60 Minutes /401 K

[FUEGO]

Lifecycle/target date funds should be huge in 401k plans for automatic enrollment. Use age of new hire to automatically drop 'em into the appropriate lifecycle fund bucket, give them literature explaining how lifecycle funds work and why they were put there.

I think that is how the law is currently structured. Back in 2006 or so a new law was passed (Pension Protection Act IIRC) to allow exactly this type of thing. Automatic enrollment in the plan as the "default" option with the ability to opt out. And some safe harbor provision about allowing employers to stick employees in an appropriate default fund choice that is something other than money market. The decision can be based on age.

DW's 401k plan is an excellent example of the implementation of this law. You are enrolled by default with 6% of pay being withheld. Under age 40, you get plunked into Vanguard's Lifecycle moderate growth. Over age 40, you get plunked into VG Lifecycle conservative growth. Simple, low cost. Genius. Her fees are incomprehensible and not adequately explained in my opinion, but amount to something like $20 a year (administered through fidelity). The basic options you are plunked into can be altered to a platter of "extended options" I believe they are called. All options are selected by the employer's 401k committee. The employer is a major international investment bank (that also runs mutual funds), so I think they have some employees that have a good handle on investments and understanding mutual funds and the expenses and risks.

 

[tuixiu]

Yeah our 401k company in the benefits meeting put the hard press for their own homegrown life stages funds which were simply different combinations of the already available funds except with another fee tacked on.

They also had a lot of people convinced to use their fee based service for picking funds for you, using the "if this kind of thing makes you uncomfortable a great option is to use our service blah blah blah."

 

[FUEGO]

Yeah our 401k company in the benefits meeting put the hard press for their own homegrown life stages funds which were simply different combinations of the already available funds except with another fee tacked on.

They made sausage. Fidelity does this with their target date funds. A lot of high expense ratio mediocre funds. Probably better than some choices since you at least get diversification. But I think every plan should have something similar to the TSP options even if the expense ratios are closer to vanguard's investor class ER's at ~0.20%.

 

[clifp]

Also, that lady that was so upset.... she had a balance that was less than $5K... it was a profit sharing plan... she said (IIRC) that she had another account with $80K or thereabout... I do not think that her retirement would be much different IF she had another $80K saved.. if you live in NY, you can burn through that amount of money in one year...

And to me that was the rub... most people did not have enough money in the first place... and now that they have only half as much will blame the crisis on their plight... even though they could not have retired like they had wanted with the money they had... so in a way, for some... the crisis has forced them to look at what they have and to continue to work... if they had retired with no crisis, they would have run out of money anyhow....

You are right and frankly somebody in their mid 50s with a professional career, who doesn't have couple hundred saved in 401 even after the bear market hasn't been making any type of an effort to save.

One of my IRAs consists of entirely my contributions. It was started back in 1983 for the one year in my working life I was eligible for an IRA, but the vast majority was my 401K contributions between 1985 and 1999. During that time it was invested primarily in S&P 500 but in the mid 90s I switched to an 80/20 AA. In 2000, I rolled it into an IRA and my some smart/lucky investments in 2000,2001. However, I more than made up for that with some real bonehead choices in 2008, selling TIPs bonds and buying ISM/OSM and some other financial stocks which are down 70-90%!!!.
Even with all of that plus the normal drops in ETFs like Vanguard total stock market index, the IRA is still worth almost 300K.

I haven't bother running through the calculations but it seems me that lady should have several years worth of saving in her 401K. This is true even if she didn't start saving until she turned 30, contributed only enough to get employer match (typically 6% for 3% employer) and was 100% invested in equities.

Now if she was solely depending on her employers profit sharing contribution than yes she won't have any money.

 

[tmm99]

This is from an article on Fidelity home page

https://news.fidelity.com/news/arti...retirement-fumble&topic=saving-for-retirement

I can ask a handful of my friends about their 401(k)s, and likely end up concluding that most of their accounts could use some improvement. But that's a small sample. So let me rely instead on numbers from the Employee Benefit Research Institute and the Investment Company Institute, which looked at nearly 22 million participants in more than 56,000 employer-sponsored 401(k) plans. (Twenty-two million is a somewhat larger sample than all of my friends put together.)
Here are some of their findings: The average balance, as of the end of 2007, was $65,454, and the median was $18,942. Fully 51% had a balance of $20,000 or less. Some 39% of participants had a balance of less than $10,000. And since these numbers are as of the end of 2007, we can safely assume that participants now have balances that are considerably lower.