Problems And (Proposed) Solutions For 401k Plan

Solution: There have been a few suggestions on the table in Congressional committee where annuity products would be made available for 401k plan investments. The problem here is that, unless we’re talking about the lowest of low-cost providers (and there are a few out there), annuities are traditionally a very costly way to save and invest for the future.

I can’t argue with the sentiment, a guaranteed income choice would be perfect for a high percentage of folks – unfortunately this whole concept sounds too much like Social Security, and I don’t think we want to have two systems like that going in parallel. This option is still open for debate, in my opinion.

Problem: Most folks who have a 401k plan don’t have a clue about investing, and don’t have access to affordable, unbiased, professional advice.

Solution: This was actually addressed to a degree with the Pension Protection Act, but apparently the legislation’s carrot wasn’t enticing enough to get the ball rolling. In addition, the previous legislation did not go far enough and label the advisor as a fiduciary – a step that I believe is critical to the long-term success of the investor.

Some of the proposals on the table now have taken the step to require fiduciary advisors. The problem now is to get companies to implement this option.  Mandating is it probably going too far, but offering tax cuts or other benefits may be useful in giving this some traction.

Conclusion

This wasn’t intended to be an exhaustive list of the issues and solutions, just a list of the top things I’d been thinking about lately. As I indicated before, I don’t think we need to toss out the baby with the bathwater; the 401k plan isn’t broken, it just needs a few adjustments. Maybe you’ve got a few additional ideas, or suggestions to improve what I’ve tossed out here – I’d love to hear them.  Leave your ideas as comments below. Thanks!

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