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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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Plan Sponsors Take Note: Age Of Index Investing Has Passed

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

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

401k Reform: How to Make Plans More Transparent

In this piece, the author says he would "love 401k reform that makes plans more transparent. 401k plans should offer objective value for participants and straightforward fiduciary responsibilities for business owners. Too often, they deliver neither. I think some common sense 401k transparency reform can help turn that around." He then outlines his proposal.

Source: Employeefiduciary.com, November 2020

What's "Eating" 401k Haters?

The author asks, "What exactly is (still) 'eating' 401k haters? Why, instead of looking for ways to undermine a system that works, or pushing for incentives to extend those benefits to everyone -- do they seem bound and determined to put those retirement savings on a 'crash' diet?"

Source: Napa-net.org, October 2020

The Dark Side of 401k Fiduciary

There's a common characteristic that links exemplary fiduciaries; it's their non-negotiable approach to moral discernment. They demonstrate a greater neurological capacity for binding procedural justice (moral discernment) with procedural prudence (prudent decision-making). Unfortunately, the exemplary fiduciary is becoming a rarity. There are three reasons why.

Source: 401kspecialistmag.com, October 2020

Is the 401k System Unfair? What Would Make It Fairer?

Michael Barry, president of O3 Plan Advisory Services LLC, debates whether the 401k system is fair or unfair and offers three ideas for making the system more just.

Source: Plansponsor.com, October 2020

Biden Plan to Improve the 401k Does the Opposite

The author writes, "I've written a couple of recent columns on fixes needed to restore the value of 401k and other deferred tax retirement plans for young median-wage workers. The presidential campaign of Joe Biden and Kamala Harris has a proposal aimed at that issue. It's a step almost exactly in the wrong direction."

Source: Advisorperspectives.com, September 2020

The Real "Coverage" Gap

Teresa Ghilarducci doesn't give American employers or advisors much credit. She recently penned an article in Forbes titled "Employers Can't Provide Retirement Plans. Let's Stop Pretending They Can." The article's premise is false on its face, of course. Her point appears to be that all employers won't provide retirement plans, or at least to date haven't. She attempts to prove her case by pointing to the coverage gap. But the author suggests that the "real 'coverage' gap is that [employers] often don't get the credit they deserve for doing so."

Source: Napa-net.org, September 2020

Keep Reminding Clients About the Importance of Being a Fiduciary

Advisors who are fiduciaries may make this a core part of their sales pitch to a new client. But they shouldn't assume that just because a client has signed on with them, that he or she understands why it matters. If your clients don't truly understand the difference between a fiduciary and nonfiduciary, all your good intentions could turn out to be worthless. An advisor's job of educating clients about the benefits of working with a fiduciary is never done.

Source: Morningstar.com, August 2020

An Article That Doesn't Make Much Sense

The author writes, "For reasons that elude me -- other than perhaps because it has a 'clickbait' headline -- the folks at Bloomberg recently published an 'op-ed' titled, '401k Plans No Longer Make Much Sense for Savers.' Sadly, it's gotten some attention, aided and abetted even by industry publications, some of which incredibly reported on it as a straight news item. Much as it pains me to give more 'oxygen' to this, the author, a 'former risk manager' (he now apparently writes books), basically makes a tax argument. His essential premise is that once upon a time, the tax benefits of 401k made that investment worthwhile, but that tax rates have dropped, and they're not likely to be lower in the future, so you'd be better off taking that money and investing it elsewhere."

Source: Napa-net.org, July 2020

Will PEPs Address the Retirement Plan Woes of Small Employers?

One downfall of our retirement saving system is the cost and quality of the plan that you have access to can be significantly dependent on the size of your employer. Small employers have fewer employees to join their plans and generally fewer collective assets to invest, resulting in limited bargaining power to negotiate low fees and barriers to accessing low-cost investment options that may have higher minimum investments. As the debut of pooled employer plans draws near, the current MEP system provides a useful test case for what can go right and wrong.

Source: Morningstar.com, July 2020

Why Private Equity Doesn't Belong in Defined-Contribution Plans

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 in 401k Plans: More Smoke Than Fire

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

April 15, 1981: A Snapshot in Retirement Policy History

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

What's the Difference Between a File Clerk and a Fiduciary?

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

The Retirement Plan Industry's Troubling Framework

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

Allow 401k Plans to Invest in Alternative Assets

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

Auto-Portability: What It Is, Why It's Needed, and How It Will Strengthen Retirement Security

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

The Time Is Right for a New American Retirement Plan

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

Scoring the SECURE Act: A Disappointing Effort

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 Danger of Focusing on Retirement Plan Participant Outcomes

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

Five Features That Retirement Plans Can Do Without

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

Retirement Savings Shouldn't Be a Political Piggy Bank

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

SECURE Act Could Ruin Your 401k

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

Fears of a Retirement Crisis Are Overblown

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

Company Stock and 'Special' Treatment

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

Narrowing Retirement Savings Gaps

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

America's Retirement System Is a Mess. This New Legislation Can Help

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

Why do Employees Cash Out Their 401k/403b When They Leave?

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

It's Too Easy to Conceal 401k Fees -- We Need 408b-2 Reform

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

Government Mandated, State-Run Auto-IRAs Can Cause Real Harm

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

Three Ways People May Save for Retirement in the Future

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

Should You Hire an ERISA 3(38) Fiduciary?

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

403b Plans Not Adding Up

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


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