{"id":1740217,"date":"2022-11-15T17:58:41","date_gmt":"2022-11-15T22:58:41","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1740217"},"modified":"2022-11-15T18:06:31","modified_gmt":"2022-11-15T23:06:31","slug":"lost-retirement-why-401ks-are-not-ok-and-not-just-because-of-the-lousy-economy","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/lost-retirement-why-401ks-are-not-ok-and-not-just-because-of-the-lousy-economy\/","title":{"rendered":"Lost Retirement: Why 401(k)s Are Not OK (and Not Just Because of the Lousy Economy)"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"&quot;\"><div class=\"counts mashsbcount\">30<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Flost-retirement-why-401ks-are-not-ok-and-not-just-because-of-the-lousy-economy%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1740217&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><div><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/11\/2022.11.15-05.07-thepoliticalinsider-6373c748b0b54.jpg\" class=\"ff-og-image-inserted\" alt=\"image\" \/><\/div>\n<p><em>By John F. Wasik for RealClearInvestigations<\/em><\/p>\n<p>Fretting over your 401(k) lately? For all the current turbulence in these retirement plans \u2013 from their rocky recent market performance to asset managers\u2019 politicization of their investments through the \u201cenvironment, social and governance\u201d agenda \u2013 the main problem lies in their flawed design decades ago, a range of retirement experts say.<\/p>\n<p>They say many retirees \u2013 particularly the less well-off \u2013 are losing out because the tax-advantaged accounts favor the well-compensated who are better able to save; also, because of the plans\u2019 temptingly relaxed borrowing rules, typically high fees, complexity, and a presumption of investing competence on the part of ordinary workers.<\/p>\n<p><strong>RELATED: <a href=\"https:\/\/thepoliticalinsider.com\/ig-reports-historic-400-billion-in-covid-unemployment-funds-lost-to-fraud-waste\/\" target=\"_blank\" rel=\"noopener\">IG Reports \u2018Historic\u2019 $400 Billion in COVID Unemployment Funds Lost to Fraud, Waste<\/a><\/strong><\/p>\n<p>\u201cThis system works fine for the top third of income earners, but not well for the middle-\u00a0 and lower-income earners,\u201d says <a href=\"https:\/\/crr.bc.edu\/about-us\/people\/bc-crr_bios\/director\/alicia-munnell\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Alicia Munnell<\/span><\/a>, director of the Center for Retirement Research at Boston College.<\/p>\n<p>Yet as traditional monthly pensions have largely disappeared for private sector workers, American retirement security more than ever hinges on 401(k)s. In an illustration of how they\u2019re failing, Deloitte Global, the accounting and consulting firm, estimates the retirement savings shortfall for Americans at <a href=\"https:\/\/www2.deloitte.com\/us\/en\/insights\/industry\/financial-services\/closing-retirement-savings-gap.html\" target=\"_blank\" rel=\"noopener\">nearly $4 trillion<\/a>, as relatively few employees are able or inclined to fully exploit these optional savings vehicles.<\/p>\n<p>Worse yet, few plans offer much, if any, protection against market declines, as any 401(k) investor can attest this year. There are no retirement income guarantees in the 401(k) world. And in the face of such uncertainties, the guarantee of a modest monthly federal Social Security check, the other leg of retirement finance, is cold comfort for many indeed.<\/p>\n<h3>An Accident of History<\/h3>\n<p>Investment experts explain how we arrived at this pass starting with an accident of history. 401(k)s were never intended as a mainstream retirement vehicle. What happened was that a\u00a0<a href=\"https:\/\/www.history.com\/news\/meet-the-man-who-invented-modern-retirement-401k\" target=\"_blank\" rel=\"noopener\">benefits consultant named Ted Benna<\/a>\u00a0in the late 1970s discovered an obscure section of the U.S. tax code that allowed employers to offer an extra fringe \u201cdefined contribution\u201d retirement savings benefit, mostly aimed at higher-income employees who could afford to put aside significant savings and avail themselves of employers\u2019 matching contributions and expert investment advice.<\/p>\n<p>During the 1980s,\u00a0<a href=\"https:\/\/www.forbes.com\/advisor\/retirement\/ted-benna-interview\/\" target=\"_blank\" rel=\"noopener\">only 8% of American workers<\/a>\u00a0had 401(k)s. But over the decades they have grown into\u00a0<a href=\"https:\/\/www.statista.com\/statistics\/1096899\/value-retirement-assets-401-k-plans-usa\/\" target=\"_blank\" rel=\"noopener\">a $7 trillion industry<\/a>\u00a0as many companies embraced Benna\u2019s insight, concluding that they were cheaper and easier to manage than defined-benefit pension plans. Now some 43% of U.S. employees are offered 401(k) or similar plans, as pensions have\u00a0<a href=\"https:\/\/money.cnn.com\/retirement\/guide\/pensions_basics.moneymag\/index7.htm\" target=\"_blank\" rel=\"noopener\">virtually disappeared<\/a><\/p>\n<div id=\"subscribe\" class=\"email-signup inarticle\">\n<h4>Support Conservative Voices!<\/h4>\n<h5><strong>Sign up to receive the latest<\/strong> political news, insight, and commentary delivered directly to your inbox.<\/h5>\n<\/div>\n<p>Federal legislation compounded the bias toward higher earners. Professor Michael Doran of the University of Virginia Law School faults Congress for expanding 401(k)s by offering higher contribution limits and more generous tax breaks for those who don\u2019t really need them. His recent paper\u00a0<a href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3997927\" target=\"_blank\" rel=\"noopener\">\u201cThe Great American Retirement Fraud\u201d<\/a>\u00a0contends that despite \u201creforms costing the government tens of billions of dollars that began in 1995, retirement savings have remained flat for middle-income households and even decreased for lower-income households, after accounting for inflation.\u201d<\/p>\n<p>Although overall 401(k) savings have climbed in recent years, the bulk of the gains went to the upper tiers of income, Doran found. In defined-contribution plans such as 401(k)s403(b)s, and 457s\u00a0employees are rewarded when they make contributions along with any internal gains in the plans, both of which are tax-free until eventual withdrawal. The more you contribute, the greater the tax break upfront \u2013 a big incentive to reduce taxable income for high earners. It was easy for Congress to tweak laws to allow people to contribute more without creating better plans for middle- and low-income workers who could less afford to save.\u00a0<span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">\u201cThe legislation has repeatedly raised the statutory limits on contributions and benefits,\u201d Doran found, \u201call to the benefit of affluent workers and the financial-services companies and retirement-plan service providers that collect fees from retirement plans and retirement savings. The result has been spectacular growth in the retirement accounts of higher-income earners but modest or even negative growth in the accounts of middle-income and lower-income earners.\u201d<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><strong>RELATED: <a href=\"https:\/\/thepoliticalinsider.com\/if-budget-deficits-caused-inflation-there-would-be-no-budget-deficits\/\" target=\"_blank\" rel=\"noopener\">If Budget Deficits Caused Inflation, There Would Be No Budget Deficits<\/a><\/strong><\/p>\n<h3><span data-contrast=\"auto\">Not Features, but Bugs<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">Along the way, Congress created 401(k) features that have actually proved to be bugs in the retirement ointment. It made it easier to borrow or withdraw funds from the 401(k) kitty \u2013 an obvious disincentive to saving (in contrast with old-style pensions, which couldn\u2019t be tapped before retirement). In doing so, account holders often face steep federal income tax penalties.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Layoffs and other disruptions of the pandemic accelerated withdrawals from 401(k)s, when\u00a0<\/span><a href=\"https:\/\/www.paychex.com\/articles\/human-resources\/401k-covid-19-withdrawal\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Congress allowed workers<\/span><\/a><span data-contrast=\"auto\">\u00a0to withdraw up to $100,000 from retirement accounts without being subject to the 10% early-withdrawal penalty. Reacting to the pandemic\u2019s numerous financial challenges, some 92% of employers allowed \u201chardship\u201d withdrawals from 401(k)s, up from 78% in 2019, reports the Plan Council Sponsor of America (PSCA), which has been doing employer retirement surveys for the past 64 years.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">As a result, more than half of those\u00a0<\/span><a href=\"https:\/\/www.bankrate.com\/retirement\/retirement-savings-survey-november-2021\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">surveyed by Bankrate<\/span><\/a><span data-contrast=\"auto\">\u00a0said they are behind on their retirement savings.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Even before that, federal law was already flexible on accessing 401(k) funds: Workers can spend 401(k) funds to buy a first home, pay medical bills, and avert foreclosure through hardship withdrawals. A\u00a0<\/span><a href=\"https:\/\/www.marketwatch.com\/story\/401-k-and-ira-leakages-may-be-more-severe-than-previously-believed-11641223378?mod=alicia-h-munnell\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">recent study<\/span><\/a><span data-contrast=\"auto\">\u00a0suggested that 401(k) balances may be drained by as much as 31% at age 60.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Moreover,\u00a0<\/span><a href=\"https:\/\/www.cnbc.com\/2020\/12\/17\/covid-pandemic-led-thousands-of-businesses-to-slash-401k-contributions.html\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">nearly 50,000 businesses<\/span><\/a><span data-contrast=\"auto\">\u00a0slashed their 401(k) matching contributions during the pandemic, although many have since restored their match. Some 86% of plans surveyed offer a matching contribution as of last year, the PSCA notes. Small businesses were most likely to make the cuts. All told, although estimates vary widely, some 22% of workers surveyed said they tapped their 401(k)s during the pandemic, according to the\u00a0<\/span><a href=\"https:\/\/transamericacenter.org\/docs\/default-source\/retirement-survey-of-workers\/tcrs2020_sr_20th_annual_compendium_of_workers_report.pdf\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Transamerica Center for Retirement Studies<\/span><\/a><span data-contrast=\"auto\">.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<h3><span data-contrast=\"auto\">401(k)s Cost Too Much<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">Then there are the expenses of 401(k)s, widely viewed by financial advisers to be unnecessarily high with few exceptions.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><strong>RELATED: <a href=\"https:\/\/thepoliticalinsider.com\/narrative-watch-unemployment-rate-rose-in-october\/\" target=\"_blank\" rel=\"noopener\">Narrative Watch: Unemployment Rate Rose in October<\/a><\/strong><\/p>\n<p><span data-contrast=\"auto\">Defined-contribution plans are managed by financial services companies \u2013 primarily through mutual funds \u2013 and that means layers of fees mostly charged to employees. Be they managers mutual funds, insurance companies, brokerage firms, or banks, their expenses are buried in annual percentages of assets under management called \u201cexpense ratios,\u201d even\u00a0<\/span><span data-contrast=\"none\">though the\u00a0<\/span><a href=\"https:\/\/www.dol.gov\/agencies\/ebsa\/about-ebsa\/our-activities\/resource-center\/publications\/understanding-your-retirement-plan-fees\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">U.S. Department of Labor requires<\/span><\/a><span data-contrast=\"none\">\u00a0that employers disclose fees.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Meantime, personal portfolio and risk management is left to individual account holders, who, research shows, consistently make money-losing decisions (see\u00a0<\/span><strong>\u201cEncouraging Money-Losing Decisions\u201d\u00a0<\/strong><span data-contrast=\"auto\">below).\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Overpriced, inferior funds will actually eat up total retirement savings over time because workers don\u2019t have the option of choosing funds in their employer\u2019s 401(k) \u2013 they are limited by their\u00a0<\/span><span data-contrast=\"auto\">employer\u2019s\u00a0<\/span><span data-contrast=\"auto\">selection of funds.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">The simple math on how much the high fees can eat into retirement savings is indisputable and dramatic:\u00a0<\/span><span data-contrast=\"none\">An increase of 1% in your 401(k) plan fees and charges could reduce your retirement earnings by 28%, according to\u00a0<\/span><a href=\"https:\/\/www.finra.org\/investors\/learn-to-invest\/types-investments\/retirement\/401k-investing\/managing-your-401k\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"auto\">FINRA<\/span><\/a><span data-contrast=\"none\">,<\/span><span data-contrast=\"none\">\u00a0the federal regulator of the U.S. securities industry.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Let\u2019s say you invested $100,000 in a large-stock fund over 30 years. At a 7% annual return, you\u2019d have $483,727 after three decades if you left your money invested for that period of time in a fund charging 1.5% in annual expenses.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Lower your annual fund expense ratio to 0.5% and your final balance would be almost $655,000. Expenses still ate up $100,000 of your contributions\u00a0<\/span><span data-contrast=\"none\">\u2013<\/span><span data-contrast=\"auto\">\u00a0even in the low-cost fund\u00a0<\/span><span data-contrast=\"none\">\u2013<\/span><span data-contrast=\"auto\">\u00a0so you can see how lucrative 401(k)s are for financial services firms. That was cash that was not invested and compounding in your retirement kitty.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">By comparison, the high-cost option took more than $250,000 in fees and lost opportunity cost, that is, money that couldn\u2019t return a dime for you because it went to a third party and wasn\u2019t invested. (Do the math yourself online with\u00a0<\/span><a href=\"https:\/\/www.bankrate.com\/investing\/mutual-funds-fees-calculator\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Bankrate.com\u2019s mutual fund fees calculator<\/span><\/a><span data-contrast=\"auto\">.)\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The good news is that, due to intense competition in the money management business, you \u2013 and your employer\u00a0<\/span><span data-contrast=\"none\">\u2013<\/span><span data-contrast=\"auto\">\u00a0can find rock-bottom expenses on nearly every kind of fund. But here\u2019s a catch: Some of the big asset managers offering ultra-low-cost exchange-traded and mutual funds \u2013 including BlackRock and Vanguard \u2013 are also\u00a0<\/span><a href=\"https:\/\/www.realclearinvestigations.com\/articles\/2022\/10\/20\/2a_rcis_guide_to_politicized_capitalism_environmental_social_and_governance_investing_858464.html\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">advocates of controversial \u201cenvironmental, social and governance\u201d investing<\/span><\/a><span data-contrast=\"auto\">\u00a0favoring broader social goals over traditional shareholder value. Such political activism is\u00a0<\/span><a href=\"https:\/\/www.realclearinvestigations.com\/articles\/2022\/10\/20\/2b_rcis_guide_to_politicized_capitalism_state_pushback_and_non-esg_investing_856046.html\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">opposed by many investors and regulators in conservative states<\/span><\/a><span data-contrast=\"auto\">. Investors willing to do the painstaking research required could find themselves conflicted, facing appealingly low expenses on the one hand and a political investing approach with which they disagree on the other.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">There are 10 funds that charge\u00a0<\/span><span data-contrast=\"auto\">no<\/span><span data-contrast=\"auto\">\u00a0management expenses for their exchange-traded stock funds. You can find bond-index funds for as little as 0.03% annually, according to the\u00a0<\/span><a href=\"https:\/\/etfdb.com\/compare\/lowest-expense-ratio\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">ETF database<\/span><\/a><span data-contrast=\"auto\">. Generally, low-cost, static, big-basket index funds don\u2019t trade their holdings and can perform better over time than actively traded funds. The performance difference is largely due to lower fees and avoiding active-trading losses.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">But finding these cheaper funds on your own doesn\u2019t mean that your employer will\u00a0<\/span><span data-contrast=\"auto\">offer<\/span><span data-contrast=\"auto\">\u00a0them in your 401(k). They are usually limited by what a single financial service company will provide (usually the company\u2019s own \u201cproprietary\u201d funds). These may even load up extra layers of fees through \u201cfund classes\u201d or other poorly disclosed expenses such as \u201crevenue sharing\u201d that will erode your retirement savings. Unless employers absorb fund expenses \u2013 most do not \u2013 they have little financial incentive to shop for low-fee funds.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">The reason smaller plans charge employees high fees comes down to profit.<\/span><span data-contrast=\"none\">\u00a0Your 401(k) plan\u2019s average account balance may impact the fees you pay. Joseph Valletta, publisher of the\u00a0<\/span><a href=\"https:\/\/www.401ksource.com\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">401k Averages Book<\/span><\/a><span data-contrast=\"none\">, says \u201cour data finds that average account balance is one of the key drivers of 401(k) plan costs.\u201d\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><strong>RELATED: <a href=\"https:\/\/thepoliticalinsider.com\/snapshot-of-the-state-of-the-economy-adults-living-in-dorms-unfilled-jobs-and-chaos\/\" target=\"_blank\" rel=\"noopener\">Snapshot of the State of the Economy: Adults Living In Dorms, Unfilled Jobs, and Chaos<\/a><\/strong><\/p>\n<p><span data-contrast=\"none\">\u201cPlans with larger average account balances will be able to generate more revenue per participant than a plan with a smaller average account balance,\u201d he explains. \u201cFor example, a $5 million plan with $50,000 average account balance costs 1.19%, which translates to $595 [in revenue] per participant, while a $5 million plan with $10,000 average account balance costs 1.48%, which translates to $148 per participant.\u201d\u00a0<\/span><span data-contrast=\"none\">\u00a0\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Ironically, on the expense issue, Congress has taken care of itself and federal employees through its\u00a0<\/span><a href=\"https:\/\/www.tsp.gov\/tsp-basics\/administrative-and-investment-expenses\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Thrift Savings Plan (TSP)<\/span><\/a><span data-contrast=\"auto\">, a giant defined-contribution plan. The TSP not only clearly discloses and explains all expenses; the total fees on their funds range from only 0.043% to 0.053%. Note where the decimal point is. These funds are a super bargain for federal employees, although private plans are generally charging exponentially more.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Small plans, typically under $5 million in assets, typically extract high fees from employees. According to\u00a0<\/span><a href=\"https:\/\/www.401ksource.com\/infographics\/breakdown-of-small-plan-401k-fees\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">401ksource.com<\/span><\/a><span data-contrast=\"auto\">, which tracks plan fees, a plan with $500,000 in assets, for example, may have an average annual expense ratio of 2.23%, which is an onerous internal tax on participants. Broken down, 1.59% goes to investment managers and recordkeepers and 1.06% to \u201crevenue sharing,\u201d a hidden cost that is an incentive for intermediaries to place funds within a plan.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">While fund fees have declined overall in recent years, usually the larger the plan in terms of assets, the lower the expenses. A plan with $50 million in assets and 1,000 participants will pay an average 0.88% annually, 401ksource reported. Someone who has invested $100,000 over 30 years and is investing $1,000 monthly at 7% annual return would have an\u00a0<\/span><a href=\"https:\/\/www.mywealthtrace.com\/compare-investment-fees-calculator\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">ending balance<\/span><\/a><span data-contrast=\"auto\">\u00a0of about $1.2 million in the more expensive, smaller plan, compared with nearly $1.6 million in the larger one.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<h3><span data-contrast=\"auto\">Litigation Blossoms\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">Not surprisingly, there\u2019s been pushback on high 401(k) fees by employees in recent years.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Employers have faced multiple lawsuits over high fees and poor performance. In legal parlance, litigators representing employees argue that employers have often violated their \u201cfiduciary duty\u201d under federal law to select managers to prudently manage employee funds at a reasonable cost.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/www.forbes.com\/sites\/brianmenickella\/2021\/07\/25\/rise-in-401k-lawsuits-understand-your-plan\/?sh=6e4e29dc6dfb\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">More than 90 lawsuits<\/span><\/a><span data-contrast=\"auto\">\u00a0against employers for faulty 401(k)s were filed in 2020 alone. The suits alleged that employers \u201cbreached\u201d their fiduciary duty by offering high-cost, low-performing funds. The litigation has also cited inclusion of company stock in 401(k)s, an ultra-risky investment \u2013 particularly if the company\u2019s shares tank. The once-giant retailer Sears, for example, was sued in 2017 \u201c<\/span><span data-contrast=\"none\">for allegedly encouraging participants in its 401(k) plan to buy company stock despite well-publicized struggles that have battered Sears shares since 2014,\u201d according\u00a0<\/span><span data-contrast=\"auto\">to The\u00a0<\/span><a href=\"https:\/\/www.wsj.com\/articles\/sears-hit-with-401-k-plan-lawsuit-1500329742\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">Wall Street Journal<\/span><\/a><span data-contrast=\"none\">.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Employers have also been sued for conflicts of interest within plans, such as \u201cself-dealing,\u201d where the benefit of fund managers is placed above employees, and excessive third-party administrative fees and record-keeping, typically the least transparent expense.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><strong>RELATED: <a href=\"https:\/\/thepoliticalinsider.com\/joy-reid-republicans-taught-people-the-word-inflation-they-never-cared-about-it-before\/\" target=\"_blank\" rel=\"noopener\">Joy Reid: Republicans Taught People the Word \u2018Inflation,\u2019 They Never Cared About it Before<\/a><\/strong><\/p>\n<p><span data-contrast=\"none\">It\u2019s no surprise that 401(k) suits have come in waves, usually after major market or economic declines, since defined-contribution returns are directly linked to markets. When stock and bond markets fail to provide consistent returns, high fees sting employees even more since 401(k)s don\u2019t guarantee returns in volatile market environments. More\u00a0<\/span><span data-contrast=\"none\">than 100 new 401(k) suits<\/span><span data-contrast=\"none\">\u00a0were filed in 2016 and 2017, following an earlier wave in 2008 and 2009 in the wake of the market meltdown and recession in those years. \u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Many of the suits target investment choices, which are loaded with extraneous fees, conflicts of interest, and often higher risk. To address that issue, fund complexes have offered \u201clifestyle\u201d or \u201ctarget-date\u201d funds (TDFs), which are baskets of pre-packaged funds designed to offer a \u201cglide path\u201d to retirement at given years. All of these funds, however, impose two layers of fees that erode returns. They may even come up short on performance and vary widely in risk profiles.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">\u201cExcessive risk lawsuits should be the next wave (of lawsuits),\u201d says Ron Surz, a long-time critic of mainstream TDFs and president of Target Date Solutions.\u00a0<\/span>\u00a0<\/p>\n<h3><span data-contrast=\"auto\">Encouraging Money-Losing Decisions\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">Handing the complicated decision-making of personal investing to unsophisticated employees has consistently hurt their ability to save enough for retirement. Because employees are free to trade at will \u2013 often without much guidance\u00a0<\/span><span data-contrast=\"none\">\u2013<\/span><span data-contrast=\"auto\">\u00a0they often make the worst decisions and lose money in their 401(k)s. In recent decades, a body of Nobel-winning economic research has proven that investors rarely act in their own best interest when it comes to investing on their own.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Individuals consistently underperform the market, particularly in their 401(k) accounts, according to research by Dalbar, which has been studying personal investment returns for the past 27 years. What many investors do is sell during downturns and buy during upswings. That means they lock in losses when they could be buying shares at a discount, which is how professional investors make money.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Dalbar estimates the gap between what individual investors returned versus a static index of stocks was 2 percentage points during the first half of last year, when many investors bailed during market swoons and the pandemic. \u201c<\/span><span data-contrast=\"none\">This would come back to haunt the average equity fund investor,\u201d the Dalbar report stated.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Since little education on risk management or investing is required for employees, they are likely going to repeat their missteps over time and lose even more money.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Last year, for example, some $7.3 billion flowed out of stock funds, according to\u00a0<\/span><span data-contrast=\"none\">Alight Solutions<\/span><span data-contrast=\"none\">, which tracks 401(k) trading. That money was mostly moved to bond and \u201cstable value\u201d funds during a year in which the broad Bloomberg Barclays Bond Index lost 1.54%. Stocks, as measured by the S&#038;P 500 Index, gained nearly 29% in 2021, thanks to a market rebound. It\u2019s hard to know how much money was lost by moving 401(k) funds, but it was substantial; losses further needlessly eroded 401(k) balances.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Richard Thaler, who won the Nobel Prize in Economics in 2017, discovered that investors, when given free rein over their investments, tend to make bad choices based on behavioral biases. They get scared about losing money, so they make rash trading decisions, i.e., they sell low and buy high. They think they know what\u2019s going to happen in markets based on the day\u2019s headlines. Many\u00a0<\/span><span data-contrast=\"none\">\u2013\u00a0<\/span><span data-contrast=\"auto\">mostly men\u00a0<\/span><span data-contrast=\"none\">\u2013\u00a0<\/span><span data-contrast=\"auto\">are overconfident in making these decisions. And they tend to contribute too little or nothing at all, which results in inadequate retirement savings.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><strong>RELATED: <a href=\"https:\/\/thepoliticalinsider.com\/claiming-democracy-under-attack-biden-makes-it-harder-to-oust-unions\/\" target=\"_blank\" rel=\"noopener\">Claiming \u2018Democracy Under Attack,\u2019 Biden Makes It Harder to Oust Unions<\/a><\/strong><\/p>\n<p><span data-contrast=\"auto\">Working with UCLA Professor Shlomo Benartzi, Thaler developed a 401(k) program called Save More Tomorrow (SMarT), which automatically enrolls workers in a 401(k) when they start with an employer, then increases their contributions with every raise. They found that the SMarT program\u00a0<\/span><span data-contrast=\"auto\">tripled<\/span><span data-contrast=\"auto\">\u00a0401(k) savings over a two-year period.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">While no employer is required by federal law to automatically enroll participants, today more than half of employers \u2013 mostly those with more than 5,000 employees \u2013 offer auto-enrollment 401(k)s. Better yet, of those offered this plan design, 65% of those surveyed report they saved more. Workers who don\u2019t have to make a decision about whether to contribute and then increase their contributions later clearly fare better than those faced with an array of personal choices.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<h3><span data-contrast=\"auto\">Congress Slow on the Uptake<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/h3>\n<p><span data-contrast=\"auto\">Despite all the flaws noted in the 401(k) system, Congress tends to do the same thing: raise contribution limits, which is great for higher earners who can save more. Due to inflation, the IRS recently\u00a0<\/span><a href=\"https:\/\/www.irs.gov\/newsroom\/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">upped 401(k) contribution limits<\/span><\/a><span data-contrast=\"auto\">\u00a0for 2023.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">But Congress also has been slow to grasp innovations in the marketplace to improve retirement savings. A bill slowly moving through the legislature \u2013 nicknamed \u00a0\u201cSECURE 2.0\u201d\u00a0<\/span><span data-contrast=\"none\">\u2013<\/span><span data-contrast=\"auto\">\u00a0proposes auto-enrollment features, along with other enhancements such as expanding a \u201csaver\u2019s credit\u201d for lower-income workers.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">As with previous efforts to improve retirement contributions, the legislation would allow workers to contribute more. The bill does not address high fees or \u201cmiddlemen\u201d expenses. There is no \u201cuniversal\u201d savings plan proposed that would emulate the government\u2019s superior Thrift Savings Plan (see above) or that would provide plans for those who are self-employed or who are not offered defined-contribution plans through employers (a handful of states do this). \u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Can the 401(k) be fixed? Many defined-contribution advocates think so, starting with making 401(k) transfers to new employers easier when employees switch jobs, instead of options such as a tax-triggering cash-out. Another proposal would allow workers to simply convert their 401(k) lump sums into fixed-payment annuities when they retire.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">\u201cSeamless plan-to-plan portability would not only help participants avoid cash-out leakage, but it would also save participants time and money in managing their retirement savings, and position them for the transition to retirement income,\u201d says Tom Hawkins, vice president for 401(k) Clearinghouse.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">There is active lobbying within the 401(k) industry to support changes that would boost savings for most Americans. The truth is that millions will not be able to enjoy a comfortable retirement from Social Security alone, which provides as little as 42% of pre-retirement income. Proponents of 401(k)s argue that defined-contribution plans can supplement the often-meager income from Social Security.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">\u201c<\/span><span data-contrast=\"none\">For anyone other than a career minimum-wage worker, Social Security benefits are too low to provide a comfortable retirement and must be supplemented by either a traditional pension plan or the worker\u2019s own retirement savings,\u201d\u00a0<\/span><a href=\"https:\/\/www.heritage.org\/social-security\/report\/automatic-ira-builds-retirement-security\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">writes David John, a former senior research fellow for the Heritage Foundation.<\/span><\/a><\/p>\n<p>\u201cThis situation will be made even worse by Social Security\u2019s coming financial problems that will make it difficult to pay full promised benefits to everyone.\u201d<\/p>\n<p><em>Syndicated with permission from RealClearWire.<\/em><\/p>\n<p>John F. Wasik is a\u00a0<em>RealClearInvestigations<\/em>\u00a0reporter writing about innovation, investor protection, retirement, money management, history, and social issues. He also contributes to the<em>\u00a0New York Times<\/em>,<em>\u00a0Wall Street Journal<\/em>, and other global publications, and has appeared on CNN, FOX, NBC, MSNBC, NPR, PBS, and radio stations from Australia to Israel.<\/p>\n<p class=\"disclaimer\">The opinions expressed by contributors and\/or content partners are their own and do not necessarily reflect the views of The Political Insider.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By John F. Wasik for RealClearInvestigations Fretting over your 401(k) lately? For all the current turbulence in these retirement plans \u2013 from their rocky recent market performance to asset managers\u2019<\/p>\n","protected":false},"author":1,"featured_media":1740220,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","fifu_image_alt":"","footnotes":""},"categories":[547],"tags":[],"class_list":["post-1740217","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-the-bongino-report"],"fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1740217","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1740217"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1740217\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1740220"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1740217"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1740217"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1740217"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}