Over this past week, Pension Focus hosted another successful year of the Pension Focus Conference (“PFC”).
Hosted at the beautiful Chateau on the Lake in Branson, Missouri, the PFC focuses on providing in-depth, retirement plan management education for both plan fiduciaries and plan administrators.
This year PFC was fortunate to have several speakers from various avenues of retirement plan management ranging from ERISA attorneys, to a consumer behaviorist, to a Department of Labor representative. Among those speakers was our nationally-recognized keynote speaker, Mr. Bradford Campbell, ERISA attorney at Drinker, Biddle & Reath, LLP. Continue reading →
Retirement life can be described as having three distinct phases. The first one is go, go, go. The second is slow, slow, slow. And the third phase of retirement life is no, no, no. Many times when you think about your upcoming retirement, you’ll only think about that first phase, where you start doing everything you’ve always wanted to do. As soon as you retire, you may already have three months of travel, visits to the grandkids and hobbies already scheduled. But then what…
In November of 2011, American Airlines filed for bankruptcy protection. One of the goals of management was to reduce the cost of running the company’s pension plan. Pilots, flight attendants, and baggage handlers who retired from the company had been promised a retirement income for the rest of their lives based on their average wages and how long they worked for the company. Now their retirement lifestyle is in jeopardy. Could the same thing happen to you?
To answer this question, we first need to understand the different kinds of pension plans. Historically, when an employer wanted to attract and retain the best talent as employees, they created a pension plan. Throughout most of the 20th Century that pension plan was most likely a “defined benefit” pension plan. That means that a formula based on how long someone worked for the company and theiraverage income, was used to calculate a stream of monthly income for the rest of the employee’s life.
The employer had all the responsibility for setting money aside, investing it, and making sure it lasted a lifetime. In the 1980’s, after the passing of the Employee Retirement Income Security Act (ERISA) of 1974, “defined contribution” pension plans began to become the retirement vehicle of choice for employers and employees. All the responsibility of setting money aside, investing it, and making it last, was left up to the employee.
To be opaque is to be in opposition to free enterprise. Why is it then that transparency is so often abandoned by the marketplace?
Consumers of all sorts need transparency to make good decisions; however, even with perfect transparency, not all will. Without it though, consumers are deprived of the resources needed to decide which products and services serve their best interest.
The retirement plan community is not immune from these natural forces. In fact, our industry, our chosen profession, is awash with examples of blurring meaningful information from those who are our consumers. Plan sponsors and fiduciaries have often had trouble understanding Continue reading →
Few of the so-called financial advisers in the marketplace today have any intent of serving the client’s best interest. They are simply financial salespeople. Unsuspecting retirement plan participants may seek out their “adviser” only to be sold a product that just happens to be offering an extra commission to the salesperson for the next 30 days. Conflicts of interest? You betcha. Pretending to be one thing, but really being something else? Uh huh.
The Department of Labor is trying to help the deceptive practices by issuing proposed regulations that attempt to expand the definition of “fiduciary” in ERISA (see our response to their proposal). A fiduciary must act in the best interest of the other party or they become liable for the bad advice. The proposal, should it become final, would limit financial salespeople from taking advantage of unsuspecting retirement plan participants.
Regulations such as this can help consumers by forcing industry to change its ways. That’s a good thing. But with it comes not-so-good things. The burden that regulation adds to industry, and ultimately to consumers, is substantial costs. Which way the cost-scales ultimately tip is often unknowable and makes me leery in general. No doubt that retirement plan participants deserve to know if the person that is offering them help is a salesperson or a fiduciary adviser.
The financial services industry has been unable or unwilling to act in their client’s best interest en masse. Now the government is determined to fix it. I only wish that I had confidence in their ability to do it. How about you?
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.