PBS FRONTLINE - "The Retirement Gamble" 4/23

[BigE]

Thanks for the heads up on this. Going to set the TIVO to record this. Although most if not everyone on this forum understands the importance of fees, it's always nice to hear it again or get another take on what's going on. I love the Bill Bernstein quote "the finance industry services clients the way Bonnie and Clyde serviced banks". As someone who has a combination of IRAs, 403bs, and a 401k, keeping fees low has required effort. About six months or so ago, I met with our 401k administrator/fiduciary and grilled him on expenses; he was none too happy about this, but I found out what fees we were paying in our small business 401k. And the importance becomes readily apparent in the Firecalc box for expense ratio...change this and see what a difference it makes. Appreciate the good dialogue on this topic.

 

[BTravlin]

My wife had a similar problem with her 403b plan. It seems that most of the offers were really poor options with all but one of them being insurance company annuities (no new news there).

The only options she had was with Merrill Lynch who tried to convince her to invest in funds that were full of loads and high annual fees. After asking a lot of questions for a year trying to figure a better plan I was able to (at that time) have the money put into their MM fund and at intervals transfer the money to TRP no load mutual funds. ML didn't like this at all and constantly screwed transfers up but we kept paper trails, dates/times/names of phone calls, etc. and were able to make this work. I don't know if this method is still available but it would be worth looking into.

Cheers!

My wife's options in her 403-b plan were also terrible. Almost all insurance companies. Luckily, they did offer American Century Funds and while not the best fund family it is pretty good overall and looked like a gold nugget sitting atop a heap of slugs compared to her other choices.

The school system she works for really needs to offer their employees a better range of options.

 

[nun]

I have 3 retirement funds a 401a, 403b and 457

401a is with TIAA-CREF, I put in 11% of salary and my employer puts in 5%, but charges around 0.5% for "operating costs". The investment choices with TIAA-CREF are their CREF deferred annuities and lifecycle funds with ERs around 0.5%. Not great, but I've seen worse.

403b is with Vanguard and I have access to all Vanguard funds at the usual low ERs.....so this is great.

457 is with Great West Financial, but it offers a range of low cost funds from State Street, PIMCO, Fidelity some lifecycle funds. ERs range from under 0.06% for the index funds to 0.6% for some actively managed things. The lifecycle funds have 0.16% ERs.

 

[RobLJ]

My point was that with a DB plan linked to salary the saving was automatic. Most Americans don't live large and have seen costs for things like college and health care increase while wages stagnate and they also get the costs of retirement shifted form being part of an employment contract to coming out of their wages with out receiving wage increases to pay for it......the employers and retirement firms are living large at our expense. That's why this forum is so fringe and populated mostly by those with pensions, the ridiculously frugal, or highly paid. The average American can't even envisage retiring at 65 anymore and most are sensible regular people with children that they want to succeed, that shows that the current 401k type system just isn't working for the majority of people. I'm ok with it because I'm highly paid and single with no kids, but like most of us on here I'm an outlier in the workforce.

+1 We are the fringe, perhaps extreme fringe. I can't believe I might actually be in the position to retire early in a few years, although I think the market will play a Lucy with me. Although we weren't frugal, just had two earners for the last 30 years, with only a 3 month interruption of employment, as well as upper middle-class employment with benefits and 401k/403b. That's very fringe.

 

[gerntz]

Reading the above posts, a few things come to mind:

- Why does an employer owe one anything? Seems you're free to work under his terms or not. If you do choose to, why complain vs. going elsewhere?
- How does one know what a defined benefit was costing a company/organization to achieve that benefit vs. what a 401/403 plan costs & achieves for you? Where's the parallel experiement? The company invested better than the 401k plans do? How does one know that?
- "reinforces why WE are DIYers". Who is "WE"? Does everyone here think the same?

Thanks.

 

[RobLJ]

Reading the above posts, a few things come to mind:

- Why does an employer owe one anything? Seems you're free to work under his terms or not. If you do choose to, why complain vs. going elsewhere?
- How does one know what a defined benefit was costing a company/organization to achieve that benefit vs. what a 401/403 plan costs & achieves for you? Where's the parallel experiement? The company invested better than the 401k plans do? How does one know that?
- "reinforces why WE are DIYers". Who is "WE"? Does everyone here think the same?

Thanks.

I think the answers to these questions (well, question two; the rest are existential)are probably on the Employee Benefits Research Institute site, although I've focused more on the employee side and what's relevant to my investments.
Have at it big boy and report back the fruits of your research:
Employee Benefit Research Institute | EBRI

 

[clifp]

My wife's options in her 403-b plan were also terrible. Almost all insurance companies. Luckily, they did offer American Century Funds and while not the best fund family it is pretty good overall and looked like a gold nugget sitting atop a heap of slugs compared to her other choices.

The school system she works for really needs to offer their employees a better range of options.

It seems to be a common problem among school systems that they offer awful choices for 403(b). I want to see all government employee move to the Federal system, where is is a modest pension, and 401(K)/TSP with match, plus social security.

It seems me that easiest way of giving teachers a raise is to give them better for 403(b) choices, but for some reason this doesn't seem to happening.

 

[Hamlet]

Yup. I have no interest in a DB plan.

Just give me a match on my 401k and leave it to me.

After reading the book "Retirement Heist" I am convinced that the only safe retirement plan for future generations is to get the money up front and invest it oneself.

You can do everything right and end up losing a pension through bankruptcy, merger or corporate maneuvering.

Public employees can see their DB pension lost when legislators choose to pay current bills by not adequately funding the public pension.

 

[Hamlet]

Well, at the end of the day, the fees are going affect the ultimate payout. Either upfront, by impacting what the benefits are defined at initially, or on the back end, when the benefits can't actually get paid.

Ultimately, there is nothing magical about a DB plan. It's pretty much invested the same way as a person would individually, so those fees are going to reduce the available payout on the returns on what the company and employee contribute to the plan.

One point I will make... who cares what the fees are in a DB plan... the fees are paid for by the company as the benefits are, by definition, defined... the finance firm can charge $1 per person or $1 mill per person... it does not change the benefit to the employee...

 

[nun]

Reading the above posts, a few things come to mind:

- Why does an employer owe one anything? Seems you're free to work under his terms or not. If you do choose to, why complain vs. going elsewhere?
- How does one know what a defined benefit was costing a company/organization to achieve that benefit vs. what a 401/403 plan costs & achieves for you? Where's the parallel experiement? The company invested better than the 401k plans do? How does one know that?
- "reinforces why WE are DIYers". Who is "WE"? Does everyone here think the same?

Thanks.

The phase out of non-contributory DB plans in favour of 401k plans would have been a good deal for the employee if the employer had received an increase in salary to cover the employees 401k contributions and a lot more financial education. The way it was put in place resulted in a cut in employee compensation. That's my main problem with the benefits changes of the past 30 years.

Obviously we all think things have been fine as we've ended up in a situation where we have enough to ER, but there are many people for whom the existing system as been a complete failure for reasons including lack of financial knowledge, bad luck in investment choices, high fees (those probably existed in DB plans too), low wages or stupidity limiting the amount they contributed, borrowing from the accounts......

 

[DeborahB]

Interesting... with mutual funds I look much more at how they are doing (past and present) and longevity of management, than at the expenses built in. I don't mean commissions. If a fund is yielding 6% in dividends it doesn't matter to me what the "hidden" costs were. But that's just me, talk about an outlier...

 

[Original Wally]

Maybe so (hope so).

But even though I already know that Rick puts Ilsa on that plane, I still watch "Casablanca".

You didn't even caution us with SPOILER ALERT!. Dang. I suppose next you will tell me the Dorothy got home safe to Kansas too.

 

[Original Wally]

Mine is a DB @ around 52-53% of my pre-retirement gross. Plus there is SS (disability) @ about another 1/3 of my pre-retirement gorss. On top of that I have just over 1/2 a mil in former 457/401(k) monies that moved to a rollover IRA @ VG. House is paid off, NO debt. We are doing just fine.

 

[ERhoosier]

One point I will make... who cares what the fees are in a DB plan... the fees are paid for by the company as the benefits are, by definition, defined... the finance firm can charge $1 per person or $1 mill per person... it does not change the benefit to the employee...

Until the costs of the DB plan gets so large as to threaten the existence of the plan, or perhaps the employer- whether gov't or private. Back when interest rates were higher an extra 1-2+% in annual plan overhead could be absorbed, but it's quite different when that overhead approaches the returns earned on FI portion of that plan's AA. From NY to CA and from DB to DC, poorly run pension plans are not in anyone's best interest (pardon the pun).

Unfunded pension costs factor in bankruptcies | syracuse.com
http://www.businessweek.com/news/20...st-workers-1-billion-in-pension-benefits.html
Pension costs push Stockton, Calif. to bankruptcy | kgw.com Portland

 

[steelyman]

You didn't even caution us with SPOILER ALERT!. Dang. I suppose next you will tell me the Dorothy got home safe to Kansas too.

Oops.

No, I won't say that, but I think I saw her this afternoon at a balloon stop here in Illinois.

... and as long as I'm replying here, I might mention BIO is showing "Citizen Hearst" just before the FRONTLINE thing. Should be interesting, even if you've never been to Hearst Castle. That guy didn't just retire in style, I think he dropped acid and built one huuuuge cabin.

 

[ejman]

Obviously we all think things have been fine as we've ended up in a situation where we have enough to ER, but there are many people for whom the existing system as been a complete failure for reasons including lack of financial knowledge, bad luck in investment choices, high fees (those probably existed in DB plans too), low wages or stupidity limiting the amount they contributed, borrowing from the accounts......

Well, for myself and I'm sure for many that post to this forum the 401K system worked just fine. I contributed the maximum, as did my wife. Choices were not the best low cost options ( Never had access to any Vanguard funds under the 401K's) but they were good enough to allow for ER at 52. I guess from a philosophy of life stand point - If people make poor choices , not contributing, contributing the lowest amount possible, borrowing from the fund not putting the effort to learn about different investment choices etc etc. Why blame the system for individual's poor choices? As someone said, "you can't fix stupid"

 

[Badger]

My wife's options in her 403-b plan were also terrible. Almost all insurance companies. Luckily, they did offer American Century Funds and while not the best fund family it is pretty good overall and looked like a gold nugget sitting atop a heap of slugs compared to her other choices.

The school system she works for really needs to offer their employees a better range of options.

That sounds identical to a large population northeast Fl county program. American Century was introduced just a few years ago as the only option after ML was discontinued. And the lame teacher's union there has done nothing since dirt was invented to make the selections an issue. I know because I tried a number of times over the past 15 years to discuss the problem with them. Fortunately we are out of that now and rolled everything into an IRA that we control. Although it may be the only real game in the system, Am Cent was a good choice considering what might have been.

Cheers!

 

[Texas Proud]

Well, at the end of the day, the fees are going affect the ultimate payout. Either upfront, by impacting what the benefits are defined at initially, or on the back end, when the benefits can't actually get paid.

Ultimately, there is nothing magical about a DB plan. It's pretty much invested the same way as a person would individually, so those fees are going to reduce the available payout on the returns on what the company and employee contribute to the plan.

My comment was based on someone saying that the investment companies were ripping off employees... and I was showing that is not true....

First, the company does not have to offer a DB plan... but if they do, whatever they offer is known when you accept employment... if it is not what you want, then do not accept that job... but if you do, then as an employee you do not care what the finance company charges because your benefit is defined... if fees go down, it does not change your benefits at all....

 

[nun]

Well, for myself and I'm sure for many that post to this forum the 401K system worked just fine. I contributed the maximum, as did my wife. Choices were not the best low cost options ( Never had access to any Vanguard funds under the 401K's) but they were good enough to allow for ER at 52.

I agree, I took the same approach as you to my DC plans and I hope to ER soon. No doubt many on this board did the same. But most people are not in that situation and DC plans have not provided them with a nest egg for retirement and have therefore failed.

I guess from a philosophy of life stand point - If people make poor choices , not contributing, contributing the lowest amount possible, borrowing from the fund not putting the effort to learn about different investment choices etc etc. Why blame the system for individual's poor choices? As someone said, "you can't fix stupid"

Poor choices and ignorance definitely factor into the failure of 401k type plans.......but tapping 401ks to pay bills etc might not be classed as a choice if it's your only option to pay for an operation or the mortgage. Bad investment choices are from lack of financial sense, but we can all get burned by down turns and high fees and poor investment options are out of the hands of the 401k participant. Finally many simply can't afford to contribute to a 401k, so while you can't fix stupid, you can at least try to fix the rather stupid retirement system in the US today.

 

[Running_Man]

Not to get into an argument, or go back and forth on what is or is not true as I do not want to have this thread closed.... but your previous post did not even come close to saying what you said in this one...

One point I will make... who cares what the fees are in a DB plan... the fees are paid for by the company as the benefits are, by definition, defined... the finance firm can charge $1 per person or $1 mill per person... it does not change the benefit to the employee...

It would be clearer if you directed where your hate is as some of what you are saying does not make sense when it seems you are talking about something else... ie, fees for DB plans... stealing money, etc...

While this is technically true, what is being missed is the fees are charged against the funding of the account. So that DB plans with high fees will be more likely to be underfunded and hence carry higher risk of being taken over by the pension guarentee fund and therefore a possible reduction of benefits.
When the contract is, we will charge you x% on your DB plan with an agreement to lower fees on the non-qualified plan that the executives are in someone should care about those fees. Certainly at least the PBGC.

 

[Texas Proud]

While this is technically true, what is being missed is the fees are charged against the funding of the account. So that DB plans with high fees will be more likely to be underfunded and hence carry higher risk of being taken over by the pension guarentee fund and therefore a possible reduction of benefits.
When the contract is, we will charge you x% on your DB plan with an agreement to lower fees on the non-qualified plan that the executives are in someone should care about those fees. Certainly at least the PBGC.

The vast majority of DB plans have not been closed....


IMO, the vast majority of DB plans that have gone under were due to the company going under for some other reason than the DB plan...

Even if they go under, most people still get their pension as defined...


Sure, there are some people who will lose if this and that will happen.... but fees charged by investment companies are not a concern for the vast majority of DB participants....

As a side note... when you talk gvmt entities... it is usually the sky high promises made and the lack of funding these promises that is the problem...

 

[Dawg52]

I watched it. Nothing new really. Discussed the hidden and high fees associated with most 401k plans and how much that eats into a persons returns. And that most Americans will be working for years to come because not enough has been saved.

 

[nun]

I watched it. Nothing new really. Discussed the hidden and high fees associated with most 401k plans and how much that eats into a persons returns. And that most Americans will be working for years to come because not enough has been saved.

I'm sure there was nothing new in the show for ER forum members. The frightening thing is that it might have been new information for many that watched and that most people with 401ks didn't watch and are still ignorant of those 2% fees they pay to active managers.

 

[pb4uski]

I agree, I took the same approach as you to my DC plans and I hope to ER soon. No doubt many on this board did the same. But most people are not in that situation and DC plans have not provided them with a nest egg for retirement and have therefore failed.



Poor choices and ignorance definitely factor into the failure of 401k type plans.......but tapping 401ks to pay bills etc might not be classed as a choice if it's your only option to pay for an operation or the mortgage. Bad investment choices are from lack of financial sense, but we can all get burned by down turns and high fees and poor investment options are out of the hands of the 401k participant. Finally many simply can't afford to contribute to a 401k, so while you can't fix stupid, you can at least try to fix the rather stupid retirement system in the US today.

WADR, I think you are seeing instances where people have failed to prudently save for retirement as a failure of the system. There are many instance of folks of relatively modest means and income who saved regularly and have accumulated substantial wealth and can ER. To me these successes prove that the problem is the people, not the plans. Can plans be improved? Surely! But the means are there for those of even modest means who have the discipline to save regularly and invest prudently to build wealth beyond their dreams.

 

[pb4uski]

I'm sure there was nothing new in the show for ER forum members. The frightening thing is that it might have been new information for many that watched and that most people with 401ks didn't watch and are still ignorant of those 2% fees they pay to active managers.

And we all know the importance of fees on returns is a deep dark secret that hasn't been well publicized over the years.