“Your 401k Isn’t Drowning"

Twitter exchange worth noting:

Debbie B 
So much for hubby retiring soon...our 401 is drowning

DelzioEdward
Don’t look at the balance, look at how many more shares it buys at double-digit discounts when it automatically reinvests your Q3 dividends next week.

Your 401k isn’t drowning, it's diving for treasure.

Retirement Investing: Plan B?

"We shall fight on the beaches, we shall fight on the landing grounds…." Oh, wait! That was Winston Churchill in 1940, not opponents of the Labor Department's proposed fiduciary standard for investment advice.  Nevertheless, they showed their fighting spirit at last week's hearings.

Requiring fiduciary-quality advice would not reduce costs, representatives of the investment-products industry contended. They repeated their warning in TV commercials. Workers seeking fiduciary guidance would have to pay up, shelling out the same one percent annually as richer folks. And the industry's fierce resistance ("We shall never surrender!") would send compliance costs through the roof.

Perhaps some sort of fiduciary standard for investment advisers to 401(k) plan investors may yet emerge. But the pale, anemic regulation probably won't be worth much. 

So it's time for Plan B: If sellers of investment products can't be turned into fiduciaries, perhaps they can be sidelined.

Plan B proponents advocate drastic steps to simplify retirement investing. They would replace today's  jungle of retirement plans and accounts with just one vehicle. John N. Friedman calls it the Universal Retirement Savings Account. Investment choices ideally would be limited to low-expense index funds or life-cycle funds. 

Unfortunately, history shows Plan B is a bad bet. Government efforts at simplification almost always fail– look at the Internal Revenue Code. Restricting investment choices to a few simple, inexpensive products is equally difficult. If this is a free country, shouldn't investors be free to buy pricey investment products without interference from the Nanny State?

Anybody got a Plan C?

Better Wealth, Better Health

If you're willing to improve your financial future by contributing to a 401(k) plan, most likely you'll also take steps to improve your future health. See Your 401(k) is Healthy, So Maybe You Are, Too in the NY Times.

Michael Waraksa, a collage freak, put together this apt illustration for the Times story.

Triumph of the Target-Date Funds

You read it here, five summers ago: Because needs and intentions differ for people reaching retirement age, target-date funds may not find much of a market.

Ha! Needs and intentions do differ, but target-date funds are on a roll. These auto-managed portfolios already hold about 20 percent of 401(k) money, and they're attracting more than 40 percent of the new funds flowing into 401(k) plans.

Target funds will maintain their momentum, Barron's predicts (subscription required, but I accessed the article via a Google search).

Looking out five years, target-date funds may be the only investment that most Americans have in their 401(k) plans. That would be quite an achievement for a product that was barely known just a decade ago. 

“Occupy Defined-Benefit Pension Funds!”

Suppose you weren't stuck with your costly 401(k) manager, suggests Felix Salmon. What if you could invest your retirement money more efficiently via the company's pension plan?

401(k)s Can Spell Inheritance Trouble

In the WSJ Carolyn Geer spotlights potential problems (such as the impossibility of "disinheriting" a spouse without the spouse's consent). See Battles Over Retirement Accounts.

Should the Prudent Investor Always Follow the Crowd?

Child: The other kids are doing it, why can't I?

Parent: Just because everybody's doing it, doesn't make it right.

Ron Lieber wants those overseeing 401(k) plans to think like the parent. See Why 401(k)'s Should Offer Index Funds.

Most plans – over 60 percent – don't yet offer a basic menu of low-expense index funds. Lieber offers a hypothetical example showing how that lack might cost an employee $100,000 or more over a working lifetime.

According to Erisa, 401(k) plans should be investing with the “care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

As long as most company plans don't offer a basic menu of index funds, do the people overseeing Galactic Gidgets' plan have a fiduciary duty to offer their employees an index funds option? If  not, would that duty automatically kick in once a bare majority of other plans do offer such an option?