It's that time of year when all good-hearted Americans break out their legal pads, pencils and reading glasses. Yes, it's time for fantasy football. Once a small off-shoot of it progenitor fantasy baseball, it has become the favorite fall pastime, surpassing even its real-world counterpart. Indeed, given the recent creativity among game and league promoters, Fantasy Football is threatening to even overtake that long-time office pool favorite, the Superbowl square.
See also: The real issue with 401(k) fees
As you scan those perennial football fantasy magazines, all chock-full of every vital statistic this side of Canton, Ohio, consider the following: It just doesn't matter.
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I speak neither of heresy nor as a disgruntled Buffalo Bills fan. I speak only of the truth. For on the gridiron, what matters isn't yards-per-carry, touchdown passes, fumbles recovered, sacks or any other number from the data banks of Elias Sports. Only one thing matters: The final score.
That's right. Everything else may contribute (or not, see "winning ugly") to the final score, but the only thing that really counts is whether you can add another notch to the win column.
Retirement plans are sort of the same way. We love to measure fees and performance because we've been told they're critical when it comes to meeting your retirement goals. But, in the grand scheme of things, just like those football statistics, we measure fees and performance for only one reason – they're easy to measure. But, as industry veterans have noted, (see, "Do Common Benchmarks Mislead the 401(k) Fiduciary?" FiduciaryNews.com, Aug. 27, 2013), there are other, better, 401(k) benchmarks.
A 401(k) plan can have the best fund line-up and the lowest administration costs and still fail to meet its objective. Why? Because employees aren't participating. Or maybe they are participating, but they're not saving enough. Or maybe they're retiring too early.
All three of these factors have more bearing than investments on an employee's ability to successfully save for retirement. That is, unless that employee picks an investment that is far too conservative for the retirement needs and savings abilities.
There's a good reason why we don't see much evidence of using these better benchmarks: the data is too hard to collect. Some say we should change Form 5500 to make collecting this data easier, but that's only half the battle. The other half revolves around the interpretation of such data. For example, there's a significant difference in need between a highly compensated employee (HCE) and a non-HCE. Non-HCEs have a lower bar as Social Security (using current projections) offsets a far greater proportion of the income replacement needed at retirement than it does for HCE. In addition, HCE, under current laws, can save fewer dollars than non-HCEs, making it more difficult to make up the gap in income replacement already inherent in the Social Security law.
What this need for analysis means is this. Even if the Form 5500 is amended to make data collection and comparison easier, we'll still need experts to sift through that data to decide what's meaningful. Consider how this is done in the mutual fund industry. Long ago, the SEC had the wisdom to normalize all the mutual fund accounting data. Once this data was collected, it became easier to compare mutual funds on an apples-to-apples basis. Still, it took a firm like Morningstar to recompile the data for practical use. And, sure, some amateur investors spend a lot of time doing exactly that. Most investors, though, rely on financial professionals to analysis the data.
It's only a matter of time before this becomes a reality in the 401(k) world. When it does, we can finally focus on what retirement plans were always meant to be. Not savings plans. Not low-cost products. But savings plans.
Savings; now that's a useful idea.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
