As a follow-up to my January 12, 2017 announcement about retirement plan risk management education with the Professional Risk Managers’ International Association ("PRMIA"), I am delighted to announce a co-presenter for the March 2, 2017 learning event. Distinguished economist Dr. Lee Heavner will join me to talk about hedging techniques, the valuation of derivatives and structured products and the monitoring of investment-related risk as part of "Use of Derivatives in Pension Plans." Click here to read Lee Heavner’s impressive bio as a managing principal and financial expert with Analysis Group, Inc. Dr. Heavner and Dr. Mangiero have worked on multiple investment disputes and are the authors of "Economic Analysis in Fiduciary Monitoring Disputes Following the Supreme Court’s ‘Tibble’ Ruling" (Bloomberg BNA Pension & Benefits Daily, June 24, 2015).

Session Two will convene from 10:00 am EST to 11:15 am EST live this Thursday. If you cannot make it in real time, the event can be downloaded for later viewing. It is the second event of four CPE-qualified events. Speakers will examine risk management for retirement plans from both a governance and economics perspective. Topics to be discussed include the following:

  • Current usage of derivatives by retirement plans for hedging purposes;
  • Financially engineered investment products and governance implications;
  • Fiduciary duties relating to monitoring risks and values of derivatives and structured products; and
  • Suggested elements of a Risk Management Policy Statement.

Join us for this talk about an important issue – risk management for retirement plans!

Hot off the press, The Big Squeeze (Happy Day Press, 2017) by Dr. Susan Mangiero is the result of many months of research about positivity. Inspired by the enduring appeal of teddy bears for grown-ups of all ages, The Big Squeeze is a sweet and uplifting gift book focused on the undeniable truth that kindness to ourselves, and others, matters. Combining enchanting photos with motivational messages, The Big Squeeze invites readers to ACCEPT that everyone has ups and downs, CELEBRATE triumphs, HEAL the hurts, LOVE one another, SHARE the good times and bad and TRY new adventures when it feels right. Every page is designed to generate smiles and to offer a relaxing break from everyday stress. The Big Squeeze is a great gift for anniversaries, baby showers, birthdays, engagements, holidays, promotions, weddings and any time a hug is welcome.

As a follow-up to my January 12, 2017 announcement about retirement plan risk management education with the Professional Risk Managers’ International Association ("PRMIA"), I am delighted to announce a co-presenter for the February 23, 2017 learning event. Distinguished attorney Meaghan VerGow will talk about ERISA litigation and fiduciary risk management as part of "Establishing Risk Management Protocols for Defined Benefit Plans and Defined Contribution Plans." Click here to read Meaghan VerGow’s impressive bio as law firm partner and ERISA expert with O’Melveny & Myers LLP.

Session One will convene from 10:00 am EST to 11:15 am EST live this Thursday. If you cannot make it in real time, the event can be downloaded for later viewing. It is the debut event of four CPE-qualified events. Speakers will examine risk management for retirement plans from both a governance and economics perspective. Topics to be discussed include the following:

  • Procedural prudence and the costs of ignoring fiduciary risk;
  • Risk management differences by type of retirement plan;
  • Industry norms and pitfalls to avoid;
  • Role of Chief Risk Officer, investment committee members and in-house staff; and
  • Suggested elements of a Risk Management Policy Statement.

Visit the PRMIA website to register for Session One and read about course content for Sessions Two through Four. Our exciting roster of co-speakers for these future events will be posted shortly on this blog at www.pensionriskmatters.com

I was recently informed by Fiduciary News editor Chris Carosa that my blog post entitled "Effective Retirement Plan Communications" (January 8, 2017) was selected "Blog of the Week" for the second week of January. Thank you to Chris and his loyal readers. I really appreciate the recognition. It’s always terrific to get feedback about what topics are of interest to financial industry professionals.

For those who are unaware, I created an investment compliance and risk management blog a few years ago called Good Risk Governance Pays®. Although I mostly provide insights that are unique to each website, from time to time I do repeat an entry if it makes sense. In the spirit of providing educational write-ups about topics that are important to all types of institutional investors, I invite readers of Pension Risk Matters® to check out "Trading Ahead of Investment Policies and Procedures" and to sign up for email notices when new items have been added to the Good Risk Governance Pays® blog. This February 1, 2017 entry addresses the advantages of having guidelines such as an Investment Policy Statement. Otherwise, it could be challenging to detect rogue trading.

As I understand, the term "consultative selling" was first used by author and sales expert Mack Hanan. The concept is simple. Know what your customer needs and offer them solutions to their problems. The process is a two-way street. Both buyer and provider are actively involved and should communicate clearly and with respect. While lots of advisors and their firms find themselves on the A list, there is a continuing flurry of lawsuits being filed that allege self-dealing, opacity of disclosures and reasonableness of fees. Visit the 401k Help Center website section regarding court decisions and legal activity to read for yourself.

As with any industry, the investment community is constantly self-examining its practices in order to improve. This is a positive thing. As I point out in "Fake News, Plagiarism and Business Ethics," good players have a vested interest in self-policing since they can be tainted, reputation-wise, as the result of bad actions of others. I’ve spoken to hundreds of buyers of financial services who question the checks and balances of those who manage their money or otherwise influence their retirement planning decisions. Frequent and clear communications with their respective advisor, consultant or portfolio executive can go a long way in assuring the doubting Thomas. There is no shortage of inspiration about how to effectively interact.

Over the holidays, I observed a back and forth between sellers and buyers at a national jewelry store. While waiting my turn, I watched shop clerks attend to customers who seemed thoroughly prepared with questions about quality and price. I’m not a big purveyor of charms but was certainly impressed with the breadth of knowledge on both sides of the cash register. I can relate. As my friends know, I have a penchant for perfume and like to treat myself to a new scent now and then. I do my research in advance, visiting sites like Fragrantica.com. Wine connoisseurs are similarly motivated to gather information and sellers are wise to help educate them.

Whenever the product or service is personal, sellers must respond accordingly. Empower potential or existing customers with straightforward information. Be prepared to answer questions. Treat each client with respect as if they really count. For some organizations, the cost of selling could be too high unless the transaction is "large enough." Size is a perfectly fine business model to adapt but make it known in a courteous way that minimums apply. A small investor today could be your large investor tomorrow.

Most selling involves humans and that means that behaviors can’t be ignored. Before he passed away, famed sales guru Zig Ziglar said "You can have everything in life you want, if you will just help enough other people get what they want."

I’m delighted to work with the Professional Risk Managers’ International Association ("PRMIA") in delivering four (4) educational webinars about retirement plan risk management. According to its website, PRMIA is a "non-profit professional association" with forty-five chapters in various countries around the world. Click to download the PRMIA brochure for more information about membership. I hope you will join us in February and March for what should be an exciting and timely quartet of live events. If you cannot attend in real time, the webinars will be archived for later use. See below for details.

           Lead Instructor: Dr. Susan Mangiero, AIFA®, CFA®, CFE, FRM®, PPC™

                               Thursdays from 10:00 – 11:15 am EST / 3:00-4:15 GMT
                                       February 23 | March 2 | March 9 | March 16

                                                     A Virtual Training Series

This series consists of four webinar lectures, each one delivered with the goal of providing actionable information that can be used by the audience right away.

With approximately $100 trillion in global assets under management, retirement plan fiduciaries and their attorneys and advisors face numerous challenges in the aftermath of the worldwide credit crisis that began in 2008. Market volatility, investment complexity and compliance with new accounting standards and government mandates, alongside a strident call for better accountability and transparency, are a few of the pain points that keep pension executives up at night. Litigation and regulatory investigations are on the rise. As a result, enlightened pension decision-makers are turning their attention to risk management technology and techniques as a way to mitigate economic, legal and operating trouble uncertainties. Those who ignore the adverse impact of longer life spans, statutory capital requirements, binding financial statement reporting rules and broader fiduciary duties are destined for trouble. In some countries, trustees may be personally responsible for poor plan governance and may have to pay participants from their own pockets.

Who Should Attend

This series should be of interest to a broad range of financial and legal professionals since poor governance and/or too few resources being devoted to pension risk management within a fiduciary framework can (a) force benefit cutbacks for participants (b) lead to a ratings downgrade which increases a sponsor’s cost of capital (c) force a plan sponsor to come up with millions of dollars (pounds, euros, etc.) in cash for contributions (d) result in a costly lawsuit and/or regulatory enforcement (e) thwart a merger, acquisition or spin-off and/or (f) cause a sponsor to be out of compliance with financial and statutory reporting requirements.

Both senior-level decision makers and staff members can benefit from viewing this series of webinar lectures. Representative titles of likely audience members include: • Directors of the board • CFOs, treasurers, controllers and VPs of finance • Members of a sponsor’s pension investment committee • Pension consultants • Pension advisors • Pension and securities attorneys • Pension and securities regulators • Rating analysts • Financial journalists • Derivatives traders • Executives with derivatives and securities exchanges • ERISA, municipal and sovereign bond and D&O liability insurance underwriters • International, U.S. federal and state lawmakers • Think tank researchers • Industry associations • Chambers of Commerce in various countries • Economists who cover demographic patterns and • Risk management students.

Session One (February 23, 2017): Establishing Risk Management Protocols for Defined Benefit Plans and Defined Contribution Plans

Session One examines risk management for retirement plans from both a governance and economics perspective. Topics to be discussed include the following:

  • Procedural prudence and the costs of ignoring fiduciary risk;
  • Risk management differences by type of retirement plan;
  • Industry norms and pitfalls to avoid;
  • Role of Chief Risk Officer, investment committee members and in-house staff; and
  • Suggested elements of an Investment Policy Statement.

Session  Two (March 2, 2017): Use of Derivatives in Pension Plans

​Session Two looks at how derivatives are used by retirement plans, whether directly or indirectly. Topics to be discussed include the following:

  • Current usage of derivatives by retirement plans for hedging purposes;
  • Financially engineered investment products and governance implications:
  • Fiduciary duties relating to monitoring risks and values of derivatives; and
  • Suggested elements of a Risk Management Policy Statement.

Session Three (March 9, 2017): Liability-Driven Investing and Other Types of Pension Risk Transfer Strategies

Session Three examines the reasons why the number of pension restructuring deals is on the rise, especially in the United States and the United Kingdom, and the type of transactions being done. Topics to be discussed include the following:

  • Nature of the pension risk transfer market and various approaches being utilized;
  • Regulatory considerations for fiduciaries in selecting an annuity provider;
  • Action steps associated with implementing a pension risk transfer; and
  • Case study lessons learned.

Session Four (March 16, 2017): Service Provider Due Diligence

Session Four looks at the growth in the Outsourced Chief Investment Officer (“OCIO”) and Fiduciary Management markets and explains service provider risk. Topics to be discussed include the following:

  • Fiduciary considerations of delegating investment responsibilities to third parties;
  • Risk mitigation practices for selecting and monitoring vendors such as asset managers and advisors;
  • Types of lawsuits that allege fiduciary breach on the part of third parties and related regulatory imperatives; and
  • Identifying warning signs of possible vendor fraud.

Fee: Fee includes access to all four live sessions (75 minutes each), access to the recorded session for 60 days, and digital program materials.

  • Sustaining Members: $355.00
  • Contributing Members: $395.00
  • Free/Non-Members: $465.00

Registration: You may register for this course by clicking on Register at the bottom of the page. For questions regarding registration please contact PRMIA at training@prmia.org.

Cancellation: A refund (less a 15% administration fee) will be made if formal notice of cancelation is received at least 48-hours prior to the date of the first session. We regret that no refunds will be made after that date. Substitutions may be made at no extra charge.

Important Notice: All courses are subject to demand. PRMIA reserves the right to cancel or postpone courses at short notice at no loss or liability where, in its absolute discretion, it deems this necessary. PRMIA reserves the right to changes or cancel the program. PRMIA will issue 100% of registration refund should cancelation be necessary.

CPE Credits: This webinar series qualifies for 6 CPE credits subject to certain rules about required attendance. Email webinars@prmia.org for more information about obtaining continuing education credits.

About the Presenter:

Dr. Susan Mangiero is a forensic economist, researcher and author. With a background in finance, modeling and investment risk governance, Susan has served as an expert on numerous civil, criminal and regulatory enforcement actions involving corporate retirement plans, government retirement plans, hedge funds, private equity funds, foundations and high net worth individuals. She has been engaged by various financial service organizations to provide business intelligence insights about what institutional investors want from their vendors. As founder of an educational start-up company, Susan raised capital from outside investors, created a fiduciary-focused content library and developed a governance curriculum for institutional investors and their advisors. Prior to her doctoral studies, Susan worked at multiple bank trading desks in the areas of fixed income, foreign exchange, interest and currency swaps, financial futures, listed options and over-the-counter options.

Susan Mangiero is a managing director with Fiduciary Leadership, LLC. She is a CFA® charterholder, Professional Risk Manager™, certified Financial Risk Manager®, Accredited Investment Fiduciary Analyst®, Certified Fraud Examiner and Professional Plan Consultant™. Her award-winning blog, Pension Risk Matters®, includes nearly 1,000 essays about investment risk governance and has well over a million views. She is the creator and primary contributor to a second blog about investment compliance at www.goodriskgovernancepays.com. Susan is the author of Risk Management for Pensions, Endowments and Foundations. Her articles have appeared in multiple publications such as RISK Magazine, Bloomberg BNA Pension & Benefits Daily, Corporate Counsel, American Bankruptcy Institute Journal, Mergers & Acquisitions, Business Valuation Update, CFO Magazine and the Journal of Corporate Treasury Management.

Susan has testified before the ERISA Advisory Council and a joint meeting of the Organisation for Economic Co-operation and Development (“OECD”) and the International Organisation of Pension Supervisors (“IOPS”). She lectured at the Harvard Law School and addressed groups such as the American Institute of CPAs (“AICPA”) – Employee Benefits Section, Financial Executives International, and the National Association of Corporate Directors. She can be reached at contact@fiduciaryleadership.com or followed on Twitter @SusanMangiero.
 

My blog post entitled "Simplifying Retirement Planning Communications" resonated with readers. It’s no surprise that there are still discussions about how best to improve the information provided to participants. Given the amount of litigation alleging lack of transparency, sponsors are wise to offer understandable documents that can be used by employees and retirees to make financial decisions. According to "Improved Retirement Plan Communication Can Boost Confidence" (Plan Sponsor, December 15, 2016), it’s not just content but the delivery format as well. Companies are adding more retirement readiness tools to their websites, even if participants are sometimes slow to take advantage.

Financial literacy is another issue that challenges employers and participants alike. Even when adequate information is available, the recipient may be unable to digest product descriptions or performance reports. In his write-up entitled "401(k) Communication Challenges," Dr. Richard Glass bemoans the low rate of financial literacy and its negative impact on saving. His take is that defined contribution plan sponsors "have not recognized that the participants’ sense of distrust and their lack of knowledge can easily create a mindset that is conducive to inaction." He uses target date fund disclosures to exemplify his view that more should be done to put participants at ease and thereby motivate them to better prepare for life after work. His suggestions include the following:

  • Don’t sugar coat the issue of risk but instead make it known that no product is free of uncertainty;
  • Emphasize that calculations are based on assumptions;
  • Hold "educational sessions that explain to participants why arriving at the assumptions involves a lot of crystal ball gazing and why, in spite of that fact, assumptions still have to be made" for purposes of forecasting; and
  • Supply "gap analyses that show participants how many years they can expect to receive their targeted inflation-adjusted incomes at their current contribution rates."

I agree that strengthening financial literacy is essential although I am not particularly sanguine about getting everyone quickly up to speed on concepts such as diversification and risk measurement. That’s not to say that employers should look the other way. To the contrary, they should act even though some organizations will have to do more work then others. As I explain in another blog post, grade 12 proficiency in reading and math is abysmally low in the United States. Anyone who gets hired with a poor grasp of such basics may struggle with learning even elementary investing ideas. See "Employers Worry About Skills Gap That Impacts Bottom Line" (January 7, 2017).

Despite the fact that companies spent nearly $71 billion in 2015 on training, chances are those expenses will increase. Realistically, shareholders and taxpayers may have little choice but to foot the bill for further education of anyone not yet able to understand what it means to save now for later on. The Aegon Retirement Readiness Survey 2016 finds that "[A]round the world, many workers are heavily reliant on government benefits and are not saving enough to adequately fund their retirement income needs." Obviously there is no time like the present to prioritize thrift and prudent investing.

Kudos to Chris Carosa for his continued efforts as publisher of Fiduciary News. I share his mission to educate and provide independent insights. That is why I was delighted to be one of the contributors to his recent article, "These Five Developments Dramatically Changed the Retirement Fiduciary World in 2016."

My view is that it is hard to pinpoint standalone issues. So many areas overlap. For example, a discussion about fiduciary litigation frequently involves questions about the reasonableness of fees. A conversation about fees often means talking about asset allocation as well. An analysis of asset allocation trends is commonly linked to investment performance realizations. When one talks about returns, it is usually in the context of economic forecasts. Overlay regulatory mandates, including the imminent U.S. Department of Labor Fiduciary Rule, and it becomes apparent that retirement plan governance is complex territory. Nevertheless, Chris did a noble job of listing significant and distinct trends with his readers. His list includes the following:

  • Capital Markets – Low interest rates continue to challenge both institutional and individual investors. The pension risk transfer market is experiencing unprecedented growth as sponsors seek to focus less on retirement plan management and more on operating their core businesses. Post-election, the U.S. market seems poised for better returns in 2017 although it is thought that low-cost index funds will remain popular.
  • Excessive Fee Litigation – The attention paid to fee levels and the process of assessing reasonableness continues to grow. Some believe that the proliferation of lawsuits has resulted in improved governance regarding the selection and review of various funds. I am quoted as saying that "…investors in search of turbo-charged performance struggled with the reality that the costs of alternatives, derivatives and structured products are generally higher than passive funds."
  • Fiduciary Rule – Uncertainty is the watchword with multiple plan sponsors unsure about what they might want to delegate to a third party. Consulting firms that offer independent fiduciary services have an opportunity to help their clients solve real compliance problems.
  • State Sponsored Private Employee Retirement Plans – Deemed controversial by some, these arrangements to help small business employees are being rolled out by states throughout the nation. The goal is to encourage savings over the long-term although I have doubts about accountability and redress for disgruntled participants. Click to read "State Retirement Arrangements for Small Business Employees" (June 9, 2016) and "Public-Private Retirement Plans and Possible Fiduciary Gaps" (June 5, 2016).
  • Presidential Race – Carosa writes "Of all the events of 2016, nothing will have had more of an impact than the presidential election." Perhaps he is correct. Already the yearend markets have been chugging upward and optimism is on the rise. Yet there are questions about whether regulations such as the Fiduciary Rule will be weakened or perhaps eliminated altogether. Should that occur, financial service industry executives will need to respond.

The article lists other developments including restructuring deals. I am quoted as saying "Restructuring deals have made 2016 a notable year in terms of the number of pension risk transfers and the outsourcing of the responsibilities of a Chief Investment Officer to a third party. Bankruptcy has catalyzed the restructuring of multiple plans, much to the dismay of the savers who have been asked to accept lower benefits. Service providers who have been ordered by the courts to take less favorable terms as swap counterparties or consultants are correspondingly glum."

President John F. Kennedy declared "Change is the law of life. And those who look only to the past or present are certain to miss the future." I concur. Where there is disruption, there is always the opportunity to address a problem and win the hearts and wallets of investors.

Here’s to a terrific 2017. Happy holidays!

For many people, retirement planning tends to be an exercise in frustration. Some complaints focus on numbers that seek to dazzle without enlightening. Others call out language that is overly long, complex and ambiguous. The author of "HR communications falls short" (Benefits Pro, November 10, 2015) references a Davis & Company survey that validates employee angst as follows:

  • About compensation, only one out of four persons were satisfied with documents they received;
  • Regarding benefits, only fifteen percent said they were adequately apprised; and
  • Nearly ninety percent of survey-takers said they had not been provided sufficient intelligence about performance management.

These results are not good news for anyone. Shareholders are paying a company’s staff to convey important information to retain and attract talented workers. If that’s not happening, money is being wasted and that erodes enterprise value. It’s likewise problematic for active employees and retirees. Without meaningful instructions and data, they are ill-equipped to make decisions about how to save and select benefits. As a forensic economist, I’ve worked on multiple matters that addressed the frequency, magnitude and clarity of participant communications. It’s a real issue and costly when the task of communicating is done poorly.

Unfortunately, even when arguably clear and copious guidance is made available by an employer, some may resist reading and/or asking questions. As former Wall Street Journal reporter Jonathan Clements points out in "Don’t Bother Reading This" (November 18, 2016), certain persons are focused on today and not tomorrow. He adds that others "want to believe in magic" even when evidence about investment returns suggest otherwise. Finally, he bemoans the association of "sophistication with complexity." (As an aside, I don’t agree with Mr. Clements that complexity is "usually a ruse to bamboozle." However, I do acknowledge that complex economic arrangements require a thorough vetting of the risk-return tradeoff).

If my experience teaching on an investment cruise a decade ago is any indication, there are signs that financial empowerment through education is alive and well, even for those who learn on their own. Based on questions and comments I received, it was clear that the audience had a strong sense of what risks they were willing to accept and what they hoped to avoid. Admittedly, these were mostly small business owners who had grown and prospered over the years by understanding that doing one’s homework is necessary to survive.

While investment uncertainty is, by its nature, something we all face, it is always prudent to gauge risks ahead of time, to the extent possible. Employers and policy-makers who want to help others improve their financial literacy can contribute in multiple ways. Joanne Sammer advocates in HR Magazine for a "whole portfolio" focus that encompasses all savings and retirement vehicles owned by an employee and his or her spouse. See "Helping Employees Plan for Retirement" (March 1, 2014). Based on my work in the benefits world, I suggest other prescriptions to consider as follows:

  • Listen to what your constituents tell you they need to know.
  • Understand the composition of your labor force since not every demographic cohort absorbs information in the same way.
  • Become adept at storytelling to make retirement planning relatable.
  • Make it easy for employees and retirees to ask questions and receive answers in a timely fashion.
  • Get creative with snappy visuals and relevant technology tools that encourage knowledge-gathering.
  • Monitor engagement patterns and revise your communications protocol as often as needed. 

Whenever I think about getting my message out, I reflect on something a former doctoral professor shared with his students. Taking some liberties since I don’t recall his exact words, he required us to distill pages of terse text and equations into a single sound bite that a lay person could understand and care about. This drive to motivate the recipient to pay heed is undeniable. As Ryan T. Howell said in his Psychology Today article entitled "Less Is More: The Power of Simple Language" (September 20, 2012), concentrate on the problem consumers are trying to solve.

Applied to retirement planning, what’s the end goal? For millions of people, the answer is not so much about having X amount of money in the bank but more about satisfying life goals and having "enough" to make things happen.