National Association of Government Defined Contribution Administrators
Report of the NAGDCA Annual Conference in Indianapolis, IN., September 2015.
By Steve Schullo
Before I report on my takeaways from this year’s conference, I want to discuss the background of NAGDCA and what this wonderful professional organization does for us. Our Los Angeles Unified School District “Retirement Investment Advisory Committee” members may not realize how important NAGDCA is in supporting and assisting us with our ultimate goal of reforming the 403(b) into a fiduciary powerhouse. Public K-12 403(b)s have never been a fiduciary. Thus, LAUSD took advantage of showing the world by providing a fiduciary example with our Award Winning 457(b). Sandy and I thank the committee for voting to pay for our expenses in each of the last four years. We thank Benefits Administration for paying the annual NAGDCA governmental membership fees. Without LAUSD’s institutional membership, Sandy and I could not attend. Finally, we thank this great organization for doing the right thing for all public sector employees.
This year’s NAGDCA conference met and exceeded my expectations for a fourth straight year because of networking with like-minded people. NAGDCA values the same ideals that our committee seeks: low-cost and genuine stock and bond market investments, not annuities. Because of their corporate culture of looking out for the best interests of clients, reps from Vanguard and TIAA CREF are expected to be long-standing institutional NAGDCA members. Nevertheless, a few of the insurance companies and big banks are attempting to evolve into our committee’s fiduciary values, that the employee’s best interest should be number one for a change. I had this experience each time I went, but this year the energy towards fiduciary standards was accelerated.
Fiduciary standards are getting national attention again. The Department of Labor’s new Employment Retirement Income Security Act (ERISA, 1974) proposals introduced in January, 2015 by President Obama and Senator Elizabeth Warren requires fiduciary standards for most advisers, and stockbrokers. The Supreme Court chimed in when it sided with the plaintiffs over fiduciary responsibility in the Tibble vs Edison case. These events are big deals, giving legitimacy and influence to NAGDCA and to our committee’s efforts. Wall Street and the 403(b) annuity industry, of course, are fighting binding fiduciary proposal.
Even though the fiduciary proposals will not affect the 403(b) with PreK-12 school districts, the annuity industry is not taking any chances. They have already shown their fiduciary distain right here in California. Because of the billions they freely and easily bilk from annuity sales to PreK-12 educators, the insurance industry and California Teachers Association blocked attempts to reform our hideous and wholly outdated insurance code. NAGDCA, the President, and the Supreme Court represent the future of looking out for the employees’ best interest. Wall Street and insurance companies represent the status quo–an old, failed, and unsustainable system of excessive fees, commissions, and looking out for their own interests—profits, commissions and low performing annuities.
NAGDCA is way ahead of anybody else. NAGDCA principles and energy aim towards genuine fiduciary standards. Along with the National Association of Personal Financial Advisers and Garrett Planning Network, NAGDCA has been preaching genuine fiduciary standards for years. Thanks to Julie Durand (formerly from CalSTRS and NAGDCA’s former president), NAGDCA began offering 403(b) workshops. In addition, thanks to our Barbara Healy, LAUSD became a NAGDCA member, which allowed committee members to attend and participate in the organization. SST’s Barbara and Bill wrote up our proposal that won the Plan Design Award of our 457(b) plan (Thank you Barbara and Bill).
When LAUSD’s Benefit Administrator, Miriam H., attended the first NAGDCA conference last year to accept LAUSD’s 457(b) Award, to my knowledge, it was the first time a PreK-12 benefits administrator attended NAGDCA. Sandy and I have never met any other professional PreK-12 school district personnel in the four years that we have attended this conference.
While no PreK-12 school district personnel attend NAGDCA, many California public sector employers send reps to NAGDCA every year. Los Angeles city, Orange, San Diego, L.A. Counties, San Bernardino, Ventura, San Mateo, Tulare, CalSTRS, CalPERS, and many California public sector employers are seriously involved with NAGDCA. One hundred and twenty-nine delegates from California were at the 2015 conference (129 out of a total of 758 delegates from across the country). Los Angeles County and Los Angeles City sends nineteen delegates alone!
These dedicated Los Angeles City and County reps serve on committees and the NAGDCA governing Board. These dedicated reps get involved–they are also moderators, greeters, and volunteers on subcommittees and presenters on various panels. Sandy and I have served on the 403 (b) and other subcommittees. Many reps present what they have been doing in their state, county or city to reach their employees and provide the best options available (For example, we are not the only plan with many participants with all of their money in Stable Value). California has always been well represented. Many reps from small fire, police departments and sanitation districts attend from California and around the country. We felt very safe and clean! J Our committee would be well served by networking with our neighbors.
Speaking of networking, as with any organization, the opportunities for networking are endless. Everybody Sandy and I met, we emphasized that we are nonprofessional volunteer educators from Los Angeles Unified School District. We ask people to talk about NAGDCA to their neighboring PreK-12 district personnel and encourage districts to send reps. We need help reforming our 403(b).
The five presentations I attended were packed with great information. To give you a taste of what this conference is about, I listed all of the presentations. You can download the PowerPoint of each presentation, except “Fundamentals Compliance and Ethics” (This presentation charged a fee and will be discussed later).
2015 NAGDCA Annual Conference Presentations
- 403(b) Pre-Conference Workshop
- Fundamentals of Compliance and Ethics.
- Fixing the US Retirement System
- Washington Update
- Recordkeeping Conversions
- Transition Materials: State of Missouri Deferred Compensation Plan
- Participant Statements
- Leadership Award Winner Case Studies
- Plan Governance: Board/Committee Membership, Responsibilities and Best Practices
- Strategies to Prevent or Slow Plan Leakage
- Targeted Communications to Participants
- The Bad, The Good, and The Ugly
- Government Member Asset Breakout Sessions
- Industry Member Annual Business Meeting
- Government Member Annual Business Meeting
- Regulatory Update
- The What, Why and How of Structuring Investment Menus: Contrasting Case Studies
- White Labeling: The Next Step in Simplifying DC Plans for Participants
- How Much Choice is Too Much?
Core: What is it Good For?
- Defined Contribution Plan Success Factors – Framework for Plans with an Objective of Retirement Income Adequacy
- Sponsors Focus on Simplifying Investment Lineups for Participants
- Plan Sponsors Raising the Bar
- Heuristics and Biases in Retirement Savings Behavior
- Putting All Your Eggs in One Basket, But Which Basket?
- “Am I Going to Run Out of Money?” – Lifetime Income Solutions
- “Where Does Retirement Come From?” Taking a Holistic View of Retirement Readiness
- National Save for Retirement Week
- Behaviorally Based Retirement Programs: What It Means and Why Administrators Should Care
Given all of this information, here are my take-aways:
Preconference Retirement Plan Administrator Series: Fundamentals of Compliance and Ethics by International Foundation for Retirement Education (InFRE).
I have attended numerous presentations about defined contribution compliance basics offered by both SST Benefits and NAGDCA. Ethics goes beyond the legal issues of administering a plan. I wanted to know more about this complex topic. After the presentation, I still don’t see much of a difference between ethics and compliance. I get it that ethical behavior looks out for the clients best interests. But so does compliance guidelines from ERISA and IRS. The presenter was instructing us how to recognize unethical behavior. She gave a poor example in my opinion. An employee talked to a benefits persona about giving “special consideration” to a work colleague and a friend so that the colleague could withdraw money. Huh? First off, the employee broke confidentially and if the benefits person obliged with the request, she or he could be fired! So, is this ethics or a violation of compliance? Of course, it’s unethical but that is also covered by compliance.
“The Most Dangerous Woman in America.”
Every year NAGDCA invites influential speakers–this year was no exception. I followed this years’ keynote’s work. Teresa Ghilarducci, economics professor at The New School of Social Research and the author of the book “When I’m 64: The Plot against Pensions and the Plan to Save Them.”
Title of her talk was Fixing the US Retirement System. For many years she advocated getting rid of the failed 401(k) program and bring back defined benefit plans. Consequently, she has been branded by US News and World Report, Wall Street and their brokers as “the most dangerous woman in America.” She said that people’s retirement savings need to protected by annuities such as those offered by low-cost TIAA CREF and defined benefit plans. I think it’s a step in the right direction, but to eliminate all risk is not possible, except defined benefit plans. She was featured on HBO
PBS Frontline, The Retirement Gamble, aired on April 23, 2013. She said:
“The 401(k) system has been a “failed experiment” for middle-class Americans because it was never designed with them in mind,” she told FRONTLINE. “It’s not the fault of people that they don’t have enough savings in their individual retirement account or their 401(k)s,” she said. “It’s the fault of the system, and the whole system needs to be reformed.”
The 403(b) system with PreK-12 school districts also need reform for identical reasons. Tax Sheltered Annuities (TSA) or Indexed Annuities were never designed for the best interests of educators.
Targeted Communications to Participants: Several presentations about communicating to employees were shown with great ideas. The best idea: Casey Fick of Missouri showed a fantastic social media presentation and stood out from the rest. I first saw him two years ago! They have really ramped up their website to include fantastic and creative video clips using social media to reach employees. I asked him if he could make a presentation to our committee. He is checking into this possibility.
Account Statements to employees: I had not thought about how account statements are constructed to also provide meaningful planning information. I think it’s a great idea for the monthly or semi annual statements include an custom analysis of how each participant is progressing to their goals. Are they on track? Should they increase their contributions? If so, how much? Is their portfolio drifting out of balance? If so, should they rebalance? Who could they call for help? The expense of paper mailing to participants is a huge problem because so many never open them. Will participants more likely open an free electronic statement than costly mailed envelope? Perhaps Tiaa Cref could present an example of their statements, so that it would give the opportunity for the committee to suggest ways to provided a more individualized statement. LAUSD employees deserve to know more than just the basics.
The Bad, the Good and the Ugly. How behavior economics can help.
Behavioral economics combines psychology and economics. This academic discipline studies people’s decision making process. It is a fascinating and complex subject, as so many employees are confused and/or afraid to start.
Current savings rate and retirement readiness are “ugly,” the medium savings account for 61-70 years olds is $40,800! There were too many topics to elaborate here, all great topics: reaching millennials, how to convince participants to save, even though they may have a pension, how to show the income gap, etc.
The good news: Our committee has already discussed and passed motions to implement auto enroll. It’s nothing new- very popular in private sector plans. MacDonald’s started auto enroll in 1981. By the way, opt-out behavior doesn’t change when contribution rates are between 1%-9%.
California Legislative Proposal: Here is a new development which might make it easier to implement auto enroll. John Borne from San Diego and VP of Government Markets Client Relations at EMPOWER, proposes California legislation to lessen the restrictions on the current garnishment laws to make it easier for auto enroll. The process is early as he needs a sponsor and support. We will keep the committee informed about his legislative progress.
The other good news is that Target Date Funds take a lot of the frustration and the anxiety out of starting and continuing to save for retirement. Our 457(b) plan offers four TDF options for all age levels.
This presentation gave special emphasis on how to reach young employees and encourage them to start early. I think the committee knows that there will not be an increase in CalSTRS’ benefits for another generation of teachers. The only increases will be contributions by both educators and districts’. This reality puts a heavy strain on millennails who will be burdened with diminished pension benefits and involuntary contribution increases. How do we reach the Millennials who will be the most affected? Here are some demographics to help answer that question:
Presentation about the millennial generation.
Enter the Millennials—who are they?
- Born 1980 – 2005
- Median age is 23 years
- Oldest 35
- 2020: 1/3 of all adults
- 2025: 75% of the workforce (This is only ten years from now!)
- More Educated
- More Ethnically Diverse
- More Liberal
- More Open to Innovation
- More Upbeat about the Ability to Affect Change
- More Focused on Communal Outcomes
- Less Religious
- Less Trusting
- Less Committed
Some of LAUSD’s Millennials have already started. According to a report from TSA Consultants, LAUSD employees under 25 years old have the largest percentage of participants in our Award Winning 457(b) plan, 8% of the roughly 350 under 25 participating employees.
That’s my report for 2015. Looking forward to the next annual conference in Denver, CO September 2016.