What’s Top of Mind for Retirement Plan Advisors?

One of my favorite parts of the NAPA 401(k) Summit is a comprehensive annual survey we do of advisors in attendance at the Summit I call the Summit Insider.

It’s a unique opportunity to get the perspective of hundreds of retirement plan-focused advisors in a unique window of time. A chance, if you will, to see what’s on the collective minds of a very special group of individuals.

Like the networking experience of the Summit itself, it’s a chance to see what is actually on the minds and driving forces for the nation’s leading advisors. Sometimes it’s a validation—sometimes a repudiation—but it’s always insightful, all the more so in view of this year’s (record-breaking) response to the Summit Insider questionnaire.

Over the past couple of weeks, I’ve shared some insights in the NAPA-Net daily—but if you’re looking for a quick sense of the advisor perspective(s) on business practices, industry trends, team building, or future focus—well, here you go:

• There have been BIG shifts in sentiment regarding cryptocurrency (from positive to negative game changers) and state-run IRAs (ditto). 
• Managed accounts continue to be viewed negatively—a sharp and sustained turnabout from three years ago (when they were actually seen as a positive game changer).
• ESG remains the most over-hyped trend—but advisors are split as to whether it is a negative or positive game changer.
• Indeed, when it comes to over-hyped trends, ESG has demonstrated remarkable “staying” power, having topped that most over-hyped list for (now) four years running—and this year drew nearly THREE times as much support for that categorization (last year it was only twice as supported) as the #2—which was, again, cryptocurrency. MEPs/PEPs crept up to the #3 slot, while actually declining in overall ranking from its placement the past two years. 
• Cost loomed large as the biggest hurdle for managed accounts, though not far ahead of “participants lack understanding of how they work.” Most see the future of these as being offered by the advisor’s firm.
• Plan sponsor interest in retirement income options really hasn’t changed, hovering somewhere between “minimal” and “occasional.” Something else that hasn’t changed; portability remains the dominant advisor concern with these solutions. 
• Roughly two-thirds are now incorporating HSAs (health savings accounts) into financial wellness curriculums—though a third of those do so only if they consulted on the specific solution. 
• Nearly a quarter (24%) say their team’s work/life balance is “better than ever.”
• “Attracting and retaining talent” alongside “scaling your practice” remained the big issues for advisor practices over the next 12 months. Perhaps somewhat ironically, succession and advisor consolidation were in the “not important” category.
• Among support from DC wholesalers, “plan tools and resources” slightly edged out “competitive info” as valued services.

Thanks once again to all who took the time to share those (your?) perspectives and insights on the pages that follow. Thanks for being part of the 2023 NAPA 401(k) Summit—and thanks particularly to the sponsors of this year’s NAPA Summit Insider!

And please—like, share and comment! Check out the rest of the 2023 NAPA Summit Insider at https://bit.ly/23Summitinsider1

See you (all) in Nashville April 7-9 for the 2024 NAPA 401(k) Summit!

- Nevin E. Adams, JD

The True ‘Cost’ of ‘The True Cost of Forgotten 401(k) Accounts’

An update of a so-called “study” has been making the rounds—again—and its authors have doubled-down (and then some) on the assumptions in an updated version.

I’m referring to something called “The True Cost of Forgotten 401(k) Accounts (2023)”—an update to a report circulated about a year ago of the same title (sans the “2023” qualifier) by a firm called Capitalize. The first report claimed that there was $1.35 trillion in “forgotten” 401(k) accounts—the latest iteration has upped that number to $1.65 trillion.

That’s right, $1.65 TRILLION.

Not that the report’s authors make it hard to be incredulous about their results. Their executive summary claims that a full 25%—that’s a full QUARTER—of all 401(k) plan assets are, by their definition, “forgotten.” And if you’ve ever “left behind” a 401(k) account at a previous employer—well, apparently you’ve “forgotten” that account by their definition.  

Now if that definition of “forgotten” winds up being more credible than the one hinted at a year ago—the notion that these balances were truly lost, a.k.a. the “orphan” accounts that individuals truly have lost track of—a category that the Employee Benefit Research Institute (EBRI) has estimated[i] at $1.5 trillion OVER A 40-YEAR TIME PERIOD—well, the underlying assumptions—not to mention the mathematical extrapolations based on those underlying assumptions—are not. 

The authors mostly took the baseline they conjured up a year ago (see “Compounding the Problem(s))—this includes some assumptions not only about the rationale for the decision[ii] to leave the account where it is, but an alleged fee differential between IRAs and 401(k)s (they claim IRAs are less expensive), make a swag assumption about the average size of those accounts, and cut that alchemy in half (to be “conservative”). The new version builds on that shaky foundation by applying some assumptions about job turnover from the Great Resignation—and, no surprise, job turnover (apparently) means (even) more 401(k) accounts “left behind.”

The Assumptions

At a high level, they assume: 40% of workers cash out[iii] their 401(k) (with no apparent allowance for account balance), say they used IRS data on rollovers to determine rollovers, assume 2-3 million workers rollover their 401(k) (based on GAO data that said 401(k) to 401(k) rollovers account for 10-15% of total rollovers, and “impute” (their word) the number of “newly forgotten 401(k)s based on the difference between the total number of 401(k) accounts tied to job-changers and those who cash out, roll over to IRAs, or roll over into 401(k)s.” Bearing in mind that they will then take the number of accounts, and multiply THAT by the average account balances they derived earlier. 

Now, that might explain why they wind up with a number that represents a jaw-dropping quarter of 401(k) balances allegedly “forgotten”—but fails to explain why any credence should be put on that derivation. It is, quite simply, math that takes questionable assumptions, pulls a number out of the middle of those, and multiplies it by other questionable assumptions, producing a large number that is then said to be drawn from credible sources. But even credible sources are quickly waylaid by bad assumptions concocted from some kind of unarticulated triangulation.

Yet another example is the $115 BILLION they say is the “potential collective opportunity cost” from these accounts left behind—the result, they claim, “as a result of poor allocation and above average fees these accounts could experience.” To get to that number, they take the number of accounts they’ve conjectured (29.2 million in 2023) and then multiplied THAT “by the foregone savings one of these accounts would experience in a single year based on our scenario analysis (~$3,900).” “One of those accounts” being that $55,000 average they started with. I kid you not.   

The Motivation?

That said, this time around, the motivations behind the report from Capitalize are to my eye more obvious than they were a year ago. Their assertions are primarily that these balances left behind are paying fees in excess of what they might—presumably in the warm embrace of firms such as firms like Capitalize that offer a rollover solution. This time the report wastes no time highlighting the potential issues with leaving your 401(k) balances “behind”; that it becomes harder to track fees, allocate funds, and that your fees may be larger if you leave it with the plan of a smaller employer. They even invoke the notion that “unlike retail accounts” you may have limited choice with regard to fees “or other preferences.”

Honestly, I have tried to ignore this aberration. The number is nonsensical on its face, even with the most liberal definition of “forgotten.” But, it’s August—a slow news month—and journalists scrambling for a catchy lead apparently just can’t resist the opportunity. More distressing (at least to me) is the number of ostensibly well-meaning industry professionals who (continue to) share links to the uncritical coverage of this report.   

Interestingly enough, the dictionary defines “capitalize” as “to take the chance to gain advantage from.” 

Hmmmm….

- Nevin E. Adams, JD

 

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[i] As a stand-alone policy initiative, EBRI has projected that the present value of additional accumulations over 40 years resulting from “partial” auto portability (participant balances less than $5,000 adjusted for inflation) would be $1.50 trillion, and the value would be $1.99 trillion under “full” auto portability (all participant balances). Under partial auto portability, those currently age 25–34 are projected to have an additional $659 billion, increasing to $847 billion for full auto portability. But that picks up all potential rollovers, and they certainly aren’t “forgotten.”

[ii] Full disclosure—the author CONSCIOUSLY left behind every single one of his 401(k) accounts until recently. For account balances above $5,000 it was the easiest thing to do (e.g., “nothing”), for some of them it was a matter of appreciating the institutional pricing and/or options available there versus the new 401(k), and for at least one it was simply the aggravation involved in trying to get the funds from the old 401(k) mailed to me in a check. I’m happy to say that the process has improved somewhat over the years, though all three prior providers insisted on mailing me a hardcopy check (two, where Roth balances were involved). Oh, and I never “forgot” a single one.  

[iii] Don’t get me wrong; “leakage” is a real concern, and rollovers, for the most part, remain a tedious process for your average participant. Too many smaller (and perhaps some larger) balances do, in fact, get lost or overlooked, and “attribution” via escheatment or force outs does occur.

Does Your 401(k) Need ‘Guardrails?’

A new WSJ op-ed says that 401(k)s “too often lead employees to make financially harmful mistakes.”  And yes, advisors are (apparently) part of the problem.

The “problem”—at least according to the op-ed authors is that, left to their own devices participants are said to be inclined to overindulge in bad investment choices; choices they claim are the result of plan sponsors’ ignorance of how their workforce is actually using the options—an ignorance born of advisors failing to provide that information. Advisors, they comment, who “don’t have any financial incentive to provide such information, or to design plans in ways that would tend to reduce diversification mistakes to begin with.”

Now I can’t speak for every advisor, but I know plenty who are actually devoting a fair amount of time and energy to tracking—and sharing, certainly in the aggregate—the asset allocation decisions of the participants in the plan with the plan committee. Beyond that, no small number of participants are individually counseled in financial wellness sessions toward “better” decisions with their portfolios—and that completely ignores the large (and growing) reliance on professionally managed alternatives like target-date funds and managed accounts by participant-savers.

But these researchers—who turn out to be none other than Professor Ian Ayres[i] of Yale University and Professor Quinn Curtis, a colleague from the University of Virginia—want to put some guardrails on employee choice(s) to solve a problem they detected in a single large plan…back in 2016.

The current op-ed—“inspired” by (or perhaps attempting to inspire sales of) their just-published book “Retirement Guardrails” (which can be obtained for a mere $110 in hardcover, or $34 paperback)—calls out for criticism a retirement system they say allows workers to put portfolios at risk by failing to diversify their investments and choosing investment options with “relatively high fees that eat into their returns.” They “estimate” that about 10% of participants fall prey to one, or both, of those errors.

In fairness (and we’ll accept at face value their factual assertions) once upon a time the University of Virginia’s 403(b) plan had a lineup in excess of 200 fund choices (not an uncommon array in university 403(b) plans, as those who follow litigation in this area can attest)—among them (apparently) one that tracked gold futures. And, in 2016 (when the study was conducted, and at a time when gold, for a while, was arguably an intriguing opportunity—before it wasn’t), the professors claim that a third (35%) of the participants in that program held more than half their savings in that fund—including 11% who were betting their entire balance on, not red, but…gold.[ii]

As noted above, Ayres’ solution for all this is—“guardrails”—basically imposing limits[iii] on how much participants might be permitted to invest in certain funds—funds that, in the estimation of the plan fiduciary MIGHT be harmful in large “doses.” 

What’s more puzzling—and troubling—is that he seems to have bootstrapped (and to my eyes out of thin air) a fiduciary obligation[iv] to not only prudently review and monitor the services and investments offered by a plan, but to track, investigate and, yes, limit the asset allocations of participants among options that are deemed subject to misuse/abuse. Indeed, he basically makes a product liability argument that those who build these menus have an obligation to monitor and remedy their (potential) misuse just like that imposed on a product manufacturer who knowingly distributes a dangerous product. And, by the way—he not only lays this at the feet of the plan sponsor/fiduciary and their advisor—but also as a responsibility for the recordkeeper platform provider (the ultimate “manufacturer”) themselves.

Now, there’s a reason that Preparation H contains a warning that the product is not to be taken orally—and that electric hair dryers bear a label that cautions against using them in the tub (I’m less sure about the labels on pillows warning of dire consequences for their removal). People, being people, do, in fact, sometimes do dumb things, and we know that even with carefully crafted instruments like target-date funds, individuals can (and do) split their investments between those one-size-is-supposed-to-be-enough options.

It’s not so much that “saving participants from themselves” isn’t a laudable undertaking—but one can’t help but wonder just how intrusive and/or expert plan fiduciaries are expected to be in order to strike an appropriate “balance” in such things. Let’s face it—it’s hard enough to make sure that the options on the investment menu satisfy—and continue to satisfy—ERISA’s rigorous standards for prudence—under this solution fiduciaries would also be expected to track (and restrict) the how much?      

Well, the good news—at least for now—is that there wouldn’t appear to be any actual fiduciary obligation to do so. ERISA 404(c) provides both a structure and a means to provide participants with the opportunity for an informed choice, and—as noted above, current plan design trends suggest that there are solid, prudent options aplenty for those unable or willing to do so. 

That said, you never know when a federal district court judge somewhere (or a plaintiff’s attorney) might latch on to the idea. At which point, the statute notwithstanding, there’ll be no putting “guardrails” on the potential for litigation.

- Nevin E. Adams, JD

 

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[i] If those names seem familiar—there’s a reason. You may remember Professor Ayres from an incident several years back when he wrote to thousands of plan sponsors, alerting them that, based on his analysis of Form 5500 data that they were sponsoring a “potential high cost plan.” Not that he was just trying to be helpful in bringing this to their attention (Quinn Curtis was also working with him on that project)—he also told them that he planned to publish the results of his analysis, and to share those with, among others, The New York Times, and The Wall Street Journal—as well as via Twitter with a special hashtag identifying their company. And he did this on the stationary of Yale University.

[ii] There’s another disparity with the 401(k)s they are seeking to impose this solution on; unlike participants in the University of Virginia plan, most 401(k) participants don’t have access to a defined benefit pension plan.

[iii] The notion of such guardrails isn't really innovative, even within the context of retirement plans. Ayres acknowledges the (voluntary) application in situations involving company stock, and similar constraints have (voluntarily) been imposed on features such as a self-directed brokerage account, and among plans contemplating cryptocurrency as an option as well. The difference is that those adoptions were limited in scope and voluntary—unlike the type of guardrails Ayres touts. 

[iv] The book subheading says, “proactive fiduciaries,” but the text implies a deeper obligation, anchored on the authors’ assessment of court rulings.

 

A Glidepath of/for Life

I’ve been getting a lot of … comments … of late about my version of “retirement.”

I heard it both a couple of weeks back speaking at an event sponsored by The Standard—and again last week at the NAPA DC Fly-In Forum—that I was setting a poor example for retirement aspirations (all good-natured, and generally followed by a quick comment that they were glad to see me nonetheless).  So much for long walks on the beach or reading in a rocking chair, I suppose. But it’s my first “go” at retirement, after all—no practice rounds (even my vacations over the years have been a bit “busy”) beyond the “space” provided by COVID’s lockdowns.

That said, my days are definitely different now. And, though it’s perhaps not apparent from the content I (still) produce in any given week (blame the plaintiffs’ bar—if they’d quit suing, I’d have less to write about), I’m pleased to report that I’m (beginning) to ease into new daily patterns; (more) time on the treadmill, actually reading books that have nothing to do with retirement plans/ERISA (or even reality), planning trips, actually putting a bucket list to paper, and yes—even the occasional afternoon nap.  
       

The shift is, admittedly, subtle (my wife would tell you it’s still largely non-existent). But there’s a definite shift in focus from where I’m sitting (albeit not yet in a rocking chair).

To that end, I recently had the opportunity to listen in on a webcast featuring a good friend of mine, Jeanne Thompson, who is now mapping out her own version of “retirement.” Now, I’ve long appreciated Jeanne’s talents for data analysis (and, more significantly, her ability to convey the potential impact and import of that data in a way that “normal” people can grasp)—and on this particular webcast she crafted a perspective on life that mirrored the markets—with both bull and bear passages, but also life choices—as a series of asset allocation decisions. And, as with investing, how the different “markets” of one’s life/career can be influenced by, or sometimes run counter to prevailing forces.

As asset allocation traditionally differentiates between stocks, bonds and cash, Jeanne breaks life down into three major elements: sleep, life and work. Those are broad swathes of existence, to be sure, but when you are talking about something like work/life balance, it’s not a bad place to start from. And, as she graphed out her career experience on that webinar, it was easy to see how life events—promotion to a new position, marriage, the arrival of children, and the “emptying” of that nest were reflected in those allocations of time.

In life, as with the markets, there are external influences that force shifts in those allocations. And yet, we have—or should have—some sense of the allocation we believe to be desirable to meet our goals.  And, if we’re mindful of that compass, we know that adjustments are appropriate from time to time—and that if those adjustments are ignored—well, the results can be…unfortunate.

But, as with any asset allocation decision, it starts with knowing your goals, your time frame(s) to achieve them, an appreciation for the cognizance of the surrounding environment(s), and a commitment to rebalance over time, as appropriate.

And you don’t even have to wait till “retirement” to do so.

- Nevin E. Adams, JD

'Mission' Controls

 So, what did you want to be when you grew up?

Now, I realize that some of you are still growing up—but I’ve never met ANYONE who said “I wanted to work with retirement plans”—and that includes me. 

Indeed, what we aspire to become in our youth is complex—and often shaped by our experience(s) at the time. And while I am sure there was a period in my youth when I wanted to be a fireman, a cowboy, or maybe even a professional athlete (that one didn’t last long), my earliest memories are of wanting to be an astronaut—an aspiration that came to mind again last week on the anniversary of the Apollo 11 moon landing.

It was a magical time for our nation’s space program. There was a plan, three separate programs (Mercury, Gemini and Apollo) designed with specific mission objectives to help us get there, and a vision—as President John F. Kennedy said in May 1961—of “achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth.” There was also a sense of national urgency (the so-called “Space Race” with the Soviets), and, while throughout its life the program was remarkably bereft of injury, the tragedy of the February 1967[i] fire on Apollo 1 that took the lives of astronauts Gus Grissom, Ed White and Roger Chaffee reminded us of the stakes involved.

And then, after years of watching Americans enter space, circle the planet, exit their craft while circling the planet (at unimaginable speeds), and then leave Earth’s orbit to touch the lunar sky, came that one Sunday July evening in 1969. I can still remember the grainy black-and-white images of Neil Armstrong’s “one small step for man” flickering across the screen of my family’s small black-and-white television (replete with its aluminum foil-festooned “rabbit ears”)—the anniversary of which was just last week. It was, as Neil Armstrong is said to have intended to say, “a small step for a man…a giant leap for mankind.”

It doesn’t take much imagination to draw a correlation between the planning for a landing on the moon and a successful arrival in retirement (OK, so maybe it takes a little imagination). Both require a notion of what constitutes a successful “arrival,” an idea of the steps that will be required to get there, the tenacity and ingenuity to deal with the inevitable bumps along the way[ii] (remember the example of Apollo 13)—and the specificity of a date certain to give some structure to those plans.

That said, and as we ponder the accomplishments and planning that helped our nation put astronauts in space and on the moon—and that one day may take us further—it’s worth remembering that our “mission” is not only to get tomorrow’s retirees safely to retirement, to take those “small steps” along the way—but ultimately to position them and their finances to carry them safely through retirement… to a safe landing at their “tranquility base.”

- Nevin E. Adams, JD

 

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[i] Of course, the January 1986 explosion of the Space Shuttle Challenger reminded us anew and afresh of those dangers.

[ii] Students of history know that one of the contingency plans for the Apollo 11 mission was a presidential statement if those astronauts had crashed (they got pretty low on fuel before landing), or if they hadn’t been able to return to Earth (some engineer actually forgot to put a handle on the outside of the lunar module door—and if they hadn’t noticed that and left the door open while they were on the surface, they might not have been able to get back inside the LEM). Fortunately, those contingencies are now simply interesting historical anecdotes. Still, it’s worth recalling that the ultimate mission was not only to get men to the moon, but to return them safely home.

Social Security COLA ‘Click Bait’

Over the past couple of years, one of the most-clicked posts on NAPA-Net has been on a topic that is a bit of a head-scratcher.

I’m speaking, of course, of the (now-incessantly tracked), monthly projections of the (potential) cost of living adjustment (COLA) for Social Security. It started back when inflation emerged as a real consumer concern—and it was spurred by the efforts of a group called the Senior Citizens League in publishing—EVERY MONTH—a projected cost of living adjustment (COLA) for Social Security.[i] And our coverage of those projections has been, and continues to be, one of the most clicked-on stories[ii] (ditto other publications, apparently).  

Like many, perhaps most, of you, I was initially intrigued by the reporting. Let’s face it, after a couple of decades of relative economic slumber, inflation has reared its ugly head in a way that reminds some of us of the days of our youth when inflation was an actual scary economic reality, rather than an obscure concept. And, at a time when the soaring cost of—well, everything—has (re)garnered our attentions, the notion that those impacts for older workers might be muted by a positive adjustment in their monthly benefit (not to mention those prospective increases in contribution and benefit limits of qualified plans) was encouraging.

But every single month?        

Not that Social Security has always had a COLA. In fact, Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLAs didn’t begin until 1975. Prior to that, benefits were increased only when Congress enacted special legislation. As for its calculation, Social Security’s COLA is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase—and, believe it or not, that’s been the case in recent memory—there can be no COLA. That said, you can imagine that there tends to be something of a hue-and-cry from Social Security beneficiaries in those rare situations (most recently in 2016,[iii] though the increase in 2017 was just 0.3%). 

Of course, inflation measures often seem to be as much art as science—varying largely on what you spend your money on—and seniors do tend to spend money differently. In fact, one of the criticisms of the current formula is that it considers the purchases that current workers make, rather than retirees.[iv]  Another factor is the timing of the formula, which considers the period from September of one year to the next—while the government reports tend to reference the change from the PRIOR month, or in some cases from the same month a year earlier. 

That said, those on what are commonly referred to as “fixed incomes”[v] are understandably interested (and anxious) about potential increases (or lack thereof) in those finances. Let’s face it—retirement is not a profession that warrants merit increases, after all, nor are there typically opportunities for “promotion.” Purely from an SEO perspective, one can understand and appreciate the internet search engines cranking up to try and get a peek at what’s coming up in terms of potential benefit increases (and, to be sure, we do get significant traffic for those posts outside of our newsletter distribution). Still, and while those projections are based on the realities of the official inflation numbers reported by the federal government, they are merely point-in-time guestimates when it comes to knowing what the actual COLA number will be.

Not that I don’t “get” and appreciate the significance of the ACTUAL Social Security COLA—its impact on retirement projections, not to mention realities, is significant. That said, relentlessly tracking the POTENTIAL COLA based on interim monthly readings of inflation a year out from the actual establishment of the COLA have always struck me as a bit… obsessive. But clicks drive coverage these days and for the foreseeable future, and therefore, as long as you (all) keep clicking, we’ll keep covering…

Still, it should serve as a reminder to us all that planning for retirement should look beyond the income we happen to be drawing when we leave the workforce. After all, if the income we have at retirement isn’t enough to adjust to the costs of living in retirement—it might well cost us an “adjustment” in how, or how well, we live through retirement.

- Nevin E. Adams, JD

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[i] According to their website, they are a nonpartisan seniors group, and have been since 1992, though it wasn’t until the COLA adjustment reports that they crept onto my radar. And perhaps that, as much as anything else, explains the monthly COLA reports.

[ii] And by including “Social Security” in the title of this post, I’m shamelessly trolling for some additional SEO visibility, of course.

[iii] You can find a table of the COLA at https://www.ssa.gov/cola/

[iv] For more details, check out http://assets.aarp.org/rgcenter/ppi/econ-sec/fs160.pdf or https://www.aarp.org/retirement/social-security/info-2020/colas-history.html.

[v] And it’s not just retirees. Disabled workers and their dependents account for 19% of total benefits paid, according to the Social Security Administration (see http://www.socialsecurity.gov/pressoffice/basicfact.htm).

 

Are Millennials’ Retirements ‘Doomed?’

Millennials have had a rough week of it, at least in the financial press.

First there was a report that they had established asset allocations that mirrored that of their grandparents (the respondents apparently never heard of a target-date fund). Then a separate survey that indicated they (70% of them, anyway) were ashamed to ask their parents for financial advice (we’ll set aside for a minute whether that would have been a good source), and then the pièce de résistance was a report that painted a pretty bleak retirement picture for a generation that “entered the workforce around the Great Recession, which began in late 2007, and experienced a difficult economy early in their careers. Now, they are confronting pandemic-related setbacks while trying to manage work-life balance.” 

Indeed, the only bright note for this group—identified as those born between 1981 and 1996 - was a report that said the retirement savings gap between genders in that demographic was a mere 23% (which, at $29,218 versus $23,715, doesn’t mean it’s adequate, but then we’re only talking about averages). 

Now, as a mid-range Boomer—who happens to be the parent of three Millennials—I can attest to the complexities of this generation of individuals, now said to be the majority of today’s workforce (I can also attest to the reality that they all hate the label “Millennials”). 

Of course, they’re not the “kids” such labeling tends to call to mind—the eldest are in the 40’s, after all.  But that’s the age when life’s biggest financial struggles come home to roost; college debt, home ownership, marriage, kids (and the prospects of THEIR college expenses), and—increasingly—the burdens of caring for their Boomer parents. In that sense, their experiences are comparable to the challenges their parents faced, though perhaps a tad later in life.

There are, of course, the economic and technological realities of their generation. At similar ages, odds are their parents were barely aware of the Internet, and “innovations” like smartphones, email and social media were not even glimmers of possibility beyond science fiction. Those influences are both empowering and debilitating, inflating expectations and fueling a certain peer pressure on a scale their parents couldn’t appreciate. 

That said, and despite the recent spate of negative press (giving Boomers a break[i]), I’m pretty sure that:

Millennials are saving for retirement—likely earlier, and at higher rates than you did when you were their age.

Sure, some of that is plan design—automatic enrollment was a rarity when their parents were coming into the workplace, and employers are increasingly coupling that design with contribution acceleration.  Moreover, immediate eligibility is increasingly popular (Vanguard’s 2023 How America Saves says 80% of plans now offer that, while the Plan Sponsor Council of America’s 65^th Annual Survey of 401(k) and Profit-Sharing Plans puts it at just over half). And yes, that can matter a lot if job turnover is high—but it’s an urban myth[ii] that Millennials turnover more often than Boomers did at their age.

IF they have access to a plan at work, anyway.

Millennials are likely better invested for their retirement than you are—“then” and now.

Okay, as with saving for retirement, surely some of this is plan design—notably the default investment in target-date funds (TDFs) or some other qualified default investment alternative (QDIA)—and their more recent hire date. While data shows that TDF use varies with participant age and tenure, reports pretty consistently indicate that younger participants are more likely to hold TDFs than older participants (not so much due to their age, but due to their greater likelihood of being a new participant defaulted into the TDF. That doesn’t mean they are more involved/engaged/astute about those investments—but they’re likely more diversified, with portfolios regularly rebalanced (despite the conclusions of that survey above). 

BTW, that’s something that plan fiduciaries might want to keep in mind the next time the concept of reenrollment comes up.

Millennials are thinking about retirement. Probably more than you were at their age.

Millennials have never known a time without a 401(k), nor have they lived during a period when a personal responsibility for saving hasn’t been part and parcel of the education around their benefits package. They’ve been worried about Social Security’s sustainability from the time of their first paycheck (what they probably don’t appreciate is that their parents also worried, and arguably—in the early 1980s—with better reason).

While they certainly have options their parents didn’t, they also have their own set of challenges—some unique, but many unique only in that they are young(er). They have tools and innovative plan design, apps and the aptitude to use them, and in many cases access to professional guidance.

They may not know how much they need to save for retirement (nor do their parents, apparently), they may not yet feel that they can afford to save for retirement, they may not even know how to save for retirement—but you can bet they know they need to.

And, in more cases than one might expect from recent reports, with access to workplace retirement plans, the help of good plan design, and professional retirement planning advice, likely already doing so.         

- Nevin E. Adams, JD 

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[i] And, once again, nobody seems to care about Gen X… who also hates that label!

[ii] The data show that median job tenure in the private sector in the United States has hovered around five years for the past several decades, according to the nonpartisan Employee Benefit Research Institute (EBRI). 

 

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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