Descipio who manages our ad placements, Brandon Avent, who preps and publishes our newsletters every day, and perhaps most importantly here, Ethan Durant who, despite the ridiculously short timeframes he’s given to work with, manages to help our important content look so very good. Oh, and just wait till you meet Joey Santos-Jones, our new Director of Editorial Content—the newest member of the editorial team!  

So this post is not really a “swan song,” at least not in the traditional sense. Swan songs tend to be thought of as sad things—after all, it’s the music playing as background for a dying swan that gives us that reference point. But the reality is that “retirement” in all its many forms, is what “we” do—and what I have been committed to my entire working career—it’s what “this” has all been about—to (help) provide the opportunity for working Americans to be able to step aside from the labor of a lifetime and to be able to relax and “smell the roses.” It has long been my aspiration to help make that a reality for as many as I could—and though my ministrations over the past couple of decades may have been indirect, I draw great pride and pleasure from hearing from so many of you the positive impact that my work—our work—here has done. 

I’m thankful for the opportunity I have been given throughout my career, and especially here—to have a chance to not just explain, but to shape retirement policy with your support, and that of the incredible team here at the American Retirement Association. I treasure what I have learned and continue to learn, as well as the people it has been my great joy to work with and learn from over the years—including each and every one of you. 

More importantly, I look forward with great anticipation to this next phase of my career…as we all continue… working for America’s retirement.

- Nevin E. Adams, JD