Event: Pensions & Investments 15th Annual East Coast Defined Contribution Conference
Date: February 11-13, 2007, at the PGA National Resort & Spa, Palm Beach Gardens, Florida
What: The 15th Annual East Coast Defined Contribution Conference is designed to meet the needs of corporate and public plan sponsors responsible for 401(k) and other defined-contribution and deferred-compensation plans. The audience includes retirement plan administrators, 401(k) managers, employee benefit and human resource executives, treasurers, CFOs, chief investment officers, investment and HR consultants, money managers and leading providers of retirement plan services. Note: Pensions & Investments is owned by Crain Communications and is a sister publication to Workforce Management.
Conference Info: For more information about the Pension & Investments East Coast or West Coast Defined Contribution conferences, go to www.ibfconferences.com.
Conference Notes, Day 2—February 13, 2007
Tuesday-morning getaway: In past years, the Pensions & Investments East Coast Defined Contribution Conference has been held at the end of February in southern Florida. This year, however, the conference date was moved up two weeks.
Normally, this would not be a problem, but 2007 hasn’t been a normal weather year. With huge storms bearing down on states in the northern U.S., many conference attendees either bailed out of many of the Tuesday-morning sessions or chose to skip the second-day sessions altogether. Either way, it made for a mad dash to the Palm Beach and Fort Lauderdale airports.
Morning keynote: Concerns about the dearth of retirement savings tend to sound a little like the worries about the rising cost of health care. Solutions in both areas depend on changing the behavior of Americans. Tom Kmak, CEO of JPMorgan Retirement Services, argued in his keynote speech that people know how much their cars and homes are worth, but retirement is a different matter. "Most people don’t have an idea what it will cost," Kmak said.
Kmak cited statistics showing that 65 percent of middle-class Americans in 2004 had no retirement plan. Those who do have them don’t seem to know how to use them. In 2006, 4.9 million tax returns included income from the premature distribution of retirement funds, which resulted in $3.4 billion in penalties.
The best way to bolster retirement savings is to help people change their behavior—in much the same way you would sell them a hamburger. It’s not about education, it’s about persuasion, Kmak said.
He urges companies to make the retirement savings pitch the way that retailers advertise their products: Make it personal and simple, connect to their emotions, and cultivate long-term relationships. "People respond to personal messaging," Kmak said.
And keep brochures about 401(k) vehicles short—around two pages. "We have a fast-food society," he said. "If it’s not that simple, it won’t be read."
Conference Notes, Day 1—February 12, 2007
Conference kickoff: February is a great time to be in Florida, especially the Palm Beach-Treasure Coast area. But how do you keep conference attendees engaged in speakers and sessions, especially when you hold an event at the PGA National Resort, with golf courses all around?
Well, if you are putting on a conference, you hope for rain, and that was the backdrop for the 15th annual Pensions & Investments Defined Contribution Conference, held again this year in Palm Beach Gardens. It's a relatively short conference—a day and a half, much like Conference Board events—so there is a lot of information packed into the program of speakers and events. Gray, rainy skies made hitting the links a less-than-ideal option and helped keep the sessions full.
Monday morning keynote: As Democratic majorities in Congress make middle-income and low-wage Americans their priority for economic policy, they will target 401(k) fees and executive compensation in the next few months, according to a Washington expert who kicked off the conference.
James Delaplane, a partner at the law firm of Davis & Harman in the nation’s capital, says that Democrats will tackle issues from the perspective of Americans who have suffered financial setback or stagnation even as corporate profits have surged.
The first example will be House Education and Labor Committee hearings on 401(k) fees in March. The panel’s chairman, Rep. George Miller, D-California, requested a study by the Government Accountability Office that concluded that 401(k) fees are not transparent and that small fee increases can significantly slow the growth of investment funds.
"They’re going to be a rough set of hearings," Delaplane told the conference attendees. "Hold on to your hats."
The hearings highlight one of the Democrats’ primary goals—playing a stronger watchdog role than they believe the Republicans did when they were in power. "This is an example of stepped-up oversight, not just of government agencies but also of employer programs," Delaplane says.
Miller will be in the vanguard of the movement. "He’s an extremely aggressive chairman," Delaplane says. "He will be the one who defines retirement policy in the House—and it won’t always be pretty."
One of Miller’s colleagues, Rep. Barney Frank, D-Massachusetts, will push another issue at the heart of the tension between Main Street and Wall Street—executive compensation. Frank is advocating greater shareholder power in setting CEO pay and approving exit packages. "This issue is going to be with us throughout the Democratic Congress," Delaplane says. "It’s incredibly resonant with Democrats."
But the first concrete measure to address compensation may not make it into law—or will at least be modified, according to Delaplane. The Senate added an amendment to its minimum wage bill that would limit to the lesser of $1 million or average pay over five years the amount of pay a corporation can defer tax-free annually.
That provision is not likely to make it out of a House-Senate conference committee on the minimum wage bill, Delaplane said, because the broad provision would extend the deferral limit well beyond the corporate suite. Depending on equity returns, how early an employee started with a company and other factors, the $1 million cap may reach far down into the company. "There’s a lot of concern about the breadth of this proposal," Delaplane says.
Part of the reason Democrats are targeting executive pay is that they have to raise revenue for other spending, Delaplane said. Under House rules, any new spending or tax cuts have to be offset by spending cuts or tax increases. "This is indicative of [the] pay-go [requirement]," Delaplane says.
The push to take advantage of automatic 401 (k) enrollment: Now that Congress has given companies the green light to automatically enroll employees in 401(k) plans, it is up to corporate America to follow through with aggressive plans to bolster participation.
Equating the potential of auto enrollment for increasing retirement savings with the impact browsers had on Internet usage and the printing press had on literacy, Jeff Maggioncalda, president and CEO of Financial Engines, said during a breakout session, "It will have a massive impact on the retirement system."
Maggioncalda called on companies to look beyond new hires when putting employees into 401(k) plans. The auto enrollment safe harbor, approved by Congress in last year’s pension reform bill, "reverses the broken assumption that people are going to do this themselves," Maggioncalda says. "It means that success depends far more on plan design."
He urged companies not just to automatically enroll new hires but also to shift into 401(k) vehicles existing employees who aren’t participating. Likewise, he advocated annual automatic increases in savings rates. Without such a bump, savings will stay flat, he argues.
Currently, 401(k) assets total $2 trillion. That amount could grow by $800 billion over the next 20 years, thanks to automatic enrollment and savings rate increases. Maggioncalda says that many of the beneficiaries would be low-income Americans who don’t currently save much money.
Beyond automatic enrollment, the next challenge for enhancing 401(k) plans is to develop default annuitization options, according to William Gale, vice president of the Brookings Institution and director of the Retirement Security Project. The lack of annuity features increases the likelihood that participants will outlive their retirement funds—or die without spending enough of them.
"We owe it to [participants] to develop feasible ways of getting their money back out," Gale says.
Another priority, Gale argues, is to establish automatic IRA enrollment for the tens of millions of U.S. workers who are not eligible for 401(k) plans.
—Mark Schoeff Jr. and John Hollon