My first reaction to news that most Americans polled by a mutual-fund trade group continue to have a favorable view of 401(k) retirement plans was to marvel at the apparent near amnesiac state of those queried.
My second thought was that even if 90% of the households surveyed for the Investment Company Institute had a favorable opinion of retirement plans, it didn’t mean self-directed 401(k)s are an appropriate retirement savings device for all Americans.
“The 401(k) system has a long and productive future ahead in providing retirement security for millions and millions of Americans,” said Paul Schott Stevens, who heads the ICI mutual fund trade group.
Has everyone forgotten the gallows humor of relabeling the ubiquitous retirement plans, typically based on mutual fund investments, 201(k)s to symbolize the bear market’s rough treatment of their value?
If you were going to retire somewhere in 2008, even if you had a balanced 401(k) investment plan, odds are the bear market ripped through that plan, prompting you to work longer or live more modestly.
This bear market, and maybe that marks its rarity, was not respectful of asset allocation. Stocks and bonds went down and there were precious few places to hide.
Some structural alternatives ought to be considered. I suggested that creative minds on Wall Street would come up with structures that took more and more risk out of accumulated savings as retirement approached.
Maybe they will. Or maybe the bull market in stocks from the bottoms in March 2009 has done enough repair work to 401(k) portfolios to cause a pleasant amnesia and dull the desire for change.
Perhaps it’s as simple as allowing people to keep safe increasing percentages of their retirement funds from the vagaries of markets as they age.
January 14, 2010
Ianthe Zabel
January 14, 2010
401(k) plans are one important component of the American retirement system. They have to be looked at alongside Social Security, defined benefit plans and personal savings in judging whether Americans can enjoy a secure retirement. Within that system, 401(k)s can indeed be an excellent savings device for Americans who want and need to plan for retirement. These plans are well suited to our flexible workforce, and they have a remarkable track record of success in providing Americans incentives to save, invest, and think long-term.
Americans seem to agree – in a recent survey of 3,000 households, ICI found that overall 73 percent of households surveyed indicated that they are confident that retirement plan accounts can help people reach their retirement goals. Large majorities supported key features of the 401(k) system, including tax advantages for employee and employer savings, payroll deduction, and individual choice and control.
As you note, like all forms of retirement savings, 401(k) plans suffered in the market downturn. Fortunately, recent data from Vanguard and others show that many account balances have recovered through a combination of ongoing contributions, diversified portfolios, and the sharp stock market recovery since March 2009 lows. That recovery, however, has not made the fund industry complacent: we recognize that 401(k)s and the retirement system generally can be improved – that’s why ICI outlined several measures to do so at a National Press Club event last week, including ensuring savers understand and use asset allocation to achieve their individual investment risk profile through their working years and into retirement.
In strengthening retirement security, the fund industry supports measures to:
1. Improve disclosure about all investment options in 401(k)s.
2. Enhance understanding of target date funds by highlighting key information.
3. Increase opportunities for small employers to offer plans by making them less complex and expensive.
4. Increase opportunities for workers who lack plans to save in IRAs via payroll deduction.
5. Redouble efforts by educators, employers, financial firms, and government to provide financial and investor education to all Americans from elementary school through adulthood and into retirement.
6. Put Social Security on sound financial footing.
7. Relax required minimum distribution rules.
8. Remove obstacles to let employers automatically diversify near-retirees out of company stock.
401(k)s are an integral part of America’s retirement system, along with Social Security and defined benefit pension plans. We look forward to continue working with policymakers to strengthen the 401(k) and broader retirement system.
Thanks for the opportunity to comment–Ianthe Zabel, ICI media relations (www.ici.org)