KCS’s June Fireside Chat

KCS’s June Fireside Chat

The latest KCS Fireside Chat is attached for your review. This one addresses the importance of proactive communication in a consulting / plan sponsor relationship. To further enhance our communication with you, we have created the KCS Blog. Just in case the Fireside Chat doesn’t provide you with enough exposure to KCS, the blog is used to highlight our thoughts on current events related to the retirement industry and the markets / economy. This article highlights a few of our blog posts, but we’d encourage you to check out our blog at your convenience to see our other postings.

Finally, we are thrilled to announce that Penn Hudson has joined KCS, where he is responsible for developing client relationships. Penn brings tremendous experience and professionalism to our firm.


Multi-employer Plans Under Duress – Billions in Benefits Potentially at Risk

There are roughly 1,400 multi-employer plans in the US.  Unfortunately, for many of these plans there have been a variety of factors that have lead to a deterioration in their funded status.  Some of these factors include the loss of business due to the poor economic environment and competition, benefit promises that were too rich to maintain, shrinking union populations and the loss of jobs due to deregulation, and legislation.  Recently, the PBGC estimated that 175 of these multi-employer plans were so poorly funded that they would likely run out of assets, forcing the PBGC to take responsibility for the pension liability. However, it is estimated that the benefit liability is $10 billion, while the PBGC has about $1.2 billion in available funding. Clearly, this is an untenable situation.

What to do? There is no magic potion or silver bullet that will quickly eradicate this issue.  However, prudent steps can be taken to begin to right the pension ship. Despite the fact that contributions are determined based on the ROA objective, plans should begin to focus on their specific liabilities to drive asset allocation and funding decisions.  Regrettably, many union plans continue to reduce their plan’s exposure to fixed income further exacerbating the mismatch between the assets and liabilities. We at KCS have a unique approach to meeting this challenge, and we’d be happy to discuss our thoughts with you at your convenience.





I Think I can, I Think I can…Really?

I think I can, I think I can is a signature phrase that appeared in the book, “The Little Engine that Could” , that was first published in the United States in 1930.  The story is used to teach children the value of optimism and hard work.  Based on a recent Gallup Poll, it seems to be influencing American workers, too.  The poll asked working Americans what they expected in retirement. “Half of Americans think they will have enough money to live comfortably after they retire.” This is the first time since before the financial crisis that a majority of Americans have felt this way.

Really? Half the American working population expects to have enough financial resources to not only retire, but to live comfortably in retirement.  How is this possible? According to SSIP, there are 21.5 million US households that are considered “near retirement”.  Of these 21.5 million, 55% have no current participation in a retirement plan, and the median assets accumulated by this cohort is a whopping $4,450.  Yes, 55% of the 21 million near-retirement households have less than $5,000 in savings, and at the same time that the average American man and woman is living longer.

Furthermore, 75% of the remaining near-term households only have a DC plan as their retirement vehicle. Regrettably, only 11.7% of the near-retirement households are currently participating in a defined benefit plan.  In the 1980s, nearly 46% of American workers participated in a DB structure.  The retirement security afforded by DB plans allowed the masses to actually “live comfortably after they retire”.  Unfortunately, with the retirement risk having been shifted from the employer to the employee, the likelihood of a comfortable retirement has been severely and negatively impacted.

The potential negative economic impact on these retirees is fairly obvious, but the impact on the communities in which they live has not been discussed or analyzed enough. How will your community or state fair in the next decades?

What are you paying for?

A reflection:

I was very fortunate to be hired into the investment industry in 1981. Two gentlemen, Larry Zielinski and Ted Swedock, took a huge leap hiring a not very qualified candidate out of undergraduate business school to fill a role as an analyst in a small consulting group.  I was the first-non consultant or assistant to be hired.  The role’s responsibilities were vast, and the experience that I gained was immeasurable.

But, the most important knowledge that was shared with me was a comment that Larry made on the first day that I began working at Janney Montgomery Scott’s Investment Management Controls division.  Larry told me that anyone or any company can produce vast quantities of paper and/or fancy reports.  A consultant is only worth their salt if they have the ability to interpret the information that they are passing on and at the same time are willing to make recommendations based on their interpretation.

As I sit back today and reflect on my nearly 33 years in this business, I can’t help but remember how important those words were that Larry uttered to me in October 1981.  I’ve tried to follow his lead since day one.  Initially, I didn’t have a clue about how most things truly worked in the investment industry. Today, as we build KCS, we continue to live by Larry’s example.  We can produce all the fancy reports in the world, but they aren’t worth the paper they are printed on if we also don’t share with our clients and prospects our recommendations as to a course that they should follow.  We are Fiduciaries, and we take that responsibility seriously.

As you may know, every month we produce at least one article on an investment subject. We don’t pull any punches.  If you want to know how we feel on a subject, just go to our website and look under the heading “Publications.”  Everything that we’ve produced is there.  I don’t know how many other consultants/consulting firms are regularly producing articles, but they should at least be willing to take a stand on those subjects most important to their clients.

At KCS, we are concerned about retirement security for most Americans.  We do believe that the demise of the defined benefit plan will produce negative economic and social consequences for a large segment of our population.   We don’t think that the status quo approach to managing DB plans is working.  We believe that our clients and their beneficiaries need new thinking and approaches on a variety of retirement subjects.  We’ve articulated those.  Has your consultant? So, I ask again, are you getting what you are paying for?