Friday, September 27, 2013

Why Can’t More Lawmakers Be Like These Guys ?!

Show of hands: who believes that lawmakers in Washington, D.C., are doing a good job governing our country?  If this fictitious exercise actually took place, I feel safe in predicting that most hands would remain firmly at our sides, in our laps, or perhaps in the arms-crossed pose that our children see when they have misbehaved.  In other words, not too many approving hands raised.
There are certainly those who believe that the current gridlock we are witnessing in our nation’s capitol is a net positive, and that failure to enact laws at the federal level means less government intrusion in our lives, a goal some feel is always worth seeking.  While it may be true that our lives are sometimes over-regulated and interfered with and that “less is more,” our world truly is much more complex economically, socially and politically than the world our country’s founders faced when they set up our form of government.  While less government intrusion may be desired, it still takes a functioning government to keep our nation strong, competitive, and in-step with the rest of the world.  Few would characterize the current lack of cooperation, the intolerance for differences of opinion, and sometimes outright bitterness in Washington, as conducive to a functioning government.  

One notable exception to this partisan dysfunction is being demonstrated by two lawmakers, each from a different party, and each from a different body of Congress.  They are perhaps more visible to those in our industry because they share a legislative priority—retirement security—that is vital to us.  But, even putting any special interest aside, they seem to behave like statesmen of old; respectful, constructive, realistic, practical lawmakers who want to get a job done.  A job they believe is in the best interest of the American taxpayer.
Rep. Richard Neal (D-MA) and Sen. Orrin Hatch (R-UT) have each introduced similar, if not quite “matching bookends” legislation in their respective congressional bodies, bills primarily intended to simplify and enhance retirement saving.  And, hoped for as a natural outcome, to yield better retirement preparedness for American workers.    

The details of their bills, H.R. 2117 and S. 1270, are not the point to be made here.  Suffice it to say they share more similarities than differences, are geared toward making employer-sponsored plans more available to American workers, to make plan administration simpler and more straightforward, and provide genuine incentives to put away more dollars for retirement purposes.
Perhaps the most encouraging thing about these long-time lawmakers is that they “get it” when it comes to the real impact retirement saving has on the U.S. budget.  Some lawmakers, journalists and policy wonks label retirement saving as a cost—a loss—in terms of federal tax revenue, and a significant contributor to our federal budget deficit.  Some of these lawmakers would greatly curtail tax-advantaged retirement saving.  Hatch and Neal recognize that tax-deferred saving is not a loss to the budget, but simply moving taxation “down the lunch line,” to be taxed in a later year when assets are withdrawn by a retiree, or by a saver who needs these assets prior to leaving employment.  Never mind the fact that retirement saving is a HUGE contributor to the capital formation upon which much business and personal lending is based, and is there for,  a great cog in our country’s economic engine.

Imagine, lawmakers who have truly done their homework on an issue that is vital to our citizens’ security, and to our economy as a whole; lawmakers whose vision reaches across party lines, and across congressional boundaries.  Show of hands if you’d like to see more lawmakers in Washington, D.C., govern like these guys.  Thought so!

Tuesday, September 3, 2013

Academic Freedom, Or Retirement Plan Harassment?

It’s probably safe to say that most who get letters from Yale University are eager to receive them.  They are likely to be prospective college students, hoping they’re about to learn they’ve been accepted into this prestigious Ivy League school.  It’s equally safe to say that the 6,000 or so retirement plan administrators who recently got letters from a Yale Law School professor were not only very surprised, but were less than eager once they learned the letters’ contents.
These letters informed plan administrators that their plans were part of a study being conducted by a Yale Law School professor, the focus of which was excessive fees.  Of the three letter versions sent out by Professor Ian Ayres, one version boldly stated that the professor had “identified your plan as a potential high-cost plan,” and that it “ranked worse than X percent of plans.”  The letter went on to say that the professor intended to publicize the results of the study sometime in 2014 by releasing it to such publications as the New York Times and Wall Street Journal, and would “disseminate the results via Twitter with a separate hashtag for your company.”
Not surprising, the letter caused more than a little heartburn among even the most calm and conscientious plan administrators as they attempted to digest its meaning, including why they had received it, what they might have “done wrong” in administering their plan, and what negative fallout might be in their future. 
This plan-level bewilderment was soon transformed into industry-wide consternation, frustration and—justifiably—more than a little anger.   Not because the industry should be immune to scrutiny, whether from participants, regulatory agencies, the media, or even the academic community.  The displeasure generated by Professor Ayres’ letters was due both to flawed methodology in Professor Ayres’ study, and to its undeniably accusatory, inflammatory and intimidating tone.   
As intrusive as Professor Ayres study may seem to some, it would be wrong to suggest that the subject of retirement plan fees is “not his business.”  It is unquestionably in the public interest that retirement plans be properly run, in order that American workers have a chance to enjoy a financially secure retirement.  “Properly run” does include reasonable fees.”  What is not in the public interest is shoddy workmanship in the design and execution of a study whose stated purpose was to shed light on plan fees and whether or not they were reasonable. 
Among the statistical objections to Professor Ayres’ study is the fact that the data used is from 2009.  In the world of retirement plan fees and fee disclosure this is like road testing a long-out-of-production Rambler against a modern computer-regulated, flex-fuel consuming, state-of-the-art automobile.  Times have changed greatly and especially in the retirement plan industry. Fee disclosure and awareness has resulted in many changes in the industry since 2009.  Professor Ayres’ also looked at fees in a superficial manner, not taking into account the natural economies of scale created by larger plans having more participants, or plans with higher average balances.  Nor did the study weigh the fees charged against the menu of services provided to a plan.  Employee education, participant-tailored investment advice, and other services that are in some contractual arrangements—but not in others—can and do have a large impact on plan fees, many of which are justifiable and reasonable in light of the services received.
Yale Law School was contacted by industry representatives deeply concerned over the flaws in Professor Ayres’ study, and the damage that could be done to individual plans, their administrators and the plan participants, as well the image of the retirement industry as a whole.  Unfortunately, the Law School administration gave what some might characterize as a political response.  It stated that the letters sent by Professor Ayres did not represent the views of either Yale University of Yale Law School, but because Yale faculty “possess academic freedom to pursue their own research,” the institution “cannot either endorse or repudiate [his] research.” 
If Yale cannot—or will not—openly repudiate or question Professor Ayres’ research, perhaps somewhere between the lines of the university’s response one can hope that that it will convey to him the message that the quality and accuracy of his final product is likely to be scrutinized with a fine-tooth comb.  Yale itself does have a reputational stake in the outcome.
It might also be prudent for Professor Ayres to consider the fact that academic freedom granted by an educational institution is not a license to wrongly imply that a plan or a plan administrator is deficient in meeting its fiduciary responsibilities.  It would seem that Professor Ayres may be the party acting “unreasonably” in this case.