Break from the Grind January 28, 2020

Super Bowl to Have Bigger Impact on Productivity This Year

Rather than considering it a negative, Andrew Challenger, with Challenger, Gray & Christmas, suggests employers use the opportunity to encourage camaraderie.

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Challenger, Gray & Christmas estimates this year’s Super Bowl could cost employers more than $5.1 billion in lost productivity in the week leading up to the game, as well as from employees missing work on Monday.

According to a new survey conducted by The Workforce Institute at Kronos, this year, 17.5 million Americans reported they were likely not going to work on the Monday after the Super Bowl. That is the highest number since the company began tracking this data in 2005. It surpasses the previous high tracked last year, when 17.2 million Americans reported they would likely skip work.

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Additionally, the firm tracked 11.1 million Americans who reported they would come in late or leave early on the Monday after the Super Bowl.

Challenger attributes this increase, in part, to a more interesting match-up. The New England Patriots played in the Super Bowl four of the last six years, and “fans may enjoy watching two new teams face off,” says Andrew Challenger, vice president of Challenger, Gray & Christmas, Inc. Also, the San Francisco 49ers have not appeared in the Super Bowl since 2013, and the Kansas City Chiefs have not appeared in the Super Bowl in 50 years.

As for how it calculated the cost to employers, Challenger used the Workforce Institute at Kronos figure of 17.5 million workers missing 6.86 hours of work on Monday, the average daily hours worked, according to the Bureau of Labor Statistics. Multiplying this by the average hourly wage of $28.32 in December 2019 results in $3.4 billion in lost productivity. Add the 11.1 million workers coming in one hour late or leaving one hour early, with the average hourly wage, and that figure increases to $3.7 billion.

Challenger also estimates that interested workers will spend at least ten minutes each day leading up to the Super Bowl discussing the game, managing office pools, and researching the two teams and their players. With roughly 98.2 million Americans tuning into the game, based on 2019 Nielsen ratings, and applying the employment-population ratio of 61%, 59.9 million Americans will likely discuss the game each day for an estimated loss of $1.4 billion over the five days leading up to the game.

The company notes that a New York high-schooler, started a petition on Change.org to get the game moved to Saturday night, and more than 57,000 people have signed as of the afternoon of January 27.

“Until this happens, if it ever does, employers should accept that people are going to spend some of their time the Monday after the Super Bowl discussing big plays, halftime performances, or the best commercials,” Challenger says. He suggests employers can use this as an opportunity to increase morale and encourage camaraderie.

Investing January 28, 2020

Research Shows Positive Effects of TDFs

Various beneficial changes to retirement savings portfolios made by investing in TDFs could enhance retirement wealth by as much as 50%, research suggests.

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In “Target Date Funds and Portfolio Choice in 401(k) Plans,” researchers from The Wharton School, University of Pennsylvania, studied the effect of using target-date funds (TDFs) as the default investment for a worker’s portfolio over a 30-year career.

The researchers concluded that “the adoption of low-cost target-date funds may enhance retirement wealth by as much as 50% over a 30-year horizon. Including these funds in retirement savings menus raised equity shares, boosted bond exposures, curtailed cash/company stock holdings and reduced idiosyncratic risk.” Idiosyncratic risk is a type of investment risk, uncertainty or potential problem native to an individual asset (such as a particular company’s stock), or group of assets (such as a particular sector’s stocks), or in some cases, a very specific asset class (such as collateralized mortgage obligations).

The paper notes that TDF assets in 401(k)s have grown exponentially, from $5 billion in 2000 to $734 billion in 2018. The Pension Protection Act of 2006, which permitted TDFs to be used as default investments in 401(k)s, was largely the cause of that growth, the paper says.

Citing Investment Company Institute (ICI) data, the researchers say in 2018, 80% of 401(k)s offered TDFs, and 66% of plans used automatic enrollment, with TDFs being the primary default investment.

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The researchers’ findings are based on an analysis of Vanguard indexed TDFs, with management fees under 20 basis points used in 880 defined contribution (DC) plans between January 2003 and June 2015, a 12-1/2-year period. One year after the first appearance of TDFs on the investment menu, 78.7% of new hires were invested in these funds because they were defaulted into them. The researchers say workers are more inclined to be comfortable with whatever default their employer chooses for them, hence, the reason so many workers remain invested in TDFs when they are the default.

Importantly, the paper says, “in terms of portfolio effects, adoption of target-date funds had sizeable effects on equity share and risk factor exposures. Participants’ equity share rose an average of 24 percentage points for pure investors [i.e., those invested only in one TDF] and by 13 percentage points for mixed investors [i.e., those invested in a TDF and other funds]. As a result of increased equity and bond market exposures, expected factor returns for pure investors rose by 2.3% per year and for mixed investors by 1.7% per year.

“Accordingly,” the paper continues, “the introduction of target-date funds produced an important shift away from participants’ 401(k) plan portfolio selections and toward the target-date managers selected by employers. This change will have sizeable benefits. We estimate that improved returns could raise retirement wealth by as much as 50% over a 30-year savings horizon for a pure investor in a low-cost target-date series. Employees who [were] moved into the target-date funds could have previously made the portfolio changes on their own and realize potential benefits—yet they did not.”

The researchers say that a 30-year-old earning $35,000 a year, who makes annual deferrals of 10% a year into a retirement plan, and assuming a mean excess return of 5.4% would amass nearly $300,000 in savings over a 30-year period. However, the result would be 50% higher for pure TDF investors and 33% higher for mixed investors, “given a low-cost, well- diversified target-date series.”

In conclusion, the researchers say more should be done to encourage automatic enrollment and using TDFs as the default investment. They also suggest plan sponsors consider re-enrollment, so older workers in a plan that suddenly adopts automatic enrollment are swept into the automatic default.

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