NOTE: My wife is off work this week and the kids are out of school. My family is coming to town on Wednesday. So…I’m spending time with the family. I’ll be back next week. I’ll also announce the book winner next week.
Interesting piece on 401(K) plans and the guy who helped create them, Ted Benna. He thinks they have become too complex. What was the cause for the complexity? I’ll let him tell you…
Benna blames the newfound complexity on what he says was the small percentage of employees who wanted it. “What triggered this whole mess is that some of the more sophisticated participants were a pain in the butt,” he says. “You’d have these troublemaker loudmouths push human resources, and say, ‘why don’t we have this ‘flavor of the month.’ fund” These sophisticated employees are also the ones taking advantage of the education and advice being offered, he says.
Honestly, I don’t think that’s the problem at all. I think it’s just the nature of the game. You have lots of companies competing for the business and offering more and more choices. I don’t think you can blame that on “troublemake loudmouths.” These same “troublemaker loudmouths” are the ones asking for more index choices and fewer managed funds.
I think the problem is that people just don’t want to save. Either that, or they simply can’t afford (or don’t think they can afford) to save. The other reasons are simply excuses.
I do like his suggestions:
“We need a legislative mandate that when you change jobs, the money needs to be retained in a retirement account – there cannot be an option of ‘here’s a check, you decide,’” Benna says. He also advocates mandating all employees be auto-enrolled in the plans, and that their contributions be automatically increased one percentage point per year to a maximum of 10% to 15%.
Those are all good ideas. Too many people cash out their 401(K) plans when they change jobs.