Steff C. Chalk is CEO of the Fiduciary Consulting Group, a fee-only fiduciary consulting practice
serving corporations and nonprofits. A judge for the PLANSPONSOR Retirement Plan Adviser of
the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the co-author
of How to Build a Successful 401(k) and Retirement Plan Advisory Business.
Are we destined to forever fix the 401(k)?
as we bask in the afterglow of first-quarter equity returns,
it is a slam dunk that a regulator, congressperson or
professor will soon attempt to hijack the national media
over the fact that… “The 401(k) needs fixing!” Such a
headline will be followed by a case study that illustrates
the snookering of the American worker. The scenario will
be further illuminated by citing the thousands of dollars
in value “lost” by this worker to the mavens of Wall Street.
Therefore, the cry will go, “something must be wrong” with
a retirement system that would permit hardworking Americans to lose so much money prior to receiving their gold
watch! (This is where the media inserts the glossy photo
of a dashing Bond-esque figure in a dark-blue, pinstripe
three-piece suit, mulling over the decision of—the Ferrari
or the Lamborghini?)
Problems have been identified!
Not only have American workers en masse lost their assets
and dignity, say the critics, but so have their spouses, chil-
dren and in-laws been bamboozled by a savings arrange-
ment that “needs fixing.”
Let’s take a moment to evaluate this argument.
Asset balances are insufficient to sustain retirees.
No kidding. No one who works in our industry could call
that “news.” Let’s review. Congress passes a bill that enables
the American worker to dictate the direction of a portion of
his discretionary income.
Section 401(k) permits an option of either:
a.) accepting the cash; or
b.) deferring the compensation into a retirement
savings vehicle that permits the worker to defer the
payment of taxes.
Thirty years later, though, the plan needs to be “fixed”
because this voluntary, supplemental-savings plan has
amassed only $2.8 trillion dollars? Can we as an industry
try to find more ways to increase sayings? Yes. I just do not
agree that the 401(k) is broken. Because we have not been
successful in educating plan participants about savings
needs (see below).
These plans offer too many investment choices.
Really? How many are too many? When the plans were
established during the early 1980s, normally there were just
one, two or three options. Some of those plans let you utilize
a percentage of all three. When some participants experi-
enced difficulty in having their three asset class percentages
total 100%, many of us recognized these plans needed more
work, and the cottage industry of participant education
arose. Yes, education was added to the 401(k) services menu
to fill a need. Education was never a revenue enhancer for
either the vendor or the retirement plan adviser.
need to be
The 401(k) has too much leakage.
Face reality. Do you recall who deposited the funds into
these plans? Do you understand who owns the 2. 8 trillion dollars? If the owner of 401(k) plan assets can use that
money to forestall foreclosure, then why not? If separation-of-service is a stressful time and that stress can be reduced
or eliminated by a withdrawal, then isn’t that the participant’s prerogative?
Plan participants need to be treated as adults. The
participant’s decision to extract monies from his retirement
plan comes at a cost. In my opinion, no governmental entity
should ever be permitted to restrict a participant’s ability to
access his own money—even if we all know it will hurt his
account balance in the long run.
Perhaps it makes sense to continually adjust the features
and benefits of the largest self-funded pension system on
the planet. Continuous improvement of our business models,
processes and client outcomes are making a difference—but
to that regulator, congressperson or professor wanting to stir
the pot, I say, you cannot “fix” that which is not broken!