I’m paraphrasing, of course from Shakespeare’s,”The fault, dear Brutus, lies not in our stars, but in ourselves if we are underlings.”
In a recent story, covered by ABC as “Movement to Scrap 401(k)s Gains Traction” it seems that instead of (a) prompting more disclosure regarding the high fees with an eye toward reduction, (b) education about asset allocation (as in “how to not lose 100% of your savings in an Enron-style implosion”, and (c) a bit of counselling on proper planning, amount that needs to saved, etc, they are proposing we scrap the system altogether.
The current state in which we find the financial markets doesn’t call for the abolition of retirement planning as we know it. In the old days, whenever they were, a defined benefit pension would have provided a nice income at retirement, with social security adding to supplement. As people stayed at a given job for fewer years, the pension system made less sense. The 401(k) on the other hand, was a great replacement vehicle. Those frequently changing jobs had the choice of moving their prior account to the new employer or to roll the account to an IRA.
There are bits I picked up from the article that I agree with:
Encourage/force disclosure and lower fees
Mandatory 5% minimum deposit and 5% company match
An offering of one fund that invests in the inflation+3% as the plan proposes
This would satisfy much of what this democratic proposal offers, only it doesn’t tie the hand of investors who wish to be more aggressive and it doesn’t create a socialistic investment pool. The article doesn’t address the source of the inflation+3% investment, where exactly does one get this return? How will the government guarantee this, and who will make the investment decisions on our behalf?
I’ll just say “no, thanks” to this one.