Study shows how to fix big flaw with 401(k) plans

retirement (Photo credit: 401(K) 2013)

CBS News:
By 

STEVE VERNON / 

MONEYWATCH/ October 1, 2013, 7:39 AM

(MoneyWatch) Most 401(k) participants plans are on their own when it comes to deciding how to turn their retirement savings into reliable, lifetime income. ... Most employers pay retiring employees a lump sum from the 401(k) plan and don't provide any help with the critical task of generating retirement income from that savings. 

... To set the stage for future changes, a new study from the Stanford Center on Longevity (SCL) and the Society of Actuaries (SOA) shows employers how they can help their older workers plan for a secure retirement. (Disclosure: I was the primary author of this report).

• 3 ways to turn your IRA and 401(k) into a lifetime retirement paycheck
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What are the challenges?

The long-term shift from traditional pensions to defined contribution and hybrid defined benefit plans places significant responsibility on retirees to generate lifetime retirement income. For example:

• Given people's longer life expectancy these days, the money set aside for retirement may need to last a long time -- potentially 20 to 30 years or more.
• Market volatility complicates the challenge of managing savings in retirement. Since 1987, there have been four major market meltdowns. Retirees can expect -- and should plan for -- more meltdowns.

• 

  English: Proportion of pay to save. (Photo credit: Wikipedia)

  Many employees don't know how to calculate the amount of savings they need to generate adequate income during their retirement. They often guess at this amount, and they usually guess too low. 



English: Retirement savings for various periods with squirrel and nut analogy (Photo credit: Wikipedia)

• There's also evidence that retirees are doing a poor job of managing retirement risks; many lack a formal plan to generate retirement income from their savings, and as a result, they're planning to spend down assets at an unsustainable rate. Others are under-spending in retirement for fear of running out of money, leaving them with less money for necessary expenses.

These challenges could all be addressed if 401(k) plan sponsors provided retirement income programs within their 401(k) plans instead of just pre-retirement investment vehicles. So why aren't more employers offering such programs? The primary reason seems to be how plan sponsors view their defined contribution plans. According to one study, 91 percent of plan sponsors view them as savings plans, while only 9 percent view them as vehicles for providing retirement income.

A cultural shift is needed: Employers and plan sponsors need to commit to operating their 401(k) plans not just as a way to save for retirement but as plans that help employees before and during their retirement.

Help is on the way

Several reputable financial institutions offer an array of retirement income products, including AllianceBernstein, Fidelity Investments, Financial Engines, Great-West Insurance, Guided Choice, Income Solutions, Prudential, Schwab, Transamerica, UBS and Vanguard. Many of these products and services are available on the platforms of 401(k) plan administrators, such as AonHewitt, Fidelity Investments, J.P. Morgan, Mercer, T. Rowe Price, Vanguard, Wells Fargo and Xerox/Buck. The bottom line is that plan sponsors now have realistic retirement income products they can offer in their 401(k) plans.

The SCL/SOA study provides employers with guidelines for selecting the products and services that employers can offer in their 401(k) plans and implementing a successful program of retirement income. The report describes common retirement income generators (RIG), such as annuities and systematic withdrawals, and provides projections of the amounts of retirement income that each RIG might generate. These projections show that a retiree's choice of a RIG can have a significant impact on the amount of income they'll receive, when they initially retire and throughout their retirement.

One important conclusion from the SCL/SOA study is that plan sponsors can significantly increase the amount of retirement income employees might receive by offering retirement income products that come with institutional pricing instead of the standard retail pricing individuals have to pay for such plans. Institutionally priced products have the potential to increase retirement incomes by five to 20 percent.

Plan sponsors and employers are uniquely positioned to help their employees convert their retirement savings into income without any economic incentive that might bias individuals' decision-making. This objectivity will help older workers retire with confidence and security.

If this scenario sounds promising to you, show this blog post to your employer and diplomatically ask them to consider implementing a program of retirement income in your 401(k) plan. Employers often respond to employee requests, and if enough of your coworkers make the same request, you can make it happen.

© 2013 CBS Interactive Inc.. All Rights Reserved.

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  For more than 35 years, consulting actuary Steve Vernon helped large employers design and manage their retirement programs. Now he's a Research Scholar for the Stanford Center on Longevity, where he helps collect, direct, and disseminate research that will improve the financial security of seniors. He also delivers retirement planning workshops and has authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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Why ‟Keeping It Simple” Can Be a Complicated Mistake

strategy+business magazine:

Sally Helgesen is an author, speaker, and leadership development consultant, whose most recent book is The Female Vision: Women’s Real Power at Work(with Julie Johnson; Berrett-Koehler, 2010).

Our people are dealing with complex problems. We’d like to bring you in so you can stimulate a thoughtful conversation, and hopefully stir up some big ideas that will take us forward.”

As a self-employed leadership consultant, I used to hear this kind of thing a lot, mostly before the 2008 financial crisis. ...

English: Dow Jones Industrial Average Jan 2006- Nov 2008 ‪中文(简体)‬: 道琼斯工业平均指数（2006年1月-2008年11月） (Photo credit: Wikipedia)

I rarely hear this kind of sentiment anymore, despite the fact that so many organizations are focused on the mantra of fostering change. In fact, during the initial planning stages of a retreat or conference, I’m often told just the opposite, with some version of the following message:

“One thing you need to know is that our folks are very busy. They don’t have the time or bandwidth to deal with a lot of big-picture concepts or ideas about the future. What they want are a few simple takeaways––three things they can do on Monday morning.”

Leaving aside the question of whether the leaders in question are really looking for three things to add to their already jammed Monday calendars, I find myself increasing skeptical of this approach. It seems to be based on a faulty understanding of what professionals operating in a complex and demanding environment actually require. Harried and rushed, distracted by technology overload, struggling with compliance issues that keep them mired in a welter of detail, and assailed by requests whose claims of urgency have become routine, the executives I meet these days often seem to be in need of refreshment and renewal rather than additional to-do’s.

Instead of three tips on how to manage invasive technologies, leaders need opportunities to articulate a broad vision of what they’re trying to achieve, so they can better distinguish which tasks require diligence and which can be let go. Instead of exhortations about the need to “manage up,” they need to understand how the erosion of barriers that defined industrial-era culture is leaving the employees they manage exposed to uncertainty and fear. Instead of quick fixes to address shifting markets, they need support to recognize how intersecting trends are creating whole new categories of unmet needs. ...

... By focusing potentially profound conversations on three action points or five bullets, those who plan seminars and retreats risk squandering the opportunity for thoughtful engagement and short-circuiting creative solutions that smart people, given the time and permission to think, are likely to come up with on their own.

Being able to shoot the rapids in an era of constant change requires robust thinking skills. People do not develop these skills by responding to prescriptive formulas, however neatly packaged as takeaways. Planting seeds that may germinate in the coming years is also a useful antidote to the sense of unrelenting urgency that pervades organizational life and that can undermine peoples’ ability to make good decisions.

Solution of the Nine Dots puzzle (Photo credit: Wikipedia)

Given companies’ oft-stated desire to help people “think outside the box,” I believe consultants and other service providers do a disservice when we go along with requests to deliver overly simplified solutions to problems that will just grow more complex. Instead, we should push those who engage us to think more profoundly about what thriving in a highly demanding global environment requires. Only by doing so can we support leaders in delivering programs that extend their employees’ capacity to respond to the complexities of today’s economic and technological frontier.

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Emotional Leveraging: It’s Really Not Manipulation?

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Jim Sniechowski, PhD

“Leverage” has become a significant if not dominant concept in the corporate lexicon and it’s now a buzzword used every day in many ways. Here are examples of how I’ve heard “leverage” used: “He carries a lot of leverage” and “You’re not exercising the right leverage” and “How do we leverage these relationships?” and “We need to leverage this negotiation” and “We have to leverage our human capital.”

So just what is “leverage?”

Leverage is using something you already have---in the case of human capital the skills, knowledge, and experience possessed by the employees of a company---to achieve something new or better.In other words you don’t have to invent something to achieve your objective. You can use what is already present.

So what about emotional leverage? What do you think and how do you feel about the idea of using people’s emotions to achieve some objective? Many people would say it’s repulsive, unfair and controlling, and what’s worse, even devious and manipulative. But is it really?

Understanding Financial Leverage (Photo credit: Wikipedia)

For the purposes of this post, consider that you are managing a person who is a passionate idealist. He assesses his decisions and actions through the lens and measure of his ideals which he holds dear. However you, as his manager, can clearly see that his commitment to his ideals, partly conscious and partly unconscious, is standing in the way of his getting along with the members of his team. His believes that the other team members fall short of what he views as acceptable. According to him, unless they can “come up to” his bar he has difficulty working with them. But he is an excellent talent and an asset to the company. What do you do?

You can request that he be given an individual contributor role. But for the overall purposes of your department he has been assigned to you and it makes most sense that he be on your team.

You can try various techniques to “get him” to conform. But trying to change someone, no matter how important or valuable your objective, is generally a futile endeavor. People don’t change unless there’s something in it for them. So what do you do?

People Buy Emotionally and Justify Logically

An axiom in sales states that people buy emotionally, whether it’s an object or an idea, and use logic to justify what they’ve bought or bought into. To sell or persuade someone of something you must begin with establishing emotional appeal.

Idealists crave that which transcends the bounds of the material world; because for them reality is fundamentally mental and mentally constructed. They are less attracted to money, or titles, or material things---although unconsciously that may be a different story as long as you can link it to their beliefs. They are powered by ideas placing high value on emotional self-awareness as a precondition for the bettering of humanity. Applying the sales axiom to facilitate change you must begin by “embracing” rather than resisting what the idealist holds dear---his need for excellence, the purity of his point of view, and his desire to contribute to the betterment of humanity. That’s where you will find his emotional base. In sales it’s called the “sweet spot.”

This describes only part of the idealist’s character structure but it will do for the purpose of illustrating the power of non-manipulative emotional leverage. What he is committed to is generally of high value. If his beliefs can be used to turn him toward cooperatively it would benefit the team and his own sense of fulfillment.

Emotional Leverage

To employ emotional leverage begin by recognizing that emotions are information, not unlike thoughts. They are data points you must assess. If your intention is to benefit him as well as yourself you won’t abuse his emotions. You won’t disrespect or abuse what he values. But you must keep his emotions at an arm’s length. You cannot become immersed in them or you will lose your ability to assess and determine what is best for both of you. For the purposes of persuading him to become a better team player you must see his emotions as a lever to move him.

To succeed using emotional leverage you must:

● Remain aware that his vision is the product of an emotional base and, no matter how he rationalizes his position, he clings to it for some emotional reason;

● See that if you want him move in your direction enough to be able to work well with the team your task is to discover the emotional value that drives his vision---his sweet spot; and

● Understand that once you know his emotional sweet spot you can craft an approach that blends his need with yours so that you both can feel successful.

And you are doing so by leveraging his emotional state.

To reiterate, you are using something he already has, his passionate idealism, to achieve something new or better for you and for him.

The point here is to keep in mind and be sensitive to the emotional elements involved---mostly in him. In that way you can use emotional leverage to best serve him, your team, the job, and the company, and not least of all yourself as an excellent manager.

This example of an idealist is only one of many personality types you will encounter but the process of emotional leveraging remains the same.

How do feel about emotional leveraging? Please let me know.

(Photo Credit: Jenny Waterloo Flickr)

Jim Sniechowski, PhD and his wife Judith Sherven, PhD http://JudithandJim.com have developed a penetrating perspective on people’s resistance to success, which they call The Fear of Being Fabulous. Recognizing the power of unconscious programming to always outweigh conscious desires, they assert that no one is ever failing. They are always succeeding. The question is, at what?

Currently working as consultants on retainer to LinkedIn providing executive coaching, leadership training and consulting as well as working with private clients around the world, they continually prove that when unconscious beliefs are brought to the surface, the barriers to greater success and leadership presence begin to fade away. They call it Overcoming the Fear of Being Fabulous.http://OvercomingtheFearofBeingFabulous.com

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Debt ceiling: Understanding what's at stake

CBS News:
By 

ALAIN SHERTER / 

MONEYWATCH/ October 7, 2013, 7:40 AM

(MoneyWatch) It is the economic calamity that no one expects and everyone fears.

Experts agree that failing to raise the nation's debt ceiling by Oct. 17, when U.S. officials say the government will run out of money to pay its bills, would gravely wound the economy, and perhaps even throw it back into recession. Because Treasury bonds and the dollar are cornerstones of the global financial system, meanwhile, the shock wave would be felt around the world.

Play VIDEO

Bank CEOs: Don't play games with debt ceiling

"The potential is disastrous," said Gus Faucher, senior economist with PNC Financial Services Group. "We would see interest rates spike across the board. We'd see a huge crash in the dollar. People count on lending their money to the federal government and getting it back, and if that trust is taken away -- it's never happened that we haven't met our obligations as a nation -- then that has very, very negative consequences for the U.S. economy."

The consequences are so severe that, even as the government shutdown enters its second week, most seasoned political observers still expect Congress to ultimately reach an eleventh-hour deal to lift the government's borrowing limit.

But what exactly is the debt ceiling, and exactly how worried should Americans be that it could come crashing down?

What is the debt ceiling?

English: Chart of the United States' debt ceiling from 1981 to 2010 in $ trillion. This chart tracks the debt ceiling at the end of each calendar year. Years are color coded by congressional control and presidential terms highlighted. Data source: http://www.treasurydirect.gov/NP/BPDLogin?application=np Modified chart by http://commons.wikimedia.org/w/index.php?title=User:LibertyUSArocks&action=edit&redlink=1 to remove New York Times logo and make more NPOV. (Photo credit: Wikipedia)

The debt ceiling is the total amount of money the U.S. government can borrow (by selling Treasury bonds) to pay its obligations, including interest on the national debt, Social Security and Medicare benefits, and many other payments. That limit is currently $16.7 trillion, although technically the government already exceeded it in May. The Treasury Department has since used various measures to continue borrowing. 

During World War I, amid uncertainty regarding the total costs of funding U.S. involvement in the conflict, Congress created the cap in 1917 to put an upper limit on federal borrowing. Since 1960, Congress has raised the debt ceiling 78 times.

How is the debt ceiling changed?

Lawmakers can adjust it by passing a standalone bill or by including it in another piece of legislation as an amendment.

U.S. debt from 1940 to 2010. Red lines indicate the Debt Held by the Public (net public debt) and black lines indicate the Total Public Debt Outstanding (gross public debt), the difference being that the gross debt includes that held by the federal government itself. The second panel shows the two debt figures as a percentage of U.S. GDP (dollar value of U.S. economic production for that year). The top panel is deflated so every year is in 2010 dollars. (Photo credit: Wikipedia)

Does raising the debt ceiling increase the federal debt?

No. Lifting the borrowing limit simply allows the government to pay its existing bills. That debt exists whether or not Congress authorizes additional borrowing, and to avoid default it must be paid.

Why can't Congress and the White House avoid lifting the cap by cutting federal spending?

Because preventing the government from borrowing to meet its obligations would require all discretionary spending, such as for defense, education, housing and other annual appropriations, to stop, according to the Congressional Research Service. Most of the outlays for mandatory programs, such as Social Security, also would have to be halted, while taxes would need to rise to ensure the government had money to spend. Deep spending cuts and tax hikes would throw the economy into recession.

Why is Oct. 17 a critical date?

Play VIDEO

Lew: Raise debt ceiling to avoid default "abyss"

Treasury Secretary Jacob Lew recently forecastthat on Oct. 17 the government would have about $30 billion on hand. That isn't enough because the government spends as much as $60 billion per day. "If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history," he said last week in a letter to congressional leaders.

What happens if Congress doesn't raise the debt ceiling?

If the government runs low on cash, it will have to withhold a range of payments. Retirees might not get their Social Security checks, especially worrisome for the millions of Americans who depend almost entirely on the social insurance program for income. The same goes for Medicare and Medicaid recipients. Holders of Treasury notes, from Wall Street and other global banks to foreign governments, also could get stiffed, jeopardizing the solvency of many financial institutions and choking off global credit flows.

Play VIDEO

Financial markets wary of looming debt ceiling deadline

The U.S. also would struggle to pay the interest on its debt, including a $6 billion payout due at the end of the month. At that point, the U.S. would be in default of its obligations. The value of Treasury bonds and the dollar would nosedive. The nation's borrowing costs would soar as anxious investors demanded a higher return to buy suddenly shaky U.S. debt. And because the interest rate on Treasuries provides a benchmark for rates on other loans, from mortgages and credit cards to car and student loans, borrowing would become far more costly for consumers and businesses. Stock markets in the U.S. and elsewhere around the world would almost certainly plunge.

"When stock prices fall, investment or other spending to expand a business is more costly," the Treasury Department said in a report last week outlining the potential impact of the debt-ceiling fight. "The effects on households and businesses, moreover, are reinforcing. Less capacity and willingness of households to spend, when businesses have less incentive to invest, hire and expand production, all lead to weaker economic activity."

In short, the already fragile economic recovery could stall.

Haven't we been here before?

Play VIDEO

Not raising debt limit would make Congress "a deadbeat," Obama says

There is recent precedent for such turmoil. Consumer confidence plummeted after lawmakers squared off over the debt ceiling in the summer of 2011, while the Standard & Poor's 500 stock index dropped nearly 20 percent. Hiring among small businesses slowed. Ever after a deal was struck to raise the cap in August of that year, credit rating agency Standard & Poor's downgraded U.S. debt for the first time ever.

Beyond the immediate economic fallout of defaulting on its debt, for the U.S. the symbolic blow might be even greater. In the post-World War II era, Treasuries and the greenback have -- for better and for worse -- served as the foundation of the global financial system. A default would shatter the faith on which that system relies.

How much danger are we in?

Although financial markets are not yet in panic mode, the standoff in Washington has them worried. Unlike during the 2011 dispute, when Republicans and most Democrats favored cutting federal spending, the stark division over Obamacare suggests there may be less room for compromise this time around. One clear sign of distress: Interest rates on short-term Treasury bonds rose last week, as investors seek greater yields to offset what they perceive as the greater risk of holding the debt.

Still, most economists, stock analysts and, for all the pointed rhetoric on Capitol Hill, even congressional leaders themselves downplay the chances of a default. The belief is that common sense, or at least a sense of political self-preservation, will prevail.

© 2013 CBS Interactive Inc.. All Rights Reserved.
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