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Viewpoints: Opinion and Commentary

People within and out of the industry speak out on a variety of issues related to 401k's. One of our most interesting areas, but remember, opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com.

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A Blueprint for Greater 401k Success

The reality of the nation's 401k system is that it performs remarkably well and is serving more people who are saving more money than ever before. In light of criticism from those who wish to eliminate or significantly alter the 401k, the author suggests that it's best to show how it is effective and offer some areas for needed improvement, which he does here.

Source: Empower.com, May 2024

Critiquing the Retirement Crisis

Is there a retirement crisis? By any number of objective measures, the answer is no, or at least not yet. The actual data from real tax returns suggests that those in retirement are faring pretty well, certainly compared with pre-retirement. Moreover, those living in retirement seem more confident about their continued prospects than those viewing it from the pre-retirement perspective.

Source: Asppa.org, May 2024

Viewpoint: The DOL's Hurried Fiduciary Rule Poses Lasting Harm to Investors

Elena Barone Chism, Deputy General Counsel, Retirement Policy, at ICI, writes, "Regrettably, the Department of Labor is rushing to finalize a fiduciary advice rule that threatens to roll back that progress. If implemented, the rule would lead to fewer choices in the marketplace and less access to financial advice and guidance -- losses that would fall heaviest on middle-class investors."

Source: Ici.org, April 2024

Labor Economist Says 401k Era Is Ending

Labor economist, policy consultant, and TikTok creator Kathryn Anne Edwards in a recent webinar with the National Institute on Retirement Security, argued that 401k plans alone are failing to solve the retirement crisis in America and that the federal government needs to take a more active role in provide access to retirement savings.

Source: Plansponsor.com, April 2024

Thinking in Bets: Using Behavioral Psychology to Improve Fiduciary Prudence: Opinion

The author writes, "I am still waiting for someone to truthfully explain to me how a product is in the best interests of a plan participant and their beneficiaries when that product requires the annuity owner to surrender ownership of the annuity contract and the accumulated value to the annuity issuer in order to receive the contractual alleged, with no guarantee of the investor receiving a commensurate return, incur excessive, and often counterintuitive, fees, potentially reducing an investor's end-return by one-third or more, and forego any estate plans of providing any remainder interests for one's heirs."

Source: Fiduciaryinvestsense.com, April 2024

Fiduciaries Incite Revenge of the Baby Boomers

The author suggests that "The next time target-date funds suffer large losses, Baby Boomers won't care that risk was rewarded until it wasn't. They'll be angry that academic theory was not followed because the theory would have protected them. After all, TDFs say they follow the theory, but they don't, they're much riskier. 78 million Boomers are currently in the 'Risk Zone.' Many are in TDFs."

Source: 401kspecialistmag.com, March 2024

Defending the 401k With ICI's Sarah Holden

The 401k has been under attack on multiple fronts lately. ICI has been very active in debunking recent attacks on defined contribution plans, and Sarah Holden, senior director of retirement and investor research at the Investment Company Institute, makes some great points in defense of the 401k in this podcast.

Source: 401kspecialistmag.com, March 2024

Viewpoint: The US Retirement System: Working for America's Middle Class

The US retirement system is the envy of the world, thanks largely to the success of defined contribution plans -- such as 401ks -- and individual retirement accounts. Together with Social Security, employer plans and IRAs have helped build the middle class, giving millions of everyday Americans a financially secure retirement.

Source: Ici.org, February 2024

Index Funds Have Officially Won

The inevitable at last arrived. Last month, for the first time, passively managed funds controlled more assets than did their actively managed competitors. For the most part, the public discussion of indexing's ascension has been unhelpful. The prevailing argument, that indexing's success has distorted stock market prices, is both unprovable and improbable. The second claim is that a handful of index-fund providers have control of too many assets. Perhaps that is so, but what specific threat do they pose? At this stage, that concern is preliminary. Meanwhile, few outside of the occupation itself have commented on an actual and profound outcome: indexing's impact on the financial advisory business.

Source: Morningstar.com, February 2024

"Fiduciary" Should No Longer Be the Cornerstone of Our Profession: Opinion

The financial services industry needs a professional standard, particularly one that is regulatory agnostic so that we're no longer subject to the vagaries of politicians and regulators. Because when the roles of politicians and regulators become indistinguishable, the result will often be complex rules and regulations that do more harm than good.

Source: 401kspecialistmag.com, December 2023

Lessons From the Cornell Excess Fee Dismissal

The summary judgment record, which was upheld on appeal, suggests that the Cornell fiduciary committee had a robust fiduciary process as demonstrated by a series of calculated changes over many years. After years of deliberation under the guidance of a leading financial advisor, Cornell fiduciaries made drastic and wholesale changes to its entire investment menu. This is the opposite of the typical Schlichter law firm imprudence trope that plan fiduciaries were "asleep at the wheel." In the opinion of the author, investment and recordkeeping fee changes are proof positive of proper fiduciary management.

Source: Euclidspecialty.com, December 2023

Facts Don't Back Recent Criticism of Voluntary Retirement Plan Market

The author writes, "America's voluntary retirement plans are the envy of the world. Countries like Japan, South Korea, and the U.K. are trying to replicate the remarkable success of 401k plans and individual retirement accounts (IRAs), which have helped Americans from all walks of life build financial security and generational wealth. Yet, it's become fashionable to question the architecture of our retirement system, particularly voluntary retirement plans."

Source: 401kspecialistmag.com, November 2023

Shifting the 401k "Balance"

IBM recently announced that they were making changes to its 401k. While it's certainly an interesting move, it seems unlikely to catch on more broadly. Retirement savers have not only long understood and appreciated the value of an employer match, and so seem unlikely to embrace "losing" that to a new plan they don't understand. As for plan sponsors, a big design change that requires sensitive and ongoing communication will almost surely give pause to even the most innovative. That said, it should serve as a reminder that plan designs can, and should, serve multiple purposes.

Source: Napa-net.org, November 2023

Seven Steps Toward a New Paradigm for Retirement

The author suggests that the conventional wisdom on retirement is misguided. The approaching exhaustion of the Social Security and Medicare trust funds has stoked anxiety over the disappearance of these programs' support, while dire statistics about Americans' lack of retirement assets have propelled a belief of chronic under-saving. In the aggregate, neither view is quite right, and this mischaracterization has unearthed calls by some to dismantle the entire system. While the current system has serious flaws, however, it is still worth saving. To do so, policymakers need both an accurate assessment of the system's shortfalls and a menu of plausible options to improve them.

Source: Georgetown.edu, November 2023

Has ERISA Class Action Litigation Made a Positive Difference for Plan Participants?

The author writes, "A recent article this month in Pension & Investments asked ERISA lawyers whether class action litigation has made a positive difference for plan participants. The premise of the article was that while many critics issue harsh assessments about class action litigation, plan participants have nevertheless seen positive changes and fee reductions from the litigation.... Plan administration and investment fees are universally lower for nearly every plan, and large plans have adopted best fiduciary practices that include advice and monitoring of investments by sophisticated investment advisors. [But] the current slate of cases have an entirely different agenda."

Source: Euclidspecialty.com, November 2023

Why Smart Fiduciaries Avoid Annuities

In the current campaign by annuity advocates to increase the use of annuities within 401k and 403b plans, the advocates argue that plan participants desire guaranteed income for life. But do plan sponsors and plan participants understand how such annuities work and the associated costs involved? As the late fee-only insurance adviser Peter Katt used to caution, "But at what cost?"

Source: Fiduciaryinvestsense.com, September 2023

Why a Meaningful Benchmark Is Needed in the Intel Investment Imprudence Case to Prevent a Hindsight Attack Against Fiduciaries

Participants label Intel's use of hedge funds and alternative investments to hedge volatility as "institutional gambling," but compare the results to funds with higher-equity allocations that ironically are higher-risk investments. Just because the higher-risk funds did better in a long bull-market is not evidence of fiduciary imprudence, but rather the classic deficiency of ERISA malpractice lawsuits that use outcomes as a proxy for fiduciary imprudence.

Source: Euclidspecialty.com, August 2023

What the Verdict in Yale Tells Us About My Time-Tested Way to Reduce Excessive Fee Litigation Against Plan Sponsors

The author writes, I was "vindicated, when Yale University prevailed at trial last week on one of the most significant ERISA excessive fee class actions ever filed -- a statement I do not believe is hyperbole when one considers the plaintiffs' counsel, the bellwether nature of the action in relation to all of the other similar actions filed against prominent universities, the brand name of the defendant, the circuit and, yes as well, the publicity. It also should not be overlooked that this was not just a trial, but a jury trial, with the jury returning a verdict in favor of the plan sponsor rather than in favor of the university's employees, despite the concerns voiced in some corners of the ERISA bar over having a jury, rather than a judge, decide the case."

Source: Bostonerisalaw.com, July 2023

Credit Cards Linked to 401ks May Be Best Way to Provide Emergency Savings

Alicia H. Munnell, columnist for MarketWatch and director of the Center for Retirement Research at Boston College, says, "For 20 years, I have liked the idea of attaching a credit card to 401k accounts so that account holders would have an easy source for emergency saving. My colleagues mocked me mercilessly. Now that they have moved the need for emergency saving to the top of the retirement policy agenda, some -- not all -- admit -- at least privately -- that a 401k credit card may not be such a bad idea after all."

Source: Bc.edu, June 2023

401ks Increasingly Under Attack in Wake of SECURE 2.0 Passage

Despite SECURE 2.0's passage, 401ks face increasing attacks, with the latest salvo coming from an opinion piece published in Politico. Social Security is just one part of the retirement system, notes the provocatively titled "Before Slashing Social Security, Cut 401ks." Talk of cuts to the others, including defined-benefit and defined-contribution plans, rarely occurs, something author Matthew Bruenig argues should change.

Source: Napa-net.org, March 2023

Are Retirement Plans Too Complicated And At Risk Of Becoming Even More So?

Albert Feuer, who writes frequently on the technical aspects of ERISA compliance, has published an interesting new article in Bloomberg Tax's Tax Management Compensation Planning Journal on the latest proposed legislation to alter retirement savings. Albert points out that the changes would help in allowing employees to increase their retirement savings, but would fail to either address the complexity of the system or the extent to which it allows a small percentage of taxpayers to use retirement accounts to shelter massive amounts of wealth far beyond that needed to fund retirement.

Source: Bostonerisalaw.com, November 2022

So Far, Retirement Crisis is a "No-Show": Andrew Biggs

"For decades, Americans have been told we are terrible retirement savers. We aren't offered a 401k; if offered, we don't participate; if we do, we don't save enough. But these warnings of an imminent retirement crisis have now been around for so long that we can check whether their dire predictions have come true. So far, the retirement crisis has been a no-show."

Source: 401kspecialistmag.com, September 2022

When Should Sanctions Be Imposed in ERISA Class Actions?

Sanctions are a rarely utilized tool to combat abusive litigation. This is because most high-profile defense firms rarely seek sanctions, as well as the fact that modern courts tolerate most lawsuits. But if you apply the sanctions standard of the Great-West case to many of the skyrocketing numbers of ERISA class actions being filed today, it is clear, says the author of this article, "that sanctions should be imposed in many of the recently filed cases."

Source: Euclidspecialty.com, August 2022

The O'Reilly Automotive Excessive Fee Case is Based on False Recordkeeping Fees

The author writes, "Plaintiff law firms and their clients have the correct numbers, but continue to file misleading lawsuits... This time it is a case filed by the Capozzi Adler law firm on May 2, 2022, against O'Reilly Automotive, Inc. The lawsuit of former O'Reilly employees alleges that the recordkeeping fee was $49.55 per participant in the last year listed in the lawsuit. But that number is wrong. Plaintiffs ignored the truthful data from their participant fee disclosure that the actual recordkeeping fee was a very reasonable $31 per participant."

Source: Euclidspecialty.com, May 2022

What Assets Belongs in 401k Plans?

The author writes, "First, 401k plans are privileged. They enjoy a tax benefit, courtesy of the government. In exchange for its benefit, the government has the right to oversee how those plans are run. Second, 401k regulation operates largely through trial and error. Defense lawyers police plan sponsors by filing lawsuits. The process is inefficient. Adding bitcoin and private-equity funds as plan options would spur more suits, thus incurring more waste."

Source: Morningstar.com, April 2022

Make Pensions More Like 401ks

Policymakers are studying how to engineer 401ks and other DC plans to function more like pensions. The goal is to assist retirees in managing their mortality, investment, and inflation risks. A traditional pension automatically manages these risks without any worker involvement. And, benefit dollar-for-dollar, pensions are more economical than DCs because pensions enable individuals to share these challenges and offload most decisions to professional managers. In this 3-page editorial, the author suggests the solution may be to build a better pension plan rather than make DC's more pension-like.

Source: Klgates.com, March 2022

Do Employers Need a CISO for ERISA Compliance?

As DOL investigators grapple with applying the Guidance along with their internal resources, it remains unclear whether they will be fixated on requiring in all cases an express designation of a Chief Information Security Officer by all retirement plan sponsors and plan service providers. Of course, it will be important for organizations to clearly define and assign information security roles and responsibilities. The lack of a CISO designation alone should not necessarily mean an organization's data security efforts are rudderless.

Source: Benefitslawadvisor.com, March 2022

Presenting the Future: Six Retirement Policy Challenges

The author writes, "As the new year begins, here are the big retirement policy challenges we're facing, in my view. Note that these are our long-run problems, as opposed to, say, clarifying the rules on ESG investments or for fiduciaries who provide advice."

Source: Asppa.org, January 2022

The Real Retirement Fraud

The author writes, "A new paper rehashes (and embraces) some old beliefs, blatantly ignores the full impact of workplace savings, disregards the reality that deferrals are temporary, and kills a lot of trees in the process. The diatribe's author, perhaps because he's affiliated with a law school, perhaps because the paper (provocatively titled 'The Great American Retirement Fraud') is so long (82 pages), managed to get what amounts to a long-winded pontification published by the Social Science Research Network, a network that normally publishes research."

Source: Napa-net.org, January 2022

The Great American Retirement Fraud

The author writes, "Despite the benign but misleading rhetoric about enhancing retirement security for everyone, the real beneficiaries of the retirement-reform legislation have been higher-income earners, who would save for retirement even without tax subsidies, and the financial-services industry, whose lobbyists have driven the retirement-reform legislative agenda."

Source: Ssrn.com, January 2022

The U.S. "Retirement Crisis" Is a Media Myth

Seemingly every day, we are inundated with bad news regarding retirement. But when we simply look at the data, a very different story emerges. Never before have so many Americans saved so much for retirement, nor had stronger incomes in old age or lower risk of poverty.

Source: Thinkadvisor.com, December 2021

Our Demographic Destiny and Why Retirement as We Know It Is Dead

The future of retirement security may depend on whether we understand our demographic future. We need to pay attention because we are approaching the "Super Age" and failing to adapt today's system to be able to meet the needs of tomorrow.

Source: Georgetown.edu, December 2021

Back to the Future, Investment Fiduciary Style

With the Supreme Court's new term scheduled to begin in a few days, we move closer to the Court hearing the Northwestern University 403b case. The author believes that this case has the potential to be a landmark case, not just regarding the future of 401k and 403b litigation, but also for fiduciary litigation in general.

Source: Iainsight.wordpress.com, September 2021

Proposed 5500 Reform Won't Help 401k Fee Benchmarking

The author writes, "This month, the Department of Labor, IRS and Pension Benefit Guaranty Corp proposed changes to the Form 5500 -- a report most 401k plans must file annually to meet ERISA requirements. Two changes would require large Form 5500 filers to report more 401k fee information. I think more fee reporting is necessary. The reason? The changes won't fix my biggest beef with the Form 5500 today -- it does not report the data necessary to develop public and reliable 401k fee benchmarks."

Source: Employeefiduciary.com, September 2021

Cryptocurrency Funds Are Too Risky for 401k Plan

Should the next change to your 401k plan be the addition of a cryptocurrency fund? A few recordkeepers have made it possible to offer a cryptocurrency fund in 401k plans. Here's why the author thinks adding a cryptocurrency fund is a bad idea.

Source: Lawtonrpc.com, August 2021

Offering Cryptocurrency Investments in a 401k Is Irresponsible

Opinion: Recently, a 401k provider, hoping to capitalize on the cryptocurrency fad, announced that it was going to allow 401k plans it works with to access cryptocurrencies as investments. This is a horrible development for 401k plan participants. Here's why.

Source: Lawtonrpc.com, June 2021

The Strong Case for a Retirement Savings 'Lost and Found'

Opinion: Past proposals for an Office of the Retirement Savings Lost and Found offered good examples of how the federal government could serve an important, ancillary role alongside the private sector in our nation's 401k system. However, the current proposal for a Lost & Found contained in the draft SECURE 2.0 bill goes too far by including provisions that dramatically expand its purpose, scope, and scale, creating a massive, government-run repository of micro-balance accounts.

Source: Planadviser.com, June 2021

Withdrawing 401k Funds After Retirement Is Not the Problem

Opinion: The big problem isn't helping people distribute their retirement assets to last their lifetime. The big problem is getting people to accumulate the assets they'll need in retirement. This shouldn't be news to anyone who follows the retirement industry. Most Americans haven't saved the money necessary to afford a comfortable retirement.

Source: Pension-consultants.com, May 2021

More Weak 401k Criticism Doesn't Stand Scrutiny

Opinion: CBS News is the latest media outlet to take a swipe at 401ks by employing the extremely in-vogue income inequality argument. They conveniently ignore the steep rise in coverage and participation due to auto-enrollment, innovation in the form of target-date funds, and recent legislative success that primarily benefits smaller companies.

Source: 401kspecialistmag.com, March 2021

Plan Sponsors Take Note: Age Of Index Investing Has Passed

Opinion: Guess what, the best performing U.S. stock mutual funds in 2020 were actively managed. As employers consider what they should stress this year in their employee education sessions, they may wish to keep this trend in mind.

Source: Lawtonrpc.com, February 2021

SECURE Act 2.0 Would Solve Longstanding Pension Problems

Opinion: Building on the framework of the SECURE Act, Representatives Richard Neal and Kevin Brady have introduced the Securing a Strong Retirement Act of 2020, already being referred to as SECURE Act 2.0. SECURE Act 2.0 contains changes that would further encourage plan adoption and retirement savings, as well as solutions to operational problems that have bedeviled plan sponsors for many years.

Source: Cohenbuckmann.com, December 2020

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