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Exclusive Interview: ASPPA Head Brian Graff Blasts ‘Stupid’ Retirement Suggestions from Capitol Hill (and Others)

April 15
00:03 2014

Brian H. Graff began serving as Executive Director/Chief Executive Officer of the American Society of Pension Professionals and Actuaries (ASPPA) in November 1996. In this capacity, Graff oversees ASPPA’s operations, is a member of ASPPA’s Brian-Graff-Photo-300x225Executive Committee and, working with ASPPA’s Board of Directors, chart the strategic direction for the organization. ASPPA is a national organization of more than 16,000 retirement plan professionals who provide consulting and administrative services for qualified retirement plans covering millions of American workers. In addition to representing the interests of ASPPA’s members and its affiliates before Congress and federal regulatory agencies, ASPPA annually conducts more than a dozen industry conferences, and annually administers more than 5,000 examinations leading to various industry-related professional credentials.

Brian spearheaded the creation of the National Association of Plan Advisors (NAPA), the Council of Independent Recordkeepers (CIKR) and forged a partnership between ASPPA and the National Tax-Shelter Accounts Association (NTSAA). He has testified multiple times before Congress, the Department of Labor and has served as a White House delegate for the National Summit on Retirement Savings. The American College of Employee Benefits inducted Brian and he is listed as one of the top 5 most influential people in the 401(k) industry. Brian received his doctoral degree in law, cum laude, from the University of Pennsylvania Law School in Philadelphia. He holds a bachelor of science in accounting with distinction from Cornell University in Ithaca, NY.

FN: Our readers saw a little bit about your background in the intro above, but perhaps you can elaborate on what motivated you to do what you’re doing today.
Graff:
Well, you know, I’ve been involved with the retirement plan space for 25 years and I guess when I was in college and law school, I was always intrigued by policy and was always motivated by a desire to make a difference, to contribute to society and to help people in some way. Like most people in this industry, I found it by accident. When I was in my first law firm I was assigned to work with the NFL Players’ Association. It was there that I got my first taste of retirement plans and I’ve been hooked on the issues ever since. I worked on the Hill for a while and, after that, despite offers from other law firms, I felt by going to an association, I’d have a better opportunity to have an impact on the retirement plan industry as a whole.

FN: You’ve made a name for yourself as protector of the retirement plan, especially from sometimes misguided government “reforms.” What do you see as the biggest threats to retirement savers being talked about in state and federal legislative branches?
Graff: To me, and I’m going to get a little broader, everyone talks about tax reform and fiduciary regulations, but I think the bigger threat is a failure of policy makers in DC to understand that retirement policy needs to be looked at from a holistic perspective and not from a parochial view within their own committees. For example, a tax committee will look at retirement policy as a pure tax policy analysis and fail to reflect any thinking on what it means for retirement. What’s wrong is that this is consistent across the board. There’s no committee with the singular responsibility to look at how to focus on pure retirement policy. A recent Gallup Poll shows the number one economic concern (70% of the respondents between the ages of 30-55) is whether people will have enough money for retirement.

Another threat is that we really have a coverage challenge in this country. Of that 70% that said having enough for retirement is there top concern, 52% have less than $10,000, including 36% that have no savings at all. The difference between having a plan and not having a plan is the key component. Of the 36% who have no savings, 73% don’t have a plan at work. For people with a plan at work, only 11% don’t save. The critical thing is to get plans at work. The challenge is that there are too many people in this country without access to a retirement plan at work. Many 401k critics claim 50% of the population is without a plan, but the real number is more like 35% – and that’s still too much. Our industry needs to come up with proactive ways to address this coverage problem.

The third threat is a failure to provide the value proposition that the industry provides, particularly among advisers. Policy makers do not appreciate the value advisers add to both plan sponsors and participants. The data is pretty compelling when an adviser is involved in terms of participation and savings rates. Both are higher when an adviser is present. The fact that policy makers don’t understand the value is the reason we’re having debate on the fiduciary standard. The DOL will admit that some people will lose their advisers if they go ahead with their proposals.

FN: What have you and ASPPA done to expose these threats and what can our readers do to help?
Graff:
What we’ve got to do is to continue to educate policy makers. There are still members of Congress that don’t understand it’s the savings. Congress continues to believe the public prefers the capital gains preference to retirement savings incentives. There are 80 million participating in retirement plans, but only 8 million are taking advantage of capital gains preference. There’s an over emphasis on the capital gains preference versus retirement savings. Congress continues to treat tax incentives for retirement as a tax loss instead of what it really is – a deferral. Freezing the limits on tax deductions only produces phony money. It’s scored as raising $64 million over 10 years. But it’s just a gimmick since, in reality, the taxes are deferred, not eliminated. This is what happens when you just focus on a narrow issue instead of the policy as a whole. This is how you get the stupid suggestions we’re seeing from the Hill.

FN: At the NAPA Summit in New Orleans recently, you got into a debate with Teresa Ghilarducci about her idea to require all 401k plans to include index funds. Can you give us a recap of her position and why you disagree with it? [For background, readers may be interested in reviewing “Does the ‘Lost Decade’ Signal the End of Passive Investing?” and “3 Reasons to Outlaw Index Investing Right Now (and One Selfish Reason Not To) in 5 Acts.”]
Graff:
There are those critics of the markets who make the argument that we would be all be better off in index funds. While there are periods of time when index funds outperform, they do not do so all the time, as your “Lost Decade” article shows. The issue these critics point out alleges 401k sponsors push participants to “bad” (i.e., “high” fee) choices, so they argue 401k should have at least one index. This is a bad idea. If Congress were to enact such a law, it would suggest passive funds are the place you should put your money. There are just too many outside factors. This is absurdly childish. Today, most plans offer both, because the marketplace is demanding it. The last thing we need is the government deciding where to invest. Net returns matter more than fees. Fees are one factor but only one of many factors. Our industry’s obsession with fees can be dangerous. A race to the bottom will not help people who need the help. When you see something as a commodity, then that drives you to focus on fees. But service levels do matter. You wouldn’t go to a hospital with the lowest fees. Why would you gamble your retirement future by placing your entire nest with the lowest fee provider?

FN: What’s your sense of how the SEC is progressing on the Uniform Fiduciary Standard? Will they ever come out with one, or are they irreconcilably split on the issue? Also, some feel it’s better that we get nothing from them rather than a “watered down” version of the current Fiduciary Standard. What are your feelings on this?
Graff: I think it will be very difficult for the SEC to do nothing at this point. There’s been so much discussion by the media that it would be very hard politically for them to back away. I do expect them to do something. I know the Commissioner has asked the staff to look at what options are other there. One such option is more robust disclosure. It would something like this: An acknowledgement to the client by the advisor that is signed off by the client stating, for example, “Before you engage the service of this adviser, you acknowledge this advisor is not responsible for monitoring investment and could receive a commission.” Why eliminate or change existing standards when we might be better off starting with educating consumers? If I were to predict, I think there is some possibility that they may try the disclosure route first. That’s not going to make anyone happy, but that is the essence of compromise.

FN: The DOL seems more likely to come out with its new definition of Fiduciary (a.k.a. the “Fiduciary Rule”) that is expected to include IRAs in some fashion. Do you think the DOL will finally “level the playing field” and prohibit self-dealing transactions or will they continue to allow self-dealing as long as it is disclosed?
Graff:
There’s seems to be no question the DOL will move forward on this regulation. It’s only a question of when, not if. It’s more likely after the election, but either way it’s coming. Our expectation is that it will dramatically change the landscape. The commission exception is not really material. What really is impactful is that many, many, more people that are acting in an advisory capacity will be precluded from getting variable commission based compensations.

FN: We’ve recently published an article “What Every 401k Plan Sponsor and Fiduciary Should Disclose to Employees: How to Retire a Millionaire (Hint: It’s Easier Than You Think)” that has led to at least two subsequent articles in other publications on the concept of a “Child IRA.” The concept was spelled out more in this BenefitsPro article “This idea will solve the retirement crisis, guaranteed!” and a more compelling argument in favor of the Child IRA appears in the April edition of Benefits Selling magazine. Since these articles were written, a congressman from Texas has introduced legislation proposing a “Child Roth” – basically a variation on this “Child IRA” theme but with some limitations. What are your thoughts on this “Child IRA” idea? How does it differ in philosophy from what you’re seeing being discussed in Congress” Do you think Congress should seriously consider this proposal and what is the likelihood the President would sign such a law?
Graff: Unfortunately, the way we score things is so backward, not only do we help people save, but we help the government. So, for example, the Roth Accounts for Youths Savings, proposed last month by Rep. Rubén Hinojosa of Texas, is said to “not cost the government anything” because contributions are not tax deductible. In reality, this idea will cost the government plenty in lost future revenue. Despite the far greater revenues that would come to the government in future years (not to mention the savings on replacing Social Security), the Child IRA as you propose would today be considered a “costly option” because you’re suggesting the contributions are tax deductible.

Incidentally, and not to squash you’re enthusiasm, the concept you write of is not a new idea, but it is new again – and I’ll give you credit for that. The first time the idea was introduced was in the early the 1990’s by Senator Kerry (he called it “Kids Save”) – but his proposal had the government contributing to the accounts, not taxpayers. That, of course, is a big difference between what you’re suggesting and what he suggested.

The big concern – and one big enough to make this proposal arrive DOA – would be who’s going to utilize it? Will your Child IRA idea really just create another savings vehicle for middle-class and wealthy people? I know your proposal allows people to contribute to any child’s account, but progressives would argue that unless the government is funding it, only the middle and upper classes will be helped. Sorry to rain on your parade, but until we can change this mindset in America, great ideas like the Child IRA will wither on the vine.

FN: Do you have any other thoughts you’d like to share with our readers?
Graff: Retirement is the number one issue. Proposals like Kids Save and the Child IRA will continue. My feeling is that retirement issues will be with us for at least next two decades. So, hold on to your hats.

FN: Brian, thanks for taking time from your family vacation to speak to us. I’m sure the readers of FiduciaryNews.com appreciate much of what you’ve done to fight for retirement plans. Keep up the great work and good luck in the future!

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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7 Comments

  1. Dennis Myhre
    Dennis Myhre April 16, 11:59

    Mr. Carosa,

    I respect Mr. Graff for his candid remarks. The two most important observations he expressed in your interview are (1) Policy makers do not appreciate the value advisers add to both plan sponsors and participants…. and (2) The DOL will admit that some people will lose their advisers if they go ahead with their proposals. The DOL decision making apparatus includes heavy influence by law-makers and instutional service providers, both of which benefit not by the profitability of the defined contribution plans for the investor, but rather the profitability for themselves by maintaining a coalition.

    The typical Defined Benefit plan properly maintained will provide better retirement security than any DC plan, thanks to experienced advisors involved in the decision making process who are also fiduciaries. Unfortunately, the focus today is on fund managers and limited choices, mostly mutual funds consisting of separate accounts through insurance companies, regulated by state insurance commissioners. With fewer investment advisors involved, and increased chance of fraud committed by the institutional providers themselves, the 401k investor will eventually lose.

    ERISA claims to “protect the plan from mis-management and misuse of assets through its fiduciary provisions”, and yet the DOL usually fails in any attempt to defer larger “inter-connected” wrongdoers for prosecution, mainly because the Department of Justice fails to act.

    Is there a solution? Not really, since we do not have enough advocates like yourself and Mr. Graff to carry the torch. Since there is growing support for DC plans versus DB plans, I believe the 401k investor must become his own advocate for a better system. By data mining the internet, any investor can identify questionable activities of most financial providers. Through a more public awareness of fraudulent activities involving the industry, we can then petition the regulators for support that may lead to better results for the 401k investor.

    The First Amendment to the United States Constitution “prohibits the making of any law… prohibiting the petitioning for a governmental redress of grevances.” The DOL in Kansas City knows me intimately as an “petitioner” for investor’s rights. As individual citizens, we own the right for our government to act responsibly on our behalf. We need to start using that right or we will lose it.

    Dennis Myhre, AIC

    Three

  2. Joel Frank
    Joel Frank April 16, 15:10

    “The third threat is a failure to provide the value proposition that the industry provides, particularly among advisers. Policy makers do not appreciate the value advisers add to both plan sponsors and participants. The data is pretty compelling when an adviser is involved in terms of participation and savings rates. Both are higher when an adviser is present. The fact that policy makers don’t understand the value is the reason we’re having debate on the fiduciary standard. The DOL will admit that some people will lose their advisers if they go ahead with their proposals”

    This quote will lead a reasonable person to say that the “advisor” is a salesperson who shares in the commission-based retail priced retirement products that are sold to the American taxpayer via their: 401(k)/457(b)/403(b).

    That said the Teachers of the City of NY have always had a de minimus cost 403(b) plan run by the TRS of the City of NY. The participation rate is 70 percent—the highest of any supplemental retirement savings plan in the nation. There is not one “advisor” type plan that has a higher participation rate.

  3. Joel Frank
    Joel Frank April 16, 16:54

    When Mr. Graff uses the term “value advisers add” he is not referring to an independent RIA retained by the plan participant at an hourly fee to review/consult on the participants personal holdings in and outside of the employer based plan.

    Again, the “adviser” Mr. Graff is referring to is the commission-based salesperson. If anyone believes this person is the participant’s adviser I have a bridge in Brooklyn I would like to sell to you.

  4. Joel Frank
    Joel Frank April 16, 17:12

    Mr. Graff represents and is paid by the broker/dealer crowd that has been selling commission based variable annuities, as a 403(b) investment, to the pre K-12 employee nationwide since January 1, 1959. It is notable that this truth was not brought out in any of the questions directed to Mr. Graff. Remove these variable annuities from the 403(b) arena and Mr. Graff will be looking for a new line of work.

  5. Steve Schullo
    Steve Schullo July 09, 08:35

    Of course, Mr. Graff will reject inclusion of index funds! As Frank says there will be no work for him and his annuity associations that Graff represents. Graff loves annuities for PreK-12 school districts because their is somebody their to “hold hands” with educators while the “advisers” (insurance agents) are paid lucrative commissions and on going expenses for years and years. Insurance agents do NOT ADD VALUE! Agree with Frank that the 403b is nowhere to be found and its the most expensive money losing retirement plan in the history of retirement planning.

  6. 403bOversight
    403bOversight July 09, 10:09

    Mr. Graff is an apologist for those who abuse workers who are trying to save for retirement – commission-compensated peddlers of annuities and mutual funds with high fees.

    Watch the videos of his June, 2011 visit to LAUSD’s Retirement Investment Advisory Committee:

    http://www.youtube.com/user/403bOversight?feature=mhsn#g/a

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