I get it. We are not a country that likes everyone getting a highly sought after good. Someone has to get it and someone has to not get it so that we know we worked harder or are just better or more deserving than the other person. But when we think like this, we let a small, privileged group of people reap huge rewards they didn’t earn. A group that understands our warped psychology and uses that knowledge to line their pockets...
Of course, the retirement and financial services industries are not the only sectors that take advantage of a status-focused and misinformed public. Nor does everyone in the industry engage in this kind of behavior. But lately I’ve been obsessed with just these guys. I’ve been reading a lot about financial fraud, including insider trading and the CalPERS bribery scandal, and the amount of money some people make cheating the system has led to my of course they are stealing from our retirement savings attitude. By stealing I mean overcharging for the services they provide and making backroom deals for their own benefit. Again, not all of them, but enough that we should rethink our preference for the private sector’s high-costs, high risks retirement savings model. Continue Reading...
This is the time of year when human resource (HR) experts discuss the top trends in employee benefits. These annual observations typically focus on health plan design or delivery systems that are gaining momentum or at least not losing it. Think high deductible health plans and private exchanges. Or they concentrate on survey responses from employers about programs they are sticking with despite their lack of effectiveness. Think wellness, employee engagement and communication programs. But there is one on-going benefits trend that never makes an HR top trends list.
Maintaining the financial status quo of health insurers and benefit plan service providers.
There is a raging war going on in both the health care and retirement plan industries that service workplace benefit plans.
- Health insurers are in a fight with health care providers, hospitals and pharmaceutical companies over costs that are threatening their profits. Health insurers are showing that they are not afraid to take on other parts of the health care delivery system. They are looking to Congress to reign in pharmaceutical costs, as well as pitting big pharma against itself when negotiating discounts. Additionally, they are cutting providers from the networks who won’t offer better discounts.
- Pharmaceutical companies are in a political and public relations battle over the ever-increasing prices of both specialty and generic drugs. They are also battling with health insurance companies that they blame for providing inadequate prescription drug coverage under their health plans. And, big pharma continues to play the research and development and innovation costs cards to justify its high prices (all while providing no cost information…).
- Health care providers and hospitals are sparring with health insurers over proposed mergers, narrowing of provider networks and low claims reimbursements. There's not much new to see in this fight except to see if the health insurer mergers will lead to greater health care discounts from providers.
The war over workplace retirement plans is not as high profile as what’s going on in health care, but it is important to track nonetheless. In fact, the fight to hold onto the retirement plan service provider status quo is even more epic because it pits the industry against the government over several issues. Continue Reading...
I know quite a few millennials—some are nieces and nephews and others are children of friends and acquaintances. I love and admire them all. For the most part they are all smart "kids" who are decent and kind. But I must confess: I don't find them as interesting and awesome as their grandparents, parents and friends do. That’s probably because I can still remember being their age and thinking I was smarter and more interesting than my current self would find. Make sense?
Anyway, despite my aloofness towards millennials, I do enjoy having a "serious" conversation with them. Especially when the conversation is about some of my favorite subjects to talk about. In this case: workplace retirement savings plans; specifically 401(k) plans.
Recently I had dinner with two millennials. They are recent college graduates who are smart and focused. To their immense credit they are researching various retirement savings options. So, naturally, the conversation turned to workplace 401(k) plans. And my excitement barometer went way up when one of these millennials called the 401(k) plan a scam.
Don’t get me wrong, I’m not offended by those words at all, I just never met a millennial that expressed their wariness of financial markets so abruptly. Personally, I think they have many reasons to be cautious.
- They were in college during the worst recession of their and their parents’ lives
- They know how difficult it is to find a job, let alone a good paying one
- They also know about the government’s bailout of Wall Street
Most Americans think that people who work in the retirement and investment services industry are extremely smart and component. And many of these workers are smart and competent, but not all of them. Every industry and profession has its not so smart and not so competent bunch. However, somehow just like doctors and lawyers, retirement and investment services workers enjoy an automatic elevated status in comparison to other professionals. Now there is nothing wrong with showing respect for a person's knowledge and skill level and the effort it took to obtain it, but should this come automatically?
No, it should not and here's why. When you place a person or profession in an elevated position, you are unlikely to question what they do, why, and how it will impact you. But even worse is that the person in that position is not likely to feel any obligation to share the information with you in the first place. See, they already know you are in awe of them and their credentials. They also know they intimidate other people. So much so that you'll pretty much agree to do whatever they suggest.
Don't agree? Then explain to me why most employers did not know what retirement plan fees they paid or that they paid them at all. Or explain to me why some employers don't know that they are the plan sponsor and fiduciary of their retirement plan and are ultimately responsible for their plan's compliance. Or better yet, explain to me how the retirement and investment services industry got so big so fast by offering routine services with very little risk to their bottom line.
Still not persuaded? Check out the minutes of any workplace retirement plan committee to see what if any questions they are asking their retirement plan representatives. And if the retirement plan reps participate in these meetings, you can bet that there is a lot of nodding in agreement going on. I know. I participated in these meetings and they go a lot like this: Continue Reading...
Despite relentless criticism, the Obama administration continues to propose and create policies and programs relating to health insurance and retirement savings plans. For sure, much of the criticism is due to fear of change by an industry that is doing well for itself. If brokers are able to briefly contain their fear of the unknown, they will see that they have a lot to gain from the Administration’s many proposals.
There are three main themes to the White House’s health insurance and retirement plan proposals:
- Increase Access
- Increase Legal Protections
- Increase “Tax” Fairness
It’s a fact that more Americans have access to health insurance because of the Affordable Care Act (aka Obamacare). And while most everyone agrees that increasing access to health insurance is a good thing, Obamacare was a challenge for one group in particular—insurance brokers. After Obamacare, many insurance brokers expressed concern for their livelihood and if they could transition to a new, more drawn-out way of doing business. They also had legitimate concerns about their commissions. There is talk that some independent agents transitioned to other professions or retired, but for the most part insurance brokers did not lose their livelihood and now have a larger customer base to assist. Continue Reading...
A major criticism trending in the employee benefit arena is that tax-advantage retirement plans (mostly the 401(k))-style ones) benefit higher paid workers. Progressive politicians and academics continue to propose changes to these plans. Individuals defending the current tax structure of workplace employee benefits rebuke these proposals by pointing out their technical inaccuracies. They claim that the tax features of these plans are equal and fair because they are subject to annual non-discrimination (ND) testing. This battle is not going away benefit pros, and if you conduct your own non-discrimination testing, you are right in the middle of it.
What is Non-discrimination (ND) Testing?
As you can imagine, non-discrimination testing is a complicated process that actually consists of multiple tests. However, basically, its purpose is to determine if highly paid and key employees benefit more from the plan than lower paid employees. It can be difficult to understand what these tests mean unless you perform or assist in performing them yourself. But that is not my main concern here. If non-discrimination testing is what proponents of 401(k)-style retirement plans want to use to claim they are equal and fair, let’s talk about why this may not be true for one simple reason. And what is that reason…? Well, the data used to perform the tests comes from the employer and its accuracy is questionable.
I want to meet the employer willing to testify under oath that the data they gather to conduct non-discrimination testing for any of their qualified employee benefit plans is 100% accurate. I say this because I know from experience that gathering this data is not a simple process. In fact, it’s often difficult. Why? Well, it usually requires the assistance of others from the Payroll and Information Technology departments. Which means providing these folks with an understandable explanation of data needs and timetables. Continue Reading...
I have a confession to make. After years and years of discussing retirement plan features with new and old employees, I never once spoke of plan fees. Not during new hire benefits orientations, one-on-one information sessions, or group training sessions. I never even had a conversation about retirement plan fees with an employee benefit colleague, my supervisor, or the Chief Financial Officer (CFO). I did once have a conversation over dinner about plan fees with a third party administrator trying to get our company's business.
I'm making this confession because it wasn't until a few years ago that I realized the poor service I was providing in this area to employees. I considered fees in my own portfolio but I never once in my career thought of incorporating fee information into my discussions with employees. But all of that changed when the U.S. Department of Labor (DOL) passed regulation 408(b)(2) mandating annual fee disclosure notices for employees participating in workplace 401(k)-style retirement plans. And now retirement plan fees are all I want to talk about. For me, it is the biggest game-changer in workplace retirement plan administration and education.
What is Fee Disclosure?
DOL Regulation 408(b)(2) amends the Employee Retirement Income Security Act (ERISA) of 1974. It requires covered service providers (e.g., third party administrators and their subcontractors) to retirement plans to reveal information about their compensation. The goal is to help plan sponsors (e.g., employers) determine if the compensation is reasonable and identify potential conflicts of interest. The regulation went into effect on July 2012. Continue Reading...
The U.S. federal government administers two of the largest retirement plans in the country, Social Security (SS) and the Thrift Savings Plan (TSP). Social Security is available to all eligible workers and the TSP is available to federal workers and those in the uniformed services. Social Security is similar to a non-government defined benefit pension plan. Eligibility is based on years worked and wages earned, and benefits last a lifetime. The TSP plan is similar to 401(k)-style retirement plans where the employee contributes part of their pay to the plan and chooses a fund or funds to contribute to, and benefits are not guaranteed.
Given the federal government’s experience with large, complex retirement plans and the significant benefits they provide, benefit professionals may want to listen when the government suggests changes in this area. And it is not just the federal government proposing changes to workplace retirement plans, at least ten states are looking to expand access to a retirement savings account to workers without one. Unfortunately, these proposals rarely receive support or endorsement by benefit professionals.
This is odd. Benefit professionals are dedicated to helping employees minimize financial risk through insurance and savings accounts. So why are they not in support of efforts to expand access to these products?
Reasons Benefit Professionals Do Not Support Changes to Workplace Retirement Plans