From Today's Wall Street Journal - "How to Fix 401-(k)s

[stephenandrew]

Thought this might be worth sharing--as retirement balances in 401(k)s decline, folks who have ideas, thoughts, etc. about how to better enable us to prepare/save for retirmeent are getting some press. Personally, I am more comfortable with the current approach than many of those laid out below, but I would not be shocked if the Fed's change the rules for how we we all prepare for our golden years. Happy reading.

How to Fix 401(k)s - WSJ.com

 

[Independent]

Thought this might be worth sharing--as retirement balances in 401(k)s decline, folks who have ideas, thoughts, etc. about how to better enable us to prepare/save for retirmeent are getting some press. Personally, I am more comfortable with the current approach than many of those laid out below, but I would not be shocked if the Fed's change the rules for how we we all prepare for our golden years. Happy reading.

How to Fix 401(k)s - WSJ.com

Thanks for the link. This is a nice summary in one place of a bunch of proposals that have been scattered around. It's good to notice the names because some of these people will show up again.

I think it's hard to look at the list and make any decisions about my saving or investng. Proposals that try to make 401k or IRAs more popular will presumably tend to increase stock prices. But there are other plans that try to replace stocks with gov't guaranteed accounts, which I see as gov't borrowing from workers. These would tend to decrease stock prices (probably also reduce other gov't borrowing from the public). So I don't see a clear signal.

Now for my SoapBox comment: Having read through the list, I'd say that they all get the gov't (or our employers) more involved in our retirement planning. I don't like that direction. I continue to believe that we already have one mandatory retirement program - Social Security - and that's enough gov't for me. I'd prefer to have the gov't stop trying to incent, force, nudge, or whatever and simply let people make their own decisions.

 

[dessert]

I remember when my megacorp started our 401K. I was already contributing to an after-tax account with the company savings plan.
All I knew about the 401K was that the money went pre-tax so I stopped putting into the company savings plan and diverted that money to the 401K.

My parents did not have money in the stock market nor did anyone that I knew have money in the market. How was I to know what to do with that 401K?

The money went into a cash fund that drew a small dividend or we could put it into an equities fund that was different somehow from the cash fund.

Megacorp went out of their way to make certain not to talk about the 401K because they did not want to be responsible for our choices. They did not even provide the basic knowledge about it at all.

As a result of that I did not take the necessary steps to educate myself about it either because in my mind the stock market was for "rich people" and I was not one of them.

Eventually I did start paying attention and set up the account in a balance portfolio and was doing ok until recently just like the rest of you.

Now I encourage the younger employees to pay attention to their 401K and to dollar cost average in for the long run.

Megacorp now will automatically enroll everyone into the 401K and place their money into balanced lifetime funds for them unless they opt out or choose to make their own investment choices.

The employees coming into the workforce now seem to be much more knowledgeable about the markets because their parents are my age and probably have taught them the basics.

That's a good thing.

 

[Payin-the-Toll]

I remember when my wife came home from Mega-Corp one day in the early 80's with a ton of paperwork about the new 401k they were starting. She wondered what we should do? I was an idiot about financials back then and didn't know squat. She had this boss who was a Quaker with 6 kids, salt of the earth guy who'd give you the shirt off his back. Mega-Corp was matching first 6%--you could put in up to 16%. I told her to ask her boss what he was doing and which funds he was using. We put in 12% on the funds he was getting---and it served us very well. Agree with previous post about people getting smarter about these things--my daughters (all 30+) are invested and pretty knowledgable-----And I helped!!!

 

[ziggy29]

I think there are some good things that have been done recently, mostly after the 2006 pension act. One was to allow automatic enrollment (with an opt-out feature, but the default is to be enrolled). Another is the "default" investment being an appropriate "lifecycle" fund based on the employee's age. Both of these, IMO, represent improvements from what used to be.

But it's still hard to prevent the average person from being their own worst enemy. So many sell out of panic in a bad market -- the worst time to sell out -- and many cash out their plans when they move jobs.

Which is all why I think, at best, a 401K is a "retirement supplement" for the masses. I think most of us here are a biased sample -- we're more likely to understand money and investing, understand risk tolerance and asset allocation, and not make big mistakes with retirement funds. I suspect 80% of the working population aren't so dialed in. That's why I think a "retirement crisis" is looming; many people with no pensions put off retirement savings, or they move stocks into money markets when the market is tanking, or they cash out one plan after another when they change jobs.

I really don't like how our society ties retirement (and health care, but that's a possibly Soap Boxy issue for another time and another thread) with employment.

 

[jazz4cash]

I agree with most of the comments made above....I, too vividly remember when Mega-Corp rolled out 401k around '83. It replaced a lucrative ESOP plan that was being used more for current compensation than retirement savings. I was enthusiastic about 401k and dived right in largely due to compelling features of the match and the loan provision. The loan provision gave me peace of mind and I have used it sparingly. Like dessert stated, I recall that noone wanted to give any "advice" and it was obvious Megacorp had liability concerns. I read the full prosectus to get a better understanding of what the plan involved.

The big difference between then and now is 401k is a supplement to Megacorp's DB pension, but new hires have only 401k at Megacorp and almost anywhere else. 401k just wont work for average workers without major enhancement like a minimal guaranteed return. I see nothing to suggest most folks will have the discipline (and luck) to succussfully accumulate enough 401k assets to retire....it's a two legged stool.

 

[Notmuchlonger]

I didn't realize 401ks were broke. So why not just raise taxes across the board. Everyone gets a guviment cola'd pension the rest of their life Since everyone can be a winner then right? Of course to have winners you must have losers..So

My favorite line.

"For whatever reason, annuities seem to be a dirty word with consumers," says Prof. Madrian.

 

[Dennis]

Well, For my Co. we only offerred A Few Funds for our #401k for our people and they were in the 60/40 to 40/60 mix allocaition of Balanced Ports , along with each Employee had a Initial and Annual Consultation/review with the firm we used..

Most didn't make more than the average Median Income thus $2-$5k yr was the Norm..going into them.. If they wanted Higher Rtns/Risk Funds? They were told they would have to Opt out and Go Self Directed IRA's.. etc.. We were not going to add those kinds of funds...with Higher Expectations than making more than 7-10% apy..

After getting this Consultation and Annual reviews and a 'reality check' , This also forced everyone to Live More With-in their Means..and either strive to move up the Ladder or had to either go get a PT job or Move on..

This Turned out to do very well, especially after 1987 and 2000-03' and most were very happy with our Conservative to Moderate Funds available..

Unfortunately, this is not the case for a vast majority of Companies and Thus I would say that those Co.'s Either Start doing the same as we did/do or? Like Pres. Obama wants to do and that is? Move A Portion of One's #401k/#403 $ into the SS Program and inturn Boost one's SS come retirement time to insure they will get equaly to 75% or ore of one's working income.. Be it all inwested in LT Treas, that have done about the best over the decades ( past 10 yrs , like VUSTX at 7.3% apy ) to a Mix of Different Bond funds or even a upto a 40/60 portfolio...

Wall Street/WSJ /Insurance Co's and many others Won't Like it either.. but, be as it may, at least 75% of Workers have no business Choosing where to put their $ or even be able to 'tap Into It' along the way.. and it should be a One way street with it..Like SS is.. We've seen so many AMI people end up hitting retirement age, having Lost their savings and only have SS to Rely on and it isn't enough for them and being force to go live with their Kids or In some Little "Mo-Beal-Home" somewhere where God Left his Shoes..and live in Poverty..While others lost alot of their Savings due to Divorces...and never recovered..

For them ( vast majority of workers) ? A SS system that would provide at least 75% of one's last yr of working income would be the best for them..

Call it a Gov't Annuity plan or whatever you want,that SS is, but it makes sense to me to pursue this for alot of Middle to Lower Income people..as it has worked well in other countries..

 

[ziggy29]

"For whatever reason, annuities seem to be a dirty word with consumers," says Prof. Madrian.

There are adequate annuity products out there, at least if you're the type of individual for whom they make sense.

They tend to be a "dirty word" because they are historically loaded with high fees and (as a result) annuity sellers tend to push them on people even when they are inappropriate.

There are sellers, for example, who would push an annuity on someone IN an IRA and before they've even maxed out their 401K, which is almost criminal financial malpractice. But if you have a high net worth, a high tax bracket and you've maxed out other tax-advantaged accounts -- especially if you want asset protection in a state where they are shielded from litigation and bankruptcy -- they can make sense (but there's still no reason to pay the high fees).

This, though, is a small percentage of people who are being sold annuities.

 

[Independent]

There are adequate annuity products out there, at least if you're the type of individual for whom they make sense.

They tend to be a "dirty word" because they are historically loaded with high fees and (as a result) annuity sellers tend to push them on people even when they are inappropriate.

There are sellers, for example, who would push an annuity on someone IN an IRA and before they've even maxed out their 401K, which is almost criminal financial malpractice. But if you have a high net worth, a high tax bracket and you've maxed out other tax-advantaged accounts -- especially if you want asset protection in a state where they are shielded from litigation and bankruptcy -- they can make sense (but there's still no reason to pay the high fees).

This, though, is a small percentage of people who are being sold annuities.

I think the "annuities" in the context of the article are SPIAs, you seem to be talking about SPDAs. I'd say the obvious, some people have enough heard bad things about SPDAs that they won't consider anything with the word "annuity" in the name. That's unfortunate.

But, unlike the quote in the article, I don't think that SPIAs are a good choice for "most" people. We have lots of posters on this board who have looked at the pros and cons and decided to pass.

 

[Texarkandy]

Thought this might be worth sharing--as retirement balances in 401(k)s decline, folks who have ideas, thoughts, etc. about how to better enable us to prepare/save for retirmeent are getting some press. Personally, I am more comfortable with the current approach than many of those laid out below, but I would not be shocked if the Fed's change the rules for how we we all prepare for our golden years. Happy reading.

How to Fix 401(k)s - WSJ.com

I would not be surprised if the Dems & Obama administration will attempt to set up a program nearly identical to federal employee's non-profit Thrift Savings Plan for the private sector. Whether employers will be mandated to participate or match, and at what levels, remains to be seen. Whether existing 401k's & IRA's will be tax disincentived to encourage participation in such a new program also remains to be seen. Of course since this TSP for the private sector will compete with the financial industry there may be a fight.

Next step for Obama & the Dems might be to attempt to set up & make available to the private sector a non-profit program for private employers similar to the Federal Employees Health Benefit plan - which will provide huge bargaining power with health care companies for insurance with a mandatory floor on benefits - including no discrimination for pre-existing conditions. Again, whether employers will be mandated to participate & how much of the premium they will be required to pay remains to be seen.
This would be a very expensive proposition for employers so could be quite a bit of lobbying resistance also.

Both of these ideas would likely be wildly popular with most working class Americans - many would probably willingly dump their 401k's & IRA's wholesale into the retirement savings program - especially if future contributions to 401k's & IRA's were scheduled to become tax disincentivized at some future date.