Of things we consider meaningful in life — community, purpose, personal growth — benchmarks don’t usually come to mind.

But in the world of 401(k)s, meaningful benchmarks are pretty high up there. That was highlighted this week in oral arguments the US Supreme Court heard in a case known as Anderson v. Intel Corporation Investment Policy Committee. The matter arose after employees sued Intel for using a default 401(k) plan investment option that included private assets to hedge against excessive losses. Plaintiffs claimed the fund in question has lagged the S&P 500 and was an imprudent choice. The defense countered that plan administrators didn’t select it to maximize performance and that the plaintiffs’ failure to offer a meaningful benchmark should render their claims moot.

Prior appellate rulings in this and related cases have reached conflicting conclusions about the role of “meaningful benchmarks” in the assessment of fund performance complaints of this nature. Now, the top court could settle the matter.

Intel for Dummies

A Supreme Court decision backing Intel would mean that plaintiffs in some jurisdictions could face a bigger hurdle for claims involving investment underperformance under the Employee Retirement Income Security Act. That seems like the probable outcome based on the tenor of the majority of the justices’ questions during the Tuesday hearing, several attorneys told the Retirement Upside. But that’s far from a guaranteed outcome at this point.

A pro-Intel ruling could spare future defendants from the substantial time and expense of discovery, though the implications for excessive-fee claims will depend on the court’s reasoning and the scope of the decision, said Bonnie Treichel, founder of Endeavor Retirement.

“A more detailed definition of a ‘meaningful benchmark’ would provide greater certainty but could also provide a checklist for plaintiffs’ firms drafting complaints,” Treichel noted. “Remember, as well, that the DOL’s proposed investment selection rule uses ‘meaningful benchmark’ as a criterion in fund selection and review.”

Investor Protection. Regardless of who prevails in the case, one thing is sure. The oversight of retirement plans remains a serious business that involves evolving-but-exacting legal standards and significant responsibility for plan administrators. That’s as it should be, according to Dominick Freda, legal director at Better Markets, which filed briefs in the case supporting the plaintiffs.

“American workers depend on their 401(k)s to retire with dignity,” Freda said. “There should be high standards in place protecting investors. The workers in this case claim that their plan managers gambled with their savings … and then refused to change course despite predictable underperformance. We hope the Supreme Court will agree that those allegations state a plausible ERISA claim, which is enough to let the lawsuit move forward.”

What does a retired retirement researcher do with his free time? More retirement research of course!

That’s the case for Bill Bengen, anyway, also known as the father of the 4% rule. Publication of the safe spending rule back in 1994 made Bengen a household name in retirement planning (if such a thing exists). Among his recent endeavors was the analysis of dynamic spending frameworks utilizing Guyton-Klinger Decision Rules, and his latest work examines a retirement strategy attributed to Warren Buffett. Spoiler alert: Bengen considers Buffett’s idea a “roaring success” on a technical basis, though some advisors question whether it would suit their clients.

“Not very surprising that the math works, given Warren Buffett’s reputation as a financial genius,” Bengen told Retirement Upside.

Buffett on Retirement

Buffett’s retirement strategy is fairly straightforward (and it doesn’t even include paying for fast food with coupons, as he famously has). He suggests retirees cover essentials with a combination of Social Security and annuities, while discretionary spending comes from an investment portfolio of 65% equities, 20% bonds and 15% cash. The lynchpin of the strategy is to avoid selling stocks during bear markets, instead relying on the cash buffer or on the bond allocation if necessary, while fund income dividends are paid to the cash account. Finally, as with the classic 4% rule, the income rate is adjusted for inflation each year.

Some key findings:

• The safe portfolio spending rate for the Buffett strategy is about 5.5% to 5.8%, Bengen said.
• That’s lower than comparable inflation-adjustment strategies that allocate less to a cash buffer, but not by much.
• Dynamic spending frameworks are better at maximizing the safe starting spending rate outright, Bengen said, but Buffett’s approach is viable.

Realistic? Maybe Not. While they respect the math, some advisors questioned whether the Buffett strategy is realistic.

“Saying people should just put most of their spending needs into guaranteed income sources assumes people don’t require much return in their portfolio,” said Chad Holmes, founder at Formula Wealth. “Most families need risk in order to achieve returns simply to keep up with compounding inflation over a multidecade retirement.”

Herman Schroeder, founder at Schroeder Capital Management, had a similar take. “Whether that works depends on the person and how large the equity portfolio is relative to what they need to spend,” he said. “Right now, I would rather use short-term bond funds with attractive yields as the near-term spending bucket instead of that much idle cash.”

Another said that 15% cash is way too much, especially if a client’s net worth is higher than $5 million. “You should have about 12 months of cash reserves on hand for retirement,” said Michael Walstedt, founding advisor of Reliant Wealth Advisory. “I would also say people are generally hoping for their Social Security to contribute toward essential expenses, but most people aren’t really as familiar or open to annuities.”

What do Dolly Parton, Jimmy Buffett and Michael Jackson all have in common?

If you said they’re all late chart-topping musicians with millions of devoted fans, you’d be right. There’s something else, less fortunate: ongoing disputes about their estates. Dueling parties with interests in Parton’s estate were in court just this week, in fact, with a judge granting the late singer’s nephew (and former security guard) more time to prepare to defend himself against a restraining order filed by She’s Alive, the entity founded to manage and protect Parton’s assets and intellectual property interests.

While most financial advisors don’t work “9 to 5” for world-famous musicians, there’s still a lot for them to learn from headline-grabbing estate disputes — starting with the fact that not every estate planning dispute is avoidable, said Sean Houghton, director of New Hampshire Shores Trust.

“That’s certainly true, but a solid plan and proactive communications can help prevent the worst outcomes,” he said.

‘More Where that Came From’

While he’s not privy to nonpublic details, Houghton suspects that Parton’s plans are well thought out, and that She’s Alive will be able to maintain control, per her expressly stated wishes.

“Dolly was known for being savvy financially, and she was vocal during her lifetime about wanting this stuff to be buttoned up and not have people fight over her legacy,” Houghton said. “That’s another big lesson in itself for advisors to take away.”

Setting expectations is paramount, especially in cases where there could be some ambiguity, said Jennifer Goode, senior national director of the Wealth Strategies Group at Bernstein Private Wealth Management. Parton died without having had children of her own, for example, which changes the default assumptions about estate planning.

“When people first look for help with estate planning, we find they’re often running away from something, whether that’s a tax bill or worries about how the next generation will behave,” Goode said. “The most effective planning happens when people are running toward something, when they have a vision of what they want to achieve, and Dolly was a great example of that.”

‘It’s All Wrong, But It’s Alright.’ Another lesson to learn from Parton’s legacy is the need to confront our own mortality. “A lot of people will kind of sign documents and then just ignore the estate planning topic for years or even decades because it’s uncomfortable to think about mortality,” Goode said. “Like Dolly, we try to flip that on its head and emphasize the idea of proactively creating clarity about one’s legacy, whether it’s going to charities or the next generation.”