Some interesting articles on 401(k) plans:
- “Avoiding mistakes in your 401(k) plan” from the Boston Globe. The op-ed by Alicia H. Munnell, director, and Annika Sunden, research associate, at the Center for Retirement Research at Boston College, discusses methods for helping participants to save and make wise choices:
Public policy could greatly improve 401(k) plans by leveraging this inertia and setting the defaults in 401(k) plans to “best practice.” The plan would automatically enroll all eligible participants; it would set their contributions at the level that maximizes the employer match; diversify and rebalance their portfolios as they age; restrict investments in company stock; automatically roll over lump-sum distributions; and pay out retirement benefits in the form of a joint-and-survivor inflation-indexed annuity. . . The clear message from the 401(k) experience is that financial decisions are complicated and individuals with busy lives do not make good choices.
- Bankrate.com has this interesting article: “401(k) fees: devil in the nest egg.” The article quotes Ann Combs with the DOL as having this to say about the fees participants are paying in their 401(k) accounts:
“I think it’s an evolutionary process,” says Ann Combs, assistant secretary of the Employee Benefits Security Administration at the U.S. Department of Labor.
“First you have to get employees to participate, then you need to get them to max their contributions so they get the employer match. Then you educate them about investment options, asset allocation and checking their quarterly statements. Fees are probably on a more sophisticated level that they learn as they go along.”
Comment: It is hard to believe that Ann Combs really said this. Perhaps she was misquoted. Can you imagine telling anyone to invest their money and then to learn about what fees they are paying, after they have already made the investment?
- SFGate.com: “Avoiding dodgy funds.” The article describes what Morningstar offers in their 401(k) plan for a mutual fund line-up. (Morningstar is a company that is in the business of researching and rating mutual funds.) What would Morningstar do if a fund being offered were charged in a mutual fund investigation?
“We’d have to look at it. There’s a wide variety of misdeeds,” Phillips says. “But we would definitely consider making a change. One of the few things you can do as a fund investor is vote with your feet. I think it’s great that in the aggregate, money has continued to go into funds, but (fund assets) have been radically repositioned away from funds that have been implicated. There should be a penalty. You should lose assets if you violate the public’s trust.”
- LA Times: “Mutual fund scandal shakes up 401(k) plans.” Quote of Note:
The outpouring of bad news about mutual funds has a silver lining, said Michael Scarborough, president of the Scarborough Group in Annapolis, which manages individuals’ 401(k) accounts. Workers notorious for neglecting their accounts are taking time to review them and ask questions, he said. The last time workers had a renewed interest in their 401(k)s was during the corporate scandals. “I always said Enron was a pretty good thing to happen,” Scarborough said, “as long as you didn’t work at Enron.”
- The Washington Post: “If You Depend on a 401(k), Now Is Time to Start Worrying About Retirement.” If the 401(k) retirement-savings system ever wants a mascot and a slogan, it need look no further than Mad magazine’s Alfred E. Neuman and his signature line, “What, me worry?”