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Data from
Fidelity Investments
show that more participants increased the amount they
were saving in the second quarter of the year than
decreased it. And account balances at the end of the
second quarter are up 13.5 percent from the first
quarter. The market's bullish rise definitely had
something to do with that increase; but account values
are also up because more people kept contributing than
did not, even in the darkest days.
Another
positive trend: 401(k) matches are making a comeback.
The latest figures from
Watson Wyatt
show 35 percent of employers are planning to restore
401(k) matches in the next six months. Big-name
organizations such as the
AARP
and
American Express
are among those that have recently announced reinstated
matches.
Still,
while things are looking up, let's not squander this
opportunity to consider the 401(k)'s flaws. A new
Prudential Financial
survey found the vast majority of Americans — 84
percent — say we need to re-evaluate how we plan and
save for retirement. I agree. But I'm not in the camp
who believe we should chuck the 401(k) completely. Here
is my wish list for an improved 401(k).
We need
...
... MORE
HELP AT WORK.
Too few
workplaces offer education and financial advice to their
employees. Far too often, workers sit through a generic
presentation about asset allocation after being handed a
hefty packet of investment choices and are sent back to
their desks to mull it over. When companies do make
advice available, it's not always from an unbiased
source.
Companies
can also do more to help workers save an adequate amount
by automatically enrolling workers in their 401(k) and
increasing the amount they save each year by a small
amount. And they must do more to try to attract those
workers who tend not to participate — low-income
workers, minorities and young workers.
...
TRANSPARENT AND REASONABLE FEES.
Do you
know how much your 401(k) costs? I'm guessing you're
familiar with the expense ratio that is charged by
individual mutual funds within your 401(k). But did you
know there are sometimes revenue sharing fees for
marketing and administrative costs that take a bite out
of your performance? And that some retirement plan
providers will make more money pushing investors into
certain funds?
The fee
structure of some retirement plans is so convoluted that
even the employer offering the plan can't understand it.
Most people are already at risk of running out of money
in retirement; the financial industry shouldn't speed up
the process by charging excessive fees to pad executive
salaries. Testifying before the
Senate's
Special Committee on Aging
last week,
Barbara Bovbjerg
of the General Accounting Office called for expanded fee
and compensation disclosures. I'm with her.
...
GUARANTEES.
Any
near-retiree who took too much risk and lost large sums
of money in this downturn is probably yearning for the
pension-plan era and the steady paychecks that came for
life. The retirement planning industry knows workers are
hungry for guaranteed investment options and are
devising products to save assets for retirement and
convert those assets into an income stream during
retirement. One in five Americans will outlive their
retirement assets, according to a
McKinsey & Co.
report. Whether it's with an annuity or retirement plan
insurance,
Social Security
or another guaranteed retirement account run by the
government, we desperately need some baseline of income
protection in old age. And we need it to be offered at
an affordable price.
... TO
REVISE EXPECTATIONS.
We've
been practicing this one. As the stock market tumbled,
workers reevaluated their plans to leave the workforce
and retirees adjusted their lifestyle. We need to let go
of the image of a 30-year, all-expenses-paid vacation
and plan on working longer. With pensions on the outs,
Social Security
feeling the squeeze and portfolios expected to grow more
slowly going forward, it's unrealistic for many of us to
raise families, take care of aging parents and still
save enough to afford this fabled decades-long
retirement we've been hearing about. Companies need to
make it easier for older workers to stay employed. We
also need to continue to save more, even when the
recession ends and the shopping mall beckons.
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