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.
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
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
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
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
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
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
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
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
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
"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
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 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
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
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
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
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 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 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
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
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
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
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
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
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
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
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
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
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
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
Opinion: 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
Opinion: 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
Opinion: 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
Opinion: 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
Opinion: 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
Opinion: 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
Opinion: 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
Opinion: 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
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
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