The defined contribution retirement plan as we know it could soon be going the way of the dinosaur. This leaves a gaping hole open for exchange traded funds (ETFs) to seize the opportunity and help out the future of America’s workers.
Not only have many workers suffered major losses within their 401(k) plans, many employers have ceased to contribute to their employees plans, giving the future of working America a desperate outlook. David P. Loeper for Investment News reports that even many target date mutual funds, designed to protect participants’ plan balances as they approach retirement, have lost more than 30% of their value.
In Congress, various plans are starting to go in motion. Ideas range from nationalization to complete fee disclosure to try and fix this broken system.
The driving force behind “fixing” 401(k) plans is securing the retirement income of future retirees. As recent news reports have shown, many Americans are having to delay or call off their plans for retirement as a result of having been failed by their 401(k)s. Talk of secure retirement income inevitably conjures a longing for the safety and security of old-fashioned defined benefit pension plans. But the fallout of these benefits and plans is what caused the 401(k) creation.
As it happens, the safety and security of defined benefit plans are something of a myth. Defined benefit plans invest money in much the same way as 401(k) fund managers do, albeit usually at significantly less cost despite the actuarial burden they bear. If a participant is willing to receive a smaller benefit, they may choose to contribute less now. That is, if they have one in the first place.
One solution to this national problem is ETFs. They’re lower cost, transparent and easy to understand. It’s time to put an end to the muddled and confusing system that most of us are experiencing when it comes ot 401(k)s and start doing something with the consumer’s best interests in mind.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.