PBS Frontline’s report on 401(k) plans entitled “The Retirement Gamble” was a pretty sobering report about the problems and issues regarding these plans in providing benefits to plan participants for retirement.
While people note that the report came from an anti-401(k) bias, their skewed vision can be shown by the title of the program. Let’s face it, having a report that states that a 401(k) plan is a great opportunity for both employers and participants to have a retirement plan isn’t going to get a lot of eyeballs. It’s easier to point out the problems and offer very little solutions on how to cure them.
While some 401(k) industry groups railed against the program, the program did raise some serious concerns against the very same people who help sponsor and benefit these trade groups.
If the head of the investment arm of one of the nation’s largest banks can’t tell you why he thinks a broker is better than a registered investment advisor or why actively managed is better than an index funds, let’s stop blaming the Frontline reporter for a biased report.
I have never been a part of any company or any industry that likes to take criticism. Nobody wants to be told that they aren’t doing a great job. The retirement plan industry needs to look itself and concentrate on what they are doing right and try to fix what they are not doing right. If the people in the industry try to pretend that nothing is wrong with the 401(k) plan industry, then they are only fooling themselves.
There needs to be some sort of standard where a financial advisor doesn’t get a bigger trail by pushing a specific fund. There needs to be a simple disclosure of all plan expenses and fees just like the menu at In N Out. The biggest shame about the program is that the biggest problem in the 401(k) plan business isn’t the mutual fund companies; it’s the lack of any good investment education and/or advice for plan participants. The biggest problem affecting 401(k) plan is that it put the investment decisions in the hands of the people who have the least amount of background or sophistication to make those decisions, the plan participant. While the Frontline program seemed to have a bias for index investing, I am convinced that an all index lineup on a plan menu will do little good for plan participants who have no idea how to invest. Only until just recently, did the Department of Labor allow plan providers to offer investment advice and only a few providers will offer it because of the hurdles that the Labor Department put in place for providers to jump over in offering advice.
I tend to see the 401(k) plan business as the glass that’s half full. Sure there is still a lot of conflict of interest out there and fee disclosures that aren’t so transparent and poor education for plan participants. The fact is that despite all the criticism, no one has come up with a better idea than a 401(k) plan. Let’s face it, defined benefit plans aren’t coming back, so it’s time we try to fix what we have.
Another thing that the program did gloss over is that plan sponsors and plan participants need to share the blame to the troubles of the industry. Too many plan sponsors have a set it and forget mentality about their plans. While competing plan providers tell them about their fiduciary responsibility and the high fees/lousy service that they are getting from their current providers, many plan sponsors have a what me worry mentality. In addition, when participants defer part of their salary in a 401(k) plan, they need to have responsibility in identifying what they are investing in and asking the right questions about their plan. They have a responsibility to themselves, a responsibility to save for retirement because if they don’t care about their financial goals, it will be hard to find someone who will.
A good chunk of what’s wrong with the 401(k) industry is that we have too many apathetic plan sponsors and plan participants. I’m not trying to make excuses for the jokers who charged too much and gave so little, but there is a larger group put there that needs to share the blame for the ills of the industry.