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.
Alternatives -- such as private equity -- pose a few problems for investors like participants in self-directed defined-contribution plans (such as 401k, profit sharing, 403b, and 457 plans) or any investors, for that matter. The author reviews these problems.
Source: Morningstar.com, July 2020
Private equity fund executives convinced the Department of Labor to issue a letter, dated June 3, 2020, approving the use of private equity investments within 401k plans. The decision pleased few outside the private equity industry. When the author wrote last year that the Labor Department was evaluating if private equity funds belonged in 401k plans, reader response was uniformly negative. The press reaction to the Labor Department's June release has been similar.
Source: Morningstar.com, June 2020
The author writes, "It's no surprise that politicians and number-crunchers were worried about Social Security in 1981, and state and local governments have been kicking the can with respect to their pension funds for far longer than these 39 years. But it's startling that even on a wholly arbitrary day, there's so much material to illustrate this. And it's still important to bear in mind how very longstanding these issues are when debating them now."
Source: Forbes.com, May 2020
The author writes, "What's the difference between a file clerk and a fiduciary? Come June 30th, not much. A clerk is employed to perform menial office tasks. They're told what to do, have little or no discretion, and are not entrusted with critical decision-making. That may describe you in less than 45 days. The SEC's Reg BI is going to cause more harm than good. To illustrate, let's examine the concept of 'fiduciary' in 3D."
Source: 401kspecialistmag.com, May 2020
Fiduciary buyers bear virtually all the legal responsibility, but it's the nonfiduciary sellers that largely control them, argues Scott Simon. While a recordkeeper's business model is good for the recordkeeper's company, the model is often destructive to plan participants.
Source: Morningstar.com, April 2020
Wealthy individuals and institutional investors such as pension plans have access to an important kind of investing that most middle-class Americans are denied. This is inequitable, and it leads to worse outcomes for retirement security. Plan sponsors know this, and are trying to change it. They need some help in Washington.
Source: Georgetown.edu, February 2020
Each year, approximately 5 million Americans with small retirement accounts change jobs and are forced by their former employers to take distributions from their retirement savings accounts. This sets off a complicated process that often leaves the individual with less savings set aside for retirement. Auto-portability is an approach that would automatically transfer savings to active retirement plans with the new employers when workers are subject to mandatory distributions. The system would tap into existing recordkeeper databases to match the worker's active retirement account and move it automatically from the old employer's plan to the new employer's plan.
Source: Georgetown.edu, February 2020
Opinion. The 401k system has reached its limit. There has been significant progress, but the problems of the system cannot be fixed incrementally. Morningstar's policy analysts have diligently suggested enhancements that work within the existing structure. Unfortunately, those changes can only accomplish so much. They won't make employer-related retirement plans universal, and they can't prevent leakage. The author suggests a New American Retirement Plan.
Source: Morningstar.com, January 2020
The author writes, "Many parties will be affected by the SECURE Act, and many entities will profit. However, you may be surprised to learn that the average American's ability to retire sooner, with more security or even at all, is not materially improved by the Act."
Source: Lawtonrpc.com, January 2020
The author writes, "The accepted wisdom among the retirement plan adviser intelligentsia is that Triple F advisers, those focused on fees, funds and fiduciary, are passe at best and dangerous at worst. Some elite plan advisers self-righteously proclaim that we must shift the focus to improving participant outcomes."
Source: Investmentnews.com (registration may be required), January 2020
There are many retirement plan features that add tremendous value to both plan sponsors and participants. However, there are also numerous plan features that are relatively useless, mostly because they are impossible for participants to understand, cause administrative nightmares, and/or add little in the way of benefit to plan sponsors or participants. Here are the top five.
Source: Cammackretirement.com, December 2019
Another presidential candidate has proposed to pay for a campaign promise with a tax on retirement savings. Brian Graff writes here, "these incredibly misguided proposals apply to all transactions relating to retirement plans -- 401ks, DB plans, and even those significantly underfunded union multiemployer plans. With 401ks it applies to every contribution, every rebalance, the internal transactions when active mutual funds are managed, and so on."
Source: Napa-net.org, July 2019
Saving for retirement can be a perilous endeavor in the U.S., thanks in part to the Trump administration's moves to weaken safeguards against unscrupulous sellers of financial products. Now Congress is poised to make things worse, by undermining protections governing the country's most popular investment vehicle, the 401k plan.
Source: Investmentnews.com (registration may be required), July 2019
In a country of 325 million people, it's certainly not hard for reporters to find legitimately heart-rending stories of Americans who, for one reason or another, reached retirement age with inadequate savings. But an accurate picture depends on data, not anecdotes.
Source: Aei.org, July 2019
In this day and age, a plan fiduciary unable to see the potential for employer-security-related litigation is perhaps unworthy of the role, and a dual-role plan/corporate fiduciary unable to appreciate the potential for a conflicted duty vis-a-vis his or her fiduciary responsibility to the retirement plan is surely living in a state of active denial.
Source: Napa-net.org, June 2019
Some would assert that too much employer financial support is already diverted to workers who will not remain with the employer and ultimately retire from the firm. Because plan sponsors have voluntarily adopted eligibility and vesting limits, any new mandates that would increase the portion of rewards allocated to younger, short service workers would be inconsistent with a plan sponsor's existing rewards strategies and preferences.
Source: Psca.org, May 2019
The American retirement system is in urgent need of repair. Projections show that around half of all American households are not saving enough for retirement. Many Americans don't have access to saving plans at work, and those who are saving need better options for turning their wealth into security. Policymakers are acting. The Senate recently introduced the Retirement Enhancement and Savings Act and the House Ways and Means Committee passed the Setting Every Community up for Retirement Enhancement Act. These bills both work to improve the issues with today's retirement policy.
Source: Brookings.edu, April 2019
The author writes, "As retirement plan sponsors and advisors, we need to enhance participants' understanding of their options and consequences, because taking a distribution at the wrong time (i.e., early in one's working career) is not only a tax disaster, but totally defeats the power of compounding. Just as saving at an early age is critical to retirement success, so is leaving the money in place!"
Source: Cammackretirement.com, April 2019
In multiple lawsuits, Fidelity Investments is being accused of charging excessive, undisclosed 401k fees. At issue is an "infrastructure fee" the company demands from some third-party mutual funds in return for access to Fidelity 401k clients. Fidelity claims the fee is not 401k-related. The lawsuits claim otherwise, saying the fee represents indirect compensation, a form of 401k fee that Fidelity must disclose in a 408b-2 fee disclosure to be legal under ERISA. In the author's opinion, the infrastructure fee represents indirect compensation.
Source: Employeefiduciary.com, April 2019
One myth is that state mandates expand opportunity to retirement savings, especially for low-income workers. They don't. OregonSaves initially defaults worker contributions into a conservative capital preservation fund before redirecting contributions to a life-cycle fund once balances exceed $1,000. Since inception in 2004, the capital preservation fund has offered a paltry nominal return of 1.52%. OregonSaves also assesses a 1% administrative fee regardless of investment choices, further diminishing this return.
Source: Cato.org, March 2019
If we can't count on more employers to voluntarily offer retirement benefits or on employees saving on their own, what can we do to help American workers build a financially secure retirement? Recent actions at the state and federal levels point to a system that could cover more people without relying solely on individual employers to sponsor their own retirement plan.
Source: Pewtrusts.org, March 2019
Over the past couple of years, the retirement industry has been increasingly promoting the concept of the ERISA 3(38) fiduciary and how this is much better than hiring a firm that will "only" be an ERISA 3(21) fiduciary. The 3(21) vs. 3(38) decision is actually just a minor decision point when it comes to choosing the right advisor for your retirement plan and the benefits of a 3(38) fiduciary are often heavily oversold by the retirement industry. A 3(21) vs. 3(38) engagement only describes an advisor's legal relationship with your plan and, in most cases, actually has no real bearing on the capabilities of the advisor.
Source: Greenspringadvisors.com, February 2019
Instead of being fleeced by high-cost 403b plans, what would a truly great 403b plan look like? A 403b plan featuring investment options low in costs (and, yes, broadly and deeply diversified to reduce risk), one that would place the interests of too-often abused educators first before the salespeople and insurance companies.
Source: Morningstar.com, February 2019
The Department of Labor is considering new rules to facilitate retirement saving in workplace retirement accounts for sole proprietors and the owners and workers of small businesses. While these rules are a small step in the right direction, Congress must simplify saving for retirement and other needs for all Americans. Congress and the Administration should work together to simplify saving for all Americans. Universal Savings Accounts should be first on their agenda.
Source: Heritage.org, January 2019
The proposed rules that the DOL just published offered pretty much nothing. While it offered more guidance on how associations and professional employer organizations could sponsor MEPs, it did nothing with its restriction on requiring commonality among adopting employers. So the door for Open MEPs remains closed.
Source: Jdsupra.com, October 2018
The author writes in this opinion piece, "I continue to enjoy reading analyses on the SEC's BI proposal. These are analyses from industry leaders, people who I greatly admire and respect. When people ask my opinion, I just tell them it is all just a cruel game, that the SEC has never intended to protect the public with a meaningful universal fiduciary standard, that the SEC will never do so, as it would jeopardize their own careers and risk incurring the wrath of Wall Street."
Source: Iainsight.wordpress.com, October 2018
The defined contribution world is poised for change. It will take time -- $20 trillion systems aren't transformed overnight -- but don't let that fool you into underestimating just how big the change will be. This article reviews some of the themes to watch for.
Source: Pionline.com, October 2018
Plan sponsors and American employees are locked into an antiquated retirement system that has not kept pace with changing demographics, and according to industry experts, US lawmakers and new strategies can help.
Source: Benefitnews.com (registration may be required), August 2018
Over the last few years there have been those of us in the industry who have advocated for a better way, one that eliminates the fiduciary dysfunction we currently see in the small employer market. The better way is through the aggregation of the plans of unrelated 401k plan sponsors into single plans called multiple employer plans.
Source: Fiduciaryplangovernance.com, June 2018
Sophistication gaps always cause vulnerabilities because one can potentially take advantage of another and cause harm. There is an ethical element to this that seems to be absent in many dialogues with regards to this subject that is inevitably inescapable but is rather hard to grasp because its obligation was not created by a contract.
Source: 401khelpcenter.com, June 2018
Retirement savers, regulators, advisors, and plan sponsors all want to know the same thing: Is a given 401k plan meeting participants' needs? Which participants does the plan serve the best? Further, workers need to know whether leaving money in their 401k is the best option after a job change or retirement. These are critically important questions and fixing the Form 5500, would help.
Source: Morningstar.com, June 2018
The author writes, "Most of us are probably familiar with the children's stories of Chicken Little and the Boy Who Cried Wolf. I can't help but think about these tales when I see all the doom and gloom reporting about retirement savings in the media and from the lips of some of my financial industry colleagues."
Source: Financialfinesse.com, June 2018
The biggest trend being portended by the Financial Engines and Edelman Financial deal is one that the industry has missed so far. And that trend is the rise of human financial advice solutions directly in the 401k channel (as Financial Engines is ostensibly going to soon offer through Edelman Financial), which could be the beginning of the end of the 401k rollover bonanza.
Source: Kitces.com, May 2018
At a time when employers need more encouragement to help employees save for retirement, the trend at the IRS does the exact opposite. The increased risk that the employer takes on due to a lack of communication with the IRS, coupled with the increased expense of correcting any failure, is a move in the wrong direction.
Source: Ferenczylaw.com, January 2018
After all the hemming and hawing, gnashing and wailing, the tax bill (apparently) is set to pass. Not only does it preserve pretty much everything good about tax-advantaged retirement accounts, it's favorable in other, admittedly roundabout, ways.
Source: 401kspecialistmag.com, December 2017
A Key to Strengthening Retirement Security: Return to Designing Retirement Plans Focused on Lifetime Income Strategies
The problem with relying on a DC plan as a core or primary retirement plan is that DC plans were not designed to provide retirement security. As a result, these core DC plans are primarily focused on wealth accumulation and preservation while failing to offer workers options to help them manage their income to last a lifetime.
Source: Georgetown.edu, December 2017
Tax reform proposals working there way through Congress could have a dramatic impact on the retirement security of small businesses and millions of small business workers, according to an analysis by the American Retirement Association.
Source: 401khelpcenter.com, December 2017
Author writes, "Secretary Acosta's newly created loopholes, "good faith" and "willful" are inconsistent with long-standing fiduciary law, and the burden on Secretary Acosta and the department is to do their job and truly enforce the new fiduciary rule in order to carry out the department's mission."
Source: Iainsight.wordpress.com, November 2017
The DOL's Fiduciary Rule is now making it harder for families to save for their future. New research shows that the DOL rule is actually increasing the cost of investing and retirement savings for Americans. This threatens to put a secure financial future beyond the reach of those that need it the most.
Source: Uschamber.com, November 2017
ERISA fee litigation is moving downstream to smaller plans and that this ought to be a source of worry for small plan sponsors.
Source: Fiduciaryplangovernance.com, October 2017
Is the Fiduciary Rule perfect? Not by a longshot. Yet, the Economic Policy Institute says the cost to retirement investors of an additional delay could reach $7.3 billion over 30 years. It is also hard to see why a rule that went through the most lengthy comment and review process in recent memory should need extensive rewriting, or why those who had so much advance notice of the effective dates should need still more time to comply.
Source: Penchecks.com, September 2017
In recent appearances on Capitol Hill, SEC Chairman Jay Clayton and DOL Secretary Alexander Acosta pledged to work together on a fiduciary rule applying to stockbrokers and other financial advisers providing investment advice to the public. Both men are on record as saying any fiduciary rule must not curb the public's access to advice or products. The articles author writes, "That's all you need to know. Mr. Clayton and Mr. Acosta are clearly drinking the Kool-Aid supplied by the investment industry."
Source: Iainsight.wordpress.com, July 2017
In most professional settings, avoiding conflicts obviously matters. It's self-evident. Yet, in many quarters in brokerage and investment advice, it's not self-evident at all.
Source: Thefiduciaryinstitute.org, July 2017
If the large majority of people think lifetime income is important, then we need plans that promote it. Yes, those people can get lifetime income from their 401k, but if they are doing it through a commercial annuity, they have to purchase that annuity at "retail" rates. On the other hand, if they have a defined benefit plan, they can get better lifetime income from the same amount of money because they are getting the annuity at wholesale rates.
Source: Johnhlowell.blogspot.com, June 2017
It's time for health savings accounts and 401ks to get better acquainted. Consigning them to separate silos isn't helping employees save for retirement, which is costing employers a bundle of money.
Source: Shrm.org, June 2017
In short, in most cases as employees move from one large employer with a low-fee 401k to another, the smartest move would be to roll over their balances from the old plan to the new plan. But given the enormous hurdles, participants are much more likely to cash out or move their balances into a high-fee IRA. Cashouts and high fees dramatically reduce balances at retirement. This problem is fixable.
Source: Marketwatch.com, June 2017
The notion of widespread retirement shortfalls obscures the fact that the US retirement system works well for the majority of households, and deflects attention from those groups actually at risk in retirement, such as those retiring early because of poor health and those with limited work histories.
Source: Ici.org, April 2017
The U.S. and British golf associations recently announced that significant changes are being proposed to make the rules of golf easier to understand, and the game less time-consuming and more fun to play. Imagine what would happen if the DOL was put in charge of writing the Rules of Golf.
Source: 401khelpcenter.com, March 2017
Despite the news that advisers may not be legally required to provide advice that benefits their clients more than themselves (in the form of commissions and kickbacks), a lot of good come from the fiduciary rule already. There are at least four major benefits.
Source: Castlerockinvesting.com, March 2017
The authors of this article answer the question with "probably not." They state, "As a team of 401k and HR software veterans, we believe that there are vastly more important problems to be solved in most small and mid-sized businesses 401ks."
Source: Forusall.com, February 2017
By "crisis" we don't mean anything obvious like war, famine, or national penury. Instead, "retirement crisis" has come to mean simply that people aren't saving as much as they should and won't be able to retire with enough money to maintain their late-career standard of living. This is not a crisis. The real crisis is fiscal and global. Simply put, we've promised ourselves more retirement benefits than we can afford.
Source: Pentegra.com, February 2017
Under a fiduciary rule, there is only a legitimate need for one or two share classes at most. Thus, whether it's the DOL fiduciary rule, or one that follows within a few years from the SEC, what we'll soon see is an Armageddon that destroys most mutual fund and variable annuity share classes, as we complete the shift from selling whatever products we can get paid to sell, into advisors who actually sell advice and implement the best solutions we can at the lowest cost available.
Source: Kitces.com, February 2017
It appears that companies who manage corporate retirement plans for their clients can't even properly oversee their own 401k plans for their own employees from a fiduciary standpoint. Talk about a case of the "cobbler's children having no shoes"!
Source: Greenspringwealth.com, February 2017
Any law that holds human beings to the standards of an expert in any field is a high standard, and one that can be difficult to meet even with the ablest of expert assistance. It's often said that ERISA's prudent man rule is the highest duty known to law. But is that enough?
Source: Napa-net.org, February 2017
For all the people arguing that some dire problem in one of these three retirement systems urgently requires that we switch to another kind at once, the major problem with all three is the same. They're badly underfunded, but it's easy to fix.
Source: Bloomberg.com, January 2017
Undue complexity reigns in our statutory law and the regulations that govern defined contribution plans. Often this is due to a mishmash of legislation adopted over time, amplified by the regulations that follow. This creates unnecessary administrative costs for employers. In this article, Ron Rhoades proposes "one defined contribution retirement account to rule them all."
Source: Scholarfp.blogspot.com, January 2017
If or when the U.S. Department of Labor's new fiduciary rule gets smothered in its cradle by the incoming Trump administration -- as many expect it will be -- responsible financial advisors may still end up on top. So says Bob Veres, a leading proponent of fee-only financial advice for the past 30 years.
Source: Institutionalinvestor.com, January 2017
In this opinion piece, the author notes that "401ks were never intended to replace pensions, so it should be no surprise that they aren’t up to the task. This has been pointed out before, but it's nice to be reminded that even the people who came up with the 401k concept now 'lament the revolution they started.'"
Source: Epi.org, January 2017
It is important for participants to have the opportunity to work with advisors, planners, or other financial professionals who can help determine that course of action that makes the most sense. Unfortunately, the new fiduciary rule may limit participants’ access to professional financial advice and that could affect retirement outcomes in unexpected ways.
Source: 401kspecialistmag.com, December 2016
Ron A. Rhoades, J.D., CFP(R), is an Asst. Professor of Finance at Western Kentucky University's Gordon Ford College of Business, where he serves as Director of its Financial Planning program. This is his five-point financial services regulation wish list for the Trump administration.
Source: Sscholarfp.blogspot.com, December 2016
How long would it take the Department of Labor to change a light bulb? Several years, judging by progress on the even simpler task of mandating standardized lifetime retirement income disclosure for defined contribution pension arrangements.
Source: Russellinvestments.com, October 2016
By creating a "safe harbor" that allows states to mandate payroll deduction IRAs for these workers, the DOL fails to provide the protections afforded by ERISA to participants in these State-sponsored IRA plans. The irony is patent: IRAs are important enough to be caught within the ambit of ERISA's fiduciary rule, but large state plans using IRAs can otherwise avoid the myriad of other ERISA protections.
Source: Benefitsbryancave.com, October 2016
As commendable as it is when younger workers commit to contributing up to the matching percentage or beyond, there is a risk of disenchantment that may dampen their future 401k savings habits when they are, say, a mere 20 percent vested in their matching funds upon departure. The author looks at how might matching and vesting might be revamped.
Source: Shrm.org, October 2016
Ever since the DOL announced its new fiduciary rule, much has been made of the alleged "ambiguity" of certain aspects of the rule, such as "best interests" and "reasonable compensation," with suggestions that the meaning of the rule and the full extent of one's obligations under the rule will not be clear until the courts have interpreted the rule. The author thinks "those that adopt such a position may well be exposing themselves to unnecessary potential liability exposure."
Source: Iainsight.Wordpress.com, September 2016
Though some commentators seem to believe that QLACs will take the world of retirement plans by storm, especially when the Department of Labor finalizes participant statement requirements for lifetime retirement income projections, the writer believes that much of an increase in QLAC usage difficult to fathom.
Source: Asppa.org, August 2016
There was never a time when most Americans had traditional pensions, and most lower-income retirees collected little or nothing from such plans. But 401ks, which are more affordable to employers and thus more widespread, mean that more lower-income Americans are likely to reach retirement with private retirement plan benefits than ever before.
Source: Forbes.com, August 2016
Ron O'Hanley, president and chief executive officer of State Street Global Advisors, called on Congress to enact a national framework that ensures workplace coverage for all private-sector working Americans. Open letter outlines a suggested framework.
Source: 401khelpcenter.com, June 2016
Ron Rhoades writes, "I believe most advisers, and eventually most firms, will conclude that either fee-offsets must be undertaken (to return the arrangement to agreed-in-advance reasonable and levelized compensation), or they will simply switch to some form of level fee arrangement (assets-under-management percentage fee, annual retainer, fixed fee for discrete advice, subscription-based fees, and hourly fees). In other words, I suspect BICE will not be used all that much."
Source: Scholarfp.blogspot.com, May 2016
While details of the long and complex rule are still under review, Vanguard believes the DOL took significant steps to simplify, clarify, and streamline earlier proposed provisions.
Source: Vanguard.com, April 2016
While the industry axiom is that changes in the DC market start with the largest plans and move down market, there may be some outside forces that will affect smaller DC plans outside of larger plan changes. With that in mind, author shares his view of what the under $3 million plan market might look like in three years.
Source: Napa-net.org, March 2016
Author takes issue with a recent Washington Post story on why the 401k has not been a great solution for improving Americans' retirement security.
Source: 401kspecialistmag.com, March 2016
For a decade, plan sponsors and service providers have been in the crosshairs of plaintiffs’ lawyers. But the few cases have been litigated to conclusion in the courts with largely favorable results for plan sponsors and service providers. David Levine suggests something has changed and plan sponsors and service providers now face a dizzying world of contradictions.
Source: Napa-net.org, February 2016
Reuters reported last week that "some states have already started looking at introducing plans for private sector workers, leveraging the extensive infrastructure, know-how, and cost benefits they have acquired in running plans for public employees." Author writes, "I'm not sure how many states and cities could make such a statement and keep a straight face given their miserable history in 'running plans for public employees'."
Source: Linkedin.com, February 2016
We tend to assume that HR professionals inherently care about their DC plan, but is that really true? And if not true, how do we engage HR and benefits professionals in their retirement plan?
Source: Napa-net.org, February 2016
Author suggests that contrary to her assertions, Deputy Treasury Secretary Sarah Raskin's recent post on President Obama's plan to provide new retirement savings at work isn't going to create "inclusive prosperity."
Source: Huffingtonpost.com, February 2016
The DOL proposal designed to help states create retirement plans for private-sector workers would spur a confusing, state-by-state patchwork of savings programs that could lack the strict federal protections mandated for private employers' retirement plans, the Investment Company Institute said in a newly filed comment letter to DOL.
Source: Ici.org, January 2016
There is always a strong push and pull moving the industry in one direction or another, observes Josh Cohen, a 20-plus year industry veteran currently running DC business for Russell Investments.
Source: Plansponsor.com, January 2016
One persistent feature of the conservative attack on Social Security, and especially on the emerging campaign to increase benefits, is the notion that the typical American will do just fine in retirement just as it is. This opinion piece looks at the evidence and its implications.
Source: Latimes.com, January 2016
John Croke, senior product manager, Vanguard Portfolio Review Department, shares his thoughts on a common misperception about target-date fund investors and shares the results of a survey that offers valuable insights.
Source: Vanguardinstitutionalblog.com, January 2016