Brackets, Busts — and Building a Resilient Retirement Plan

 By now, most brackets tied to NCAA March Madness are already busted.

That didn’t take long.

Then again, it never does.

Every March, millions of us confidently — or at least optimistically — predict outcomes in a tournament defined by unpredictability. We study matchups, trends, seeding history, and (too) often assume that the track record of colleges of our youth remains constant — and then watch a 12-seed dismantle our assumptions before the first weekend is out. Though in fairness, alumni affections DO plan a role (well, for those of you whose alma mater makes it into the tournament, anyway).

If that sounds familiar, it should. Because in a lot of ways, retirement planning isn’t all that different. It’s focused (or should be) on projections based on reasonable assumptions — expected returns, steady contributions, rational behavior over time. And then reality intervenes. Markets don’t cooperate. Emergencies emerge. Excrement occurs. Life happens.

And just like that, that “perfect” plan looks a lot like a busted bracket.

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The problem, of course, isn’t that we get it wrong. It’s that we think we won’t.

There’s a certain overconfidence baked into both exercises. In March, it shows up as the belief that this is the year we’ll finally nail the bracket (or that our alma mater will return to its former glory). In retirement planning, it’s the quiet assumption that averages will hold, that risks will materialize neatly and on schedule …

Unfortunately, upsets happen in basketball — and in markets. Call it volatility, sequence risk, or just bad timing, but the effect is the same: outcomes diverge, sometimes sharply, from expectations.

Which is why the real lesson of March Madness isn’t about picking winners.

It’s about surviving uncertainty.

In the tournament, style points don’t matter. Teams advance, or they don’t. A sloppy win counts just as much as a dominant one, and a single bad performance can end a championship run. The best team with the most elegant strategies doesn’t always win.

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Retirement investors face a different structure — but a similar reality. The goal isn’t to “win” every year. It’s to avoid the kinds of losses — particularly at the wrong time — that can permanently alter outcomes. Sequence of returns risk isn’t all that different from a first-round upset: recoverable in theory, devastating in practice.

The teams that make deep runs in March tend to have options — multiple scorers, defensive flexibility, and the ability to adapt when things don’t go according to plan. Retirement plans benefit from the same kind of diversification: across asset classes, across income sources, across strategies that don’t all depend on the same outcome.

Because when (not if) something goes wrong, you need somewhere else to turn.

Preparation for the upset. For the unexpected. For the moments when markets — or participants — don’t behave the way the model said they would or should.

There’s no tomorrow in the NCAA tournament, but the best retirement strategy needs to plan for one. 

-          Nevin E. Adams, JD

The ‘Fiduciary Rule’ that Wasn’t

  After years of anticipation — and months of litigation — the Department of Labor’s latest attempt to expand the definition of fiduciary investment advice is now dead.

That said, and with apologies to Mark Twain, reports of the “death” of the fiduciary rule are somewhat exaggerated. The 2024 version — the so-called Retirement Security Rule — was vacated, which, in legal terms, means we treat it as if it never existed.

But ERISA’s fiduciary framework remains very much alive.

Indeed, for advisors already serving as fiduciaries for retirement plans under the Employee Retirement Income Security Act of 1974, the practical impact of the recent court ruling is minimal. Advisors serving as 3(21) fiduciaries or 3(38) investment managers were — and remain — subject to ERISA’s duties of prudence and loyalty. 

Many advisory firms, frankly, had already adopted procedures and business models that would likely have satisfied even the Obama-era fiduciary rule.

Where the rule would have mattered was around the edges of the retirement advice marketplace, particularly in the increasingly scrutinized area of rollover recommendations.  That’s where the Labor Department — across three administrations — tried, unsuccessfully, to extend its oversight. 

And however well-intentioned those efforts were in terms of protecting rollover decisions, they always struck this writer as something of a stretch.

The Rollover Question

Under the longstanding framework — rooted in a 1975 regulation — an advisor becomes an ERISA fiduciary only if the advice satisfies a five-part test, including that it be provided on a “regular basis.”  As a result, a one-time recommendation to roll assets from a plan to an IRA would likely fall outside that definition.

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The now-abandoned rule sought to change that dynamic by broadening the circumstances under which advice would trigger fiduciary status — basically laying the foundation for a rule that said a single advice recommendation that was the basis for an ongoing relationship could qualify.  With the rule’s demise, that expansion isn’t happening — at least for now. 

So, it’s not as though there is no fiduciary rule — but to fall under its auspices, advice will need to meet the five-part test — as it has for the past 50 years.

A Familiar Regulatory Patchwork

The result is that the retirement advice marketplace continues to operate under a patchwork of standards.

Advice to a plan sponsor about investment options or plan design typically falls squarely under ERISA fiduciary obligations. But recommendations made to participants — particularly those involving distributions or rollovers — may instead fall under securities regulations such as Regulation Best Interest (a.k.a. Reg BI). 

In practice, the same advisor may operate under different regulatory regimes depending on the conversation.  For sponsors and participants, the distinction is rarely obvious.  And therein lies the danger.

Participants — and often plan sponsors — tend to assume the advisor across the table is already acting in their best interests. 

And this is as good a time as any to remind those you serve about the difference(s).

The Industry Has Already Moved

Even so, the demise of the 2024 rule doesn’t necessarily signal a return to the past[i].

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Over the past decade — beginning with the now-vacated Department of Labor Fiduciary Rule — many firms have shifted toward advisory models that emphasize fiduciary relationships, level fees, and reduced conflicts of interest.

In other words, while the regulatory framework remains largely unchanged, many advisors' business practices have already evolved.  And while some corners of the industry (looking at you, insurance) have resisted that shift, retirement-plan advisors largely haven’t.

Not the End of the Story

If the past decade has shown anything, it’s that the debate over fiduciary advice isn’t a single rulemaking — it’s a regulatory cycle.

For now, the practical reality is simple: advisors who were ERISA fiduciaries before remain ERISA fiduciaries today, and those who weren’t haven’t suddenly been “transformed”. 

But there remain rules — and standards — in place and active despite the recent ruling.

The larger question — whether rollover advice should carry fiduciary responsibility — will likely be settled only in the next regulatory round. Or maybe even by Congress.

-          Nevin E. Adams, JD

[i] Indeed, in addition to the five-part test, PTE 2020-02 remains in effect.

What ‘Average’ 401(k) Balances Really ‘Mean’

 Every few months another headline pops up lamenting the inadequacy of the “average” 401(k) balance. The implication is usually the same: Americans aren’t saving enough, retirement is in peril, and the numbers prove it.

The problem isn’t that the math is wrong.

The problem is that the math is answering the wrong question.

I’ve noted before how misleading averages can be — and, frankly, medians aren’t a lot better when it comes to tracking 401(k) savings. The issue isn’t the arithmetic; it’s the reality of how people actually work and save.

Because people change jobs.

And when they change jobs, they change 401(k)s — and 401(k) providers.

They might leave the balance behind with the old employer (something that happens a lot). They might roll it over to an IRA (which probably happens a lot as well), in which case it disappears from 401(k) tracking altogether. Or they might roll it into their new employer’s plan — though that still seems to be the minority outcome.

Regardless of what they do, something important happens at that moment: their 401(k) accumulation effectively resets.

Fast forward 10 years. That old 401(k) left behind at a previous employer has received no new contributions. When someone looks at that account as an accumulation, it appears stagnant — and usually inadequate.

Meanwhile, the 401(k) at the new employer started from scratch. Contributions resumed, of course, but from a starting point of zero. They might be aged 40, mid-career, but THAT 401(k) balance looks like they just started.

In other words, the saver didn’t stop saving. Their savings are split in two (and sometimes more than two, depending on job change. As a result, when each recordkeeper publishes reports on “average” balances — well, they only have part of the picture.

Sometimes far less than half.

The Rare Glimpse of the Full Picture

Over the years, one of the few organizations able to transcend these limitations has been the Employee Benefit Research Institute (EBRI)/Investment Company Institute (ICI). By combining data across multiple recordkeepers and tracking individual participants over time, EBRI has occasionally been able to piece together something closer to the real story.

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When they do, the results look very different from the usual headlines.

In analyses that follow consistent participants — people who remain in the database and continue contributing over time — balances are dramatically higher than the averages typically cited in the press.

In one such analysis, consistent savers had nearly double the average account balance of the broader database, and nearly four times the median balance.

Which makes you wonder about all those conclusions based on averages of inconsistent participants.

Or, put differently, averages that mix savers with non-savers, continuous participants with short-term ones, and workers who may have balances scattered across several plans.

The math is correct — but the conclusion is anything but.

Encouraging Signs in the Latest Data

That context makes the latest quarterly report from Fidelity particularly interesting.

Now, to be clear, Fidelity’s data only reflects account balances within its own system. But because it can track participants who have been saving continuously within its plans, it offers another useful lens on long-term saving behavior.

And the numbers are actually pretty encouraging.

Among participants with 15 years of continuous savings, balances are approaching $700,000. Even those with just five years of continuous participation are nearing $400,000.

What’s especially striking is who’s leading the way.

Gen X.

Yes, that much-maligned “middle child” generation between the Boomers and Millennials appears to be saving more aggressively than either group in these cohorts.

Apparently the forgotten generation has been quietly doing its homework.

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Now, none of this is meant to suggest that 401(k) balances are universally sufficient, or that retirement readiness isn’t a legitimate concern.

But averages — particularly the ones most often cited — are, at best, a blunt instrument for measuring that reality.

They frequently combine savers and non-savers, new participants and long-tenured ones, small plans and large plans, high earners and entry-level workers, those at the cusp of retirement and those just getting started. They split individuals’ savings across multiple accounts and sometimes lose track of them entirely. Oh, and things like compensation level, geography and even gender? Never even acknowledged.

The resulting number is mathematically accurate.

But as a measure of retirement readiness?

It’s nearly useless. Worse, actually — it paints a reality that is, surely for some, disheartening.  

Which brings us back to what actually matters.

Consistent saving.

Because when you look at people who contribute regularly over time — whether through EBRI’s long-term datasets or recordkeeper cohorts like Fidelity’s — the story changes dramatically.

Balances grow. Substantially.

And that suggests something worth remembering the next time someone waves around the latest “average 401(k) balance” headline as proof that the system is failing.

For those who actually use it as intended, the 401(k) was never meant to be the end.

It’s a means to one.

• Nevin E. Adams, JD

Managed Accounts — It’s Not (Just) the Allocation

 Managed accounts have been praised, criticized, and litigated — often on the theory that they’re little more than expensive target-date funds. However, a recent report actually quantifies their impact — and turns out, it’s not an investment story, it’s behavioral.

That report — inauspiciously titled “The 2026 Managed Accounts Research Series: Analyzing the Value of Managed Accounts” — was published in mid-January by Morningstar. Of course, Morningstar has a fair amount of “skin” in the managed account space — a reason, if you will, to find a favorable outcome for the design. 

And, sure enough, the analysis claims that managed accounts outperform target-date funds and the efforts of so-called “do-it-yourself” investors for — well, everyone. More specifically, the report claims that MAs increase the median wealth/salary ratio at age 65 by 5.9% for TDF investors and by 11.4% for DIY investors. Across all plan participants, adopting an MA led to an overall increase of 7.7%. Oh, and it does even better for younger participants, and lower-income individuals.

At this point, my natural cynicism kicked in — though based on my personal and significant experience working with Jack VanDerhei, one of the coauthors, over a period of decades during his long-standing tenure at the Employee Benefit Research Institute (EBRI) — well, let’s just say if Jack says something is “so,” I tend to believe him.

Following the report publication, I had an opportunity to talk with Jack (and Spencer Look, his collaborator in this effort) to better understand their model. For those who haven’t stumbled across the report, they take a significant database of actual 401(k) plan balances and activity and apply sophisticated statistical behavioral modeling techniques to project long-term outcomes based on various assumptions. While it’s not unusual for researchers to deploy statistical modelling, most suffer from a lack of actual data, not only as a baseline, but as a behavioral predictor. Which, I should add, explains (to me, anyway) why the results often don’t match up with how real people respond/react in the real world. 

All that said, this kind of modelling is also dependent on the quality of the underlying assumptions — and here none is perhaps more focused on than cost. Here the assumptions are 40 basis points cost for managed accounts (plus another 31 basis points in fund fees), 30 basis points for target-date funds, and 73 basis points for the DIY group.  Don’t like those assumptions? VanDerhei is willing to plug in different numbers.

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I also questioned whether it makes sense to model “managed accounts” generically, given the wide variation in personalization, design, and cost. Look explained that their review of roughly half a dozen managed account structures — including but not limited to Morningstar’s — showed sufficient similarity to support a generalized model. The same held true for target-date funds.

But here is the part that matters.

As important as factors like cost and asset allocation (not to mention the cost of asset allocation) are to outcomes, the report acknowledges that “…higher contribution rates are the primary driver.” The researchers further note that, “based on our analysis of the empirical data, MA users consistently save more than TDF or DIY investors, even after controlling for age, wage, tenure, and plan design features” — a pattern they say “…suggests that personalized savings-rate recommendations[i] embedded within MAs play a key role in encouraging higher savings rates.” 

While you have to go to page seven of the 19-page report to find that,[ii] to my eyes, it is the most important sentence in it.

Now, I’ve long said that while we talk about “managed accounts” as though they are a monolithic concept, they are not. There are different — in some cases, widely different — levels of personalization deployed — variations in cost and construct. Anyone who ignores these potential underlying differences in application is missing the point. 

I will admit that in considering the value of managed accounts, I had — perhaps as many of you — tended to focus more on the differences in asset allocation that might be possible if we knew more than projected retirement date — not to mention variation in the underlying costs. What I had not factored in was what the Morningstar researchers have — the application of personalization to influence and impact savings rates. 

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If managed accounts meaningfully increase savings rates — not just tweak allocations — that changes the fiduciary conversation entirely.

Because better investing matters. But saving more matters more.

• Nevin E. Adams, JD

 

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[i] It’s worth noting here that the impact is smaller, but still positive, for AE with escalation plans, with TDF investors seeing an increase of 2.7% and DIY investors seeing an increase of 7.8%. Moreover, approximately 92% of AE plans with auto-escalation show an improvement in the median projected retirement wealth for TDF investors under the MA scenario. In other words, while automated increases in salary deferrals help, those timed and personalized via the managed account platforms provide a superior result.

[ii] It IS, however, right there with the first findings. Apparently, the folks who created the executive summary didn’t view it as being as significant as I did.