Why 401(k) Plans Are Doomed From The Start

[Guest guest]

http://news.yahoo.com/why-401-k-plans-doomed-start-135449217.html

Why 401(k) Plans Are Doomed From The Start

By Chamberlain | Forbes – 15 hrs ago

The purpose of a 401(k) is to provide meaningful retirement income to plan

participanta during his or her retirement. Most plans fail to meet this

objective due to mistakes by the participants and plan sponsors. This applies to

both large and small companies.

Here are some mistakes participants make with their 401(k):

Not participating in the plan at all.

Failing to contribute adequate percentages to get the company match.

Not understanding how much needs to be contributed to have the desired

retirement income.

If the participant does understand how much should be contributed, failing to

put that level into the plan.

Not understanding the level of risk in the investments selected.

Taking too much risk or too little risk with the investments.

Thinking that the " education " provided by the financial services company

associated with the plan is investment advice.

Believing that if one target date fund is good, thinking that investing in two

or more would be better.

Not understanding the costs of the 401(k).

Putting too much into company stock.

Borrowing from the 401(k).

Cashing out the plan when changing jobs.

Rolling over the 401(k) at retirement into an IRA with a broker-dealer who takes

large commissions out of the account on the sale of new investments.

On the flip side, plan sponsors are also responsibly for their share of

detrimental mistakes. They've been discussed before in white papers and articles

in journals and on industry websites such as 401khelpcenter.com. Here are a few:

Not having the time or expertise to properly manage the plan.

Relying on financial services salespeople for " advice " rather than true

fiduciaries or ERISA attorneys.

Believing that a financial services company or plan salesperson is acting in the

best interest of the plan or its participants.

Failing to understand the difference between suitability and fiduciary

protections.

Not understanding their ERISA responsibilities in running the plan.

Failing to abide by ERISA rules.

Failing to offer adequate diversification of investment options.

Failing to understand all the costs in a 401(k).

Failing to control plan costs.

Not having an Investment Policy Statement for the plan.

Failing to have a prudent methodology to select and monitor investment options.

Failing to assess the plans compliance to ERISA and DOL rules and regulations.

Thinking that the " education " provided by the financial services company

associated with the plan is investment advice.

Failing to know that the plan fiduciaries can held personally responsible for

their ERISA mistakes.

The mistakes of plan participants and plan sponsors prevent most 401(k) plans

from providing meaningful retirement income. The " 401(k) industry " has made a

killing off the current system, which has made the problem worse. The Department

of Labor has provided written guidance as to what to do to address these issues,

but too few plan sponsors are aware of this guidance or have embraced it.

The " fix " to many of these mistakes is the use of independent, outside plan

fiduciaries. Experts such as Hutcheson, Pritchard, Simon and

others have recommended extensive use of independent plan fiduciaries. Doing so

would prevent many of the mistakes of both plan sponsors and participants. While

more companies are embracing this movement, the changes are too slow to help

many participants achieve meaningful retirement income.

[Guest guest]

I find this article gloomy and pessimistic. Most of the stuff this person is

telling you about is stuff you can avoid. That's why you see the disclaimer on

any 401 literature which says " Always read prospectus before investing " or

" Always talk with an investment advisor before investing " and the like.

Administrator

http://news.yahoo.com/why-401-k-plans-doomed-start-135449217.html

Why 401(k) Plans Are Doomed From The Start

[Guest guest]

I agree. There is also the point that government is looking at snapping up the 401k's and other private retirement accounts and putting them into a government plan. This administration has floated the idea already and Argentina has led the way by actually seizing such accounts to pay government debts.

In a message dated 8/17/2011 2:16:52 A.M. Eastern Daylight Time, no_reply writes:

I find this article gloomy and pessimistic. Most of the stuff this person is telling you about is stuff you can avoid. That's why you see the disclaimer on any 401 literature which says "Always read prospectus before investing" or "Always talk with an investment advisor before investing" and the like. Administrator