Interesting article on Obama’s plans for retirement savings programs.
I want to focus on the proposed changes for 401(k) plans (from the article).
The proposed 401(k) Fair Disclosure and Pension Security Act, for example, would:
• Require 401k plans to disclose fees on workers’ quarterly statements as a dollar figure taken from participants’ accounts.
• Require service providers and plan administrators to disclose administrative, investment management and transaction, along with other fees.
• Help workers understand their investment options by providing information on risk, return and investment objectives.
• Require plan administrators to offer at least one low-cost index fund in order to receive protection against liability for participants’ investment losses.
• Require service providers to disclose financial relationships so companies that sponsor 401k plans can make sure there are no conflicts of interest.
• Ensure that investment advice is based on workers’ needs, not the financial interest of those providing advice.
• Provide adjustments to pension funding rules to ensure plans can weather economic crises without providers being forced to cut jobs or freeze plans.
A paragraph or two above the information I posted, there is mention of wanting to add annuities to 401(k) plans. I think this is a BIG mistake—especially if these annuities mean more income to the provider of the plan. Why do I say this? Well, if you look at one of the bullet points, it mentions helping workers understand risk, return, and investment objectives. It’s not hard to sway an uneducated person from one product to another just by talking about risk. For instance, the “advisor” could simply ask the question, “How much of this money can you afford to lose?” Of course the natural response is an emphatic, “NONE!” The next thing you know, the advisor is talking about “guarantees.”
I think the public would be better served if we focused on costs and education (provided by a third party with no ties to any fund families).
What are your thoughts on these proposals?
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