Americans Oppose Initiatives Limiting 401(k) Choices, ICI Says

[robls]

Americans Oppose Initiatives Limiting 401(k) Choices, ICI Says - BusinessWeek
This quote from the article is quite disturbing:
"The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort."
Comments, anyone?

 

[MasterBlaster]

The article wasn't specific. If they want to help promote the benefits (via information) of pension-like immediate annuities then I'm all for it.

If they want to use government coercion to force people to do that then I am really against it.

If it's yet another stealth tax then I am really really against it.

 

[ziggy29]

The article wasn't specific. If they want to help promote the benefits (via information) of pension-like immediate annuities then I'm all for it.

If they want to use government coercion to force people to do that then I am really against it.

If it's yet another stealth tax then I am really really against it.

In ***theory*** creating an "annuity" sort of retirement income vehicle that works like a pension isn't a bad idea at all. In theory. I could see a lot of people willing to forego their 401K plans for something like this, not wanting the angst of wondering if the market would let them retire on schedule.

The main attraction of a pension to people is that it transfers market risk away from the individual. A prudently run pension fund that does not overpromise has the ability to deal with the ups and downs of the market a lot more than the individual and thus helps eliminate the problems with "being born at the wrong time" by reaching retirement age just before a major bear market hits.

In times like these, that is a huge "selling point" to a lot of people. And if the "pension-like" retirement plan used reasonable investment strategies and appropriate long-term asset allocations -- and if they didn't promise too much today at the expense of sustainability tomorrow -- it might work. Certainly the portability aspect of it (lacking in traditional DB pension plans) would be a good thing for many workers in the age of "job hopping" and reduced job security.

The problem is that it assumes the future will be like the past -- because if it's not and some of the fears of economic bears are realized, even reasonable promises based on past results would be too generous. I suspect proponents of such a plan are seeing an opening for this based on the massive fear 401K/IRA retirement investors have about never being able to retire like the pensioners.

 

[kyounge1956]

The article wasn't specific. If they want to help promote the benefits (via information) of pension-like immediate annuities then I'm all for it.

If they want to use government coercion to force people to do that then I am really against it.

If it's yet another stealth tax then I am really really against it.

What you said! I am also against it if (as I suspect) they are talking about the Ghilarducci plan, in which everyone would be forced to convert, the assets couldn't be drawn on earlier than age 62 (i.e. SS early retirement age), and which AFAIK does not have a corresponding Roth version where you can pay the taxes up front and draw the income tax-free later.

Two snippets from the article that grabbed my attention:

The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The Standard & Poor’s 500 Index tumbled 46 percent in that period.

If I'm reading this right the average account at Fidelity outperformed the S&P by 15 percentage points in the worst market drop since the Crash of 1926. They don't need to force us all to buy annuities, ISTM all they need to do is tell everyone else to do whatever those Fidelity investors were doing!

and:

Representative George Miller, a California Democrat, is advocating legislation to require more disclosure about 401(k) fees paid by investors. The Education and Labor Committee, which Miller leads, approved a bill requiring more disclosure about fees in June.

Now this would be useful. Requiring that all tax-deferred plans make a better set of choices available sounds like a good idea to me. I've been listening to "The Smartest 401k Book You'll Ever Read" on CD, and if that book is anywhere close to accurate, lots of tax-deferred employee plans are loaded up with high-expense-ratio mutual funds and sometimes a lot of other expenses too. Make the plan custodians provide some nice graphs showing the ending portfolio value with a low-expense index fund vs a fund with high fees, all other things remaining equal. It's astonishing how much of a difference it makes.

I forgot to ask, how do I find out where to comment?