Retirement Micro and Macro
Thinking Big While Minding the Details
We talk with Michael Davis of T. Rowe Price about - maybe - the most important issues on the planet: financial wellness and security, race and financial services, ESG, and family.
It’s long form, get your cuppa and read on.
Michael, folks may have heard of T. Rowe – tell us something about yourself and your team.
I'm Michael Davis. I head the Defined Contribution specialist team here at T. Rowe Price. I have been with the firm for four years, and over that time we have sought to grow the DC team. This team engages directly with Defined Contribution plan sponsors around the country on their investment-only needs. We do that in a very consultative way by really working to understand the nuances of broad investment themes. We are all about bringing the resources of the firm to bear against the challenges that plan sponsors have in trying to deliver strong and consistent retirement outcomes for their participants.
Interesting! What brought you to this role?
I started actually in investment banking at J.P. Morgan -- in the public finance division. I was working with public entities, financing airports, colleges and universities, and hospitals. The life of an investment banker can be a difficult one from a work-life balance perspective. 🍃 After six years, I wanted more of that balance and made a transition to the asset management division. I liked that it a was longer-term business. It wasn't as transactional. I started on the defined benefit side, covering large plans in the upper Midwest. In time I ended up running the Western U.S. for our institutional business and did that for a few years before I left to serve in government.
Public service!
Yes, for four years I was a Deputy Assistant Secretary in the Department of Labor in the division that focuses on ERISA and retirement security: the Employee Benefits Security Administration, or EBSA for short. When I came back out, I ran stable value for Prudential, then led the institutional team at Calvert.
What a terrific background: investment banking side into the retirement space. We know you have a passion for retirement security. Tell us a little bit about some of the things you're focused on?
Well, first thank you for the question and while it's not the intent of the question, I'm going to turn it to the questioner a little bit, because you have been a pioneer in this space as well with OregonSaves. I have had the blessing to be able to see retirement security both from a provider and a government standpoint. That gives you a broad aperture to be able to think about the issues at the micro level and at the macro level.
We’re intrigued – tell us what you see.
I’ll start at the macro level. I think that some of the biggest challenges we have around retirement security are those of access, adequacy, and sufficiency. We also now have large numbers of people starting to decumulate assets. 🍂
Overlay that with the broad conversation the country is having around race and diversity, and it does take you down a path of making sure that most people have access to a retirement plan.
… some of the biggest challenges we have around retirement security are those of access, adequacy, and sufficiency.
And that gets you focused on the need for more automatic enrollment, the need for automatic escalation, and giving people the wherewithal to be able to save enough. Of course, you can't save enough if you're not even in the system. So, what can we do at a national level to promote access for people -- not just people who are full-time, but people who are part-time? And when you go down the part-time path you get to gig workers, and you have to think about whether vesting provisions should be adjusted to enable this growing segment of the working population to more consistently participate in retirement plans. And again, making sure that people are in a situation where they have access to a plan.
🍃 Innovations we've talked about, inclusive of the statewide programs, certainly move those populations down the path of being able to get in the system and then being able to save in the system. And I am a proponent of finding ways to create more access and more adequacy for people across the country. That is a macro conversation that we need to create additional momentum around.
As we get the macro moving, what else are you seeing?
At the micro level, we must provide products and services that set the table right way. I'm a big fan of behavioral science and behavioral psychology. Books like Nudge present ideas about choice architecture and arranging choices in a way that encourages better outcomes. We know, for example, if you look at the prevailing conversation in our country around our freedoms. There's a lot of debate about around when you start to impinge on someone’s freedom and whether that infringement is helping them in a meaningful way. Choice architecture fits this frame well by letting people make their own decisions, but sets the table in a way that encourages better outcomes.
How might you apply that in a savings setting?
In the DC context, that could be engaging with people at a time where they're more likely to make decisions around their retirement plan. It could be a marriage date, the birth of a child, a birthday -- all these events are good times to encourage a person to think about the future. Those are the moments you want to engage with them around their retirement. You want to use great triggers to get people to contribute more at those times and use thoughtful messaging to engage with them. These are the conversations we have from a recordkeeping perspective here at T Rowe Price. 🍂
That covers contributions – the inbound side, tell us more.
On the investment side it’s important to ask, “what equation are you solving for?” The equation we tend to think a lot about is having enough in retirement, recognizing that people are going to live longer in retirement than they have in the past. There are all kinds of statistics to make that case.
Because of that, you need more growth assets in your overall allocation during the period of time that you're saving to carry you into the 20, 30, 40, sometimes, surprisingly, even 50 years, you're going to live in retirement. You also want the kind of design that gives adequate diversification, and adequate investment performance at the component level, to make sure that people are accomplishing the objectives they intend.
So, we think about retirement security both in terms of the plan sponsor and the participant. As a provider, we have to look at it through that lens. From the macro and micro levels, what can we do systematically to make sure that outcomes are adequate for most Americans?
We also know you’re an Advisory Board member of the Aspen Leadership Forum on Retirement Savings.
Yes, Aspen has a very important role in the retirement conversation. They have done a very good job of convening retirement leaders, policymakers, plan sponsors and retirement providers both from the US and around the world in discussions around the question of how do we create a system that provides good outcomes for all? And I'm particularly encouraged by these conversations around adequacy and access, and that access can happen in a number of ways.
We've talked about what sort of government provisions can be developed to create more access. Going back to the statewide programs, that's a conversation I know germinated in a big way within Aspen. And you see the proliferation of those programs across the country. 🍃The Aspen Retirement Leadership Forum created a robust discussion on plan access and how do they get that access? You've also seen it play out with respect to new capabilities for MEPS (Multiple Employer Plans) and PEPs (Pooled Employer Plans)[i] and what's happening there. That's another way to encourage more access.
Let’s talk a bit more about race and retirement savings access.
In this last Aspen discussion cycle, what was interesting was the racial diversity conversation as it pertains to retirement. Because you haven't seen that conversation happening enough, there hasn't been enough research done specific to how race and retirement intersect. I'm encouraged by Aspen's advocacy that we need more research in order to have more productive conversations. This also leads to conversations around adequacy: a lot of people of color tend to work in jobs that don't offer plans. So this question about how you get people in plans is really critical. 🍂
I also think it takes us down a path of addressing Social Security and making sure that Social Security is protected. Social Security is going to be the last line of defense for a lot of people. If you are a lower wage earner, Social Security is going to replace the higher percentage of those earnings. Because people of color are over-represented in those lower wage earner categories, Social Security becomes very important. It’s key to make sure their Social Security is protected and treated in a way that gives it long-term sufficiency.
Race and diversity has been such a huge conversation this year. We are working in an industry that is not very diverse and becomes even less so in higher level, senior roles. We'd love to get your thoughts on what you see happening in industry, and what you think industry should be focusing on, because we suspect these conversations are related.
Well, I'll speak very personally and thanks so much for the question. I remember when I started working in the Defined Contribution space, I would go to conferences and sometimes I would be almost the only person of color in the room. I find it striking that in this generation we would have that kind of experience still occur. And it was odd to me because it was in contrast to my experience when I was in the investment banking world. When I first started in investment banking, I also felt like something of a rarity. 🍁 But over the course of my career, I began to see a lot of examples of diversity around our industry conferences. Then when I moved into Defined Contribution, it was almost like a step back in time. And when we go to recruit people, there are fewer people of color who are candidates for these roles and positions.
As an industry, we have to work harder to advertise ourselves, at colleges and elsewhere, to encourage colleges to make diverse candidates available for the interviews that are being done around Defined Contribution roles. 🍂 We have to work harder to train people of color in the Defined Contribution space. We as an industry should sponsor more internship programs.
We do a lot of internship programs at T. Rowe Price around investments, and we've done a lot with HBCUs (historically black colleges and universities) that I'm excited about. I don't yet see as many of those programs in the Defined Contribution space. I have seen some organizations like DCIIA (the Defined Contribution Investment Industry Association) and others start to have that conversation. It's one that we all as an industry have to have. And we're going to have to be very intentional because left to its own devices, it's not going to change.
🍃I also think that from a research standpoint that there's not enough research in terms of how race and retirement intersect. There's a role for providers and other organizations to step into that space and sponsor more research to make sure that we have a robust enough body of knowledge, to be able to diagnose before we prescribe.
These are all excellent observations and suggestions. Thank you so much for your perspective. What else are you seeing that we should be thinking about?
Well, one thing that I'm involved in here directly at T. Rowe Price is something called the Black Leadership Council. There are a lot of companies in the wake of George Floyd that are looking for different ways to accelerate their activities around diversity and inclusion; this is one way we think we can. Our Black Leadership Council brings together many of the most senior African-Americans at the firm to engage directly with the senior management, the management committee, our CEO, and our head of HR, to identify ways we can accelerate recruitment and retention of underrepresented minorities.
I would say that as I look across the industry, there's a particular opportunity to do better with respect to women of color. Industry-wide, I see very very small numbers of women of color, particularly in senior positions.
As we think about internship targeting, how do we build out the pipeline by being very intentional about going to schools, building internship programs, being very deliberate about how we track our recruitment activities and where we're recruiting? Then when those people get into the firm, what kind of experience are they having?
So, we're looking at onboarding very critically right now to see what we can do to create better connections immediately and have people feel like they have sanctuary, Day One, when they arrive at the firm. We know there are a whole host of ways to make it work --- to achieve better recruitment and retention of underserved minorities.
Every organization has to look at their own culture and do something that works specific to them. But I would say, what is consistent is that you have to be intentional. 🍂 You have to be intentional or you're going to keep getting what you’ve gotten before.
We feel like we are seeing people focusing increasingly on authenticity and the value of letting people be who they are in the process of doing their job.
Yes, it's a great observation. In the wake of the George Floyd circumstance, we and many other firms have had these open conversations on race and diversity. They’ve been among the most authentic, raw and transparent conversations I have ever had in this business. 🍁 We had associates that were very emotional on some of our calls, talking about their own experiences. You also hear some people say on these calls that, “I wish I had done better” as they think about their leadership or working relationships with others in the past. We’re experiencing this raw commitment as many people realize they have to do exactly that. And I hope that those conversations do lead to a better level of understanding and authenticity among everybody.
It's funny because when we have these conversations around authenticity, sometimes people feel “it's a people of color thing” and “that's what they need”. But it’s really for everybody. You are at your best when you're at your most authentic and working in an environment that gives you the empowerment to be that person. Being your authentic self allows you to bring your best every day.
There are a lot of people that feel like, look, I want to have a sense that the organization sees me and they respect my voice and I have a seat at the table.
For those underrepresented communities, because they're by definition underrepresented, they feel like they have less permission to be that authentic. I hope now that we have declared as a country, and as an industry, that we're moving forward that we're going to give empowerment to those voices because it makes us all better.
We can see we're going to run short on time, but let’s turn for a second and talk to you about ESG. We want to know what you're seeing, what you're interested in, in that space right now.
ESG is an area that is only going to grow in prominence and influence over time. 🍃 And the reason for that is markets are made by buyers and sellers. And the fact is that the buying and the selling markets are becoming more diverse and they're becoming more populated by people who care about these kinds of concepts. For instance, if you look at the workforce in the United States, according to the Bureau of Labor statistics, women now are the majority of the U.S. workforce. And when you poll women and you poll people of color, you poll younger demographics and millennials, Gen Z’s, they tend to care more about ESG than other demographic groups.
As they become a more dominant force in the economy, ESG is going to become a more dominant influence. So certainly, we are responding to that here at T. Rowe Price. We publish an ESG Annual Report that your folks might like to see. Maria Elena Drew spearheads our ESG research efforts globally, from London. We focus on the ESG elements we believe will drive better outcomes and returns. We also monitor global impact strategies, for the audience that care as much about impact as they do returns.
Very interesting ESG perspective! OK - rapid fire so we can stay on time for our next meeting -- What is your pandemic silver lining?
I always think challenges like this remind you that life is what you make of it. And you create your own expectations, which allows you to have joy that emanates from the expectations you set. 🍁 For us, it's been having more time with family. I used to commute a lot and travel a lot. Now I spend a lot more time with family, which has been great. My 5th grade son and I worked together to build our own computer these past few weeks, for instance. I am not a computer person, so it took a lot of work and a lot of patience, but I know I would not have had that time otherwise to spend. And so, you kind of find those moments that that make it all right.
Super awesome, Michael, thank you so much. Michael Davis is head of U.S. institutional defined contribution plan specialists for the Americas at T. Rowe Price. In this role, he leads the team responsible for expanding the firm’s reach and strategic engagement capabilities in the U.S. institutional defined contribution investment only (DCIO) segment. He is a member of the firm’s leadership team and plays a key role in guiding the group’s U.S. DCIO strategy. Follow Michael and his team on social media here. And you can reach Michael directly here.
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[i] MEPs are Multiple Employer Plans. A multiple employer plan is a plan maintained by two or more employers who are not related; those employers are sponsors of the plan. PEPs are Pooled Employer Plans where the plan sponsor role is outsourced to a professional third party, the Pooled Plan Provider, which serves as the named fiduciary and designated plan administrator. The SECURE Act of 2019 expanded the capabilities associated with MEPs and provided for the new PEP structure.
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This piece was featured in the December 17, 2020 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.
