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U.S. Investors Want Gov’t to Enhance 401(k) Accounts

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The 2008-9 bursting of the real estate bubble and financial crisis has turned many Americans from spenders to savers. The subsequent political debate has made these same Americans realize that they are solely responsible for their own financial futures. If plan sponsors would offer a more pension fund like 401(k) plan their employees would save more and worry less.

English: ceramic piggy bank
English: ceramic piggy bank (Photo credit: Wikipedia)

The most recent Wells Fargo/Gallup Investor and Retirement Optimism Index survey investigated investor perceptions of the importance of tax-advantaged accounts. This quarterly survey was most recently conducted Nov. 9-17, 2012, with a random sample of 1,024 investors, with about half the sample responding to questions focused on federal policies about tax-advantaged savings.When asked to rate the importance of the federal government in enhancing the role of the 401(k) in Americans’ options for building retirement savings, 69% say it is extremely or very important that the president and Congress find ways to financially encourage every company to offer a 401(k) savings option and to financially encourage all Americans to participate in their employer’s 401(k) savings option. A similarly high 67% say it is extremely or very important that leaders seek ways to enhance the role of the 401(k) as a retirement savings investment. Sixty-six percent say it is extremely or very important that the president and Congress should allow Americans with 401(k) retirement savings to obtain more quality investment advice and should allow Americans more investment flexibility with their 401(k).

via gallup.com

This poll is encouraging because it signifies that Americans are becoming accountable for their own financial future. The 401(k) plan should become more of a pension fund like plan. This will improve results and reduce anxiety.

Please comment or call to discuss how this affects you and your company.

Posted via email from Curated 401k Plan Content

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Is Human Nature Hurting Your 401(k)?

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Thank goodness people have emotions, life would be unbearable without them. However, when investing for your financial future emotions can be very costly. We all watch TV, listen to all media sources that are playing on your emotions. You need someone managing your investments and your emotions for you to succeed long term.

Asset Allocation on Wikibook
Asset Allocation on Wikibook (Photo credit: Wikipedia)

Choice conflict leads to choice avoidance. Translated, this means that having too many choices often leads to inaction. This is all too true in the 401(k) world. Many plans offer too many investment choices, leading participants to do nothing. Plan participantsoften feel overwhelmed by having to direct their own investments. Add a large number of choices and you have a formula for inaction. In today’s world, this often means that many participants are defaulted to a target-date fund or some other default option. This may or may not be the appropriate choice for their situation.Inertia is the norm. According to the professor, most employees have the same asset allocation as the day they started work. As an adviser to a number of plans, this has been my experience as well. Participants rarely change their allocations, even as they age. If fund A is replaced in the lineup by fund B, you rarely see money move into or out of the new fund. An allocation that was appropriate at 35 is likely not appropriate for that participant at age 55.

Taking charge of our own retirement savings and investing is a daunting task. If you see the traits outlined above in yourself, consider some ways to take charge of your 401(k) plan:

–Consider using an advice option if offered by your plan. This might be in the form of online advice, via telephone, or in person.

–Managed accounts, which generally allocate the plan’s existing funds into portfolios that fit various levels of risk, are gaining in popularity.

–Engage the services of a financial adviser. A professional should take a broad view of your overall financial situation and advise you on how to invest your 401(k) account as part of that process.

via finance.yahoo.com

There is a saying about portfolios ‘your portfolio is like a bar of soap the more you touch it the smaller it gets” The opposite is also the case, most employees set it and forget it. 401(k) Plans can become more ‘pension fund like’ and allow investment professionals make the investment decisions for participants and employers.

Please comment or call to discuss how this would affect you and your company sponsored retirement plan.

Posted via email from Curated 401k Plan Content

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How the Government is Robbing Pension Plans

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American employees must begin a disciplined saving strategy for their own retirement as early as possible. Relying on the government to support you in retirement will lead to disappointment and regret. We must learn to become more self sufficient.

WASHINGTON - JANUARY 06: U.S. Secretary of St...
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Financial repression arrives not with a bang but with a whisper. “It is a very stealthy tax,” says economist Carmen Reinhart of the Peterson Institute for International Economics.Reinhart is the toast of economic circles these days for speaking out about the newest way Western governments are using financial repression to liquidate their debts, particularly after a financial crisis. They’re doing this on the backs of savers, including pension funds, according to economists. In practice, financial repression can lead to “the rape and plunder of pension funds,” Reinhart tells Institutional Investor. Financial repression consists of very low nominal interest rates combined with captive lending by large banks or pension funds to a government. The low, stable interest rate facilitates the servicing costs of large public debts. Sometimes modest inflation is added to the mix. This results in zero to negative real interest rates that reduce government debt. Hence, broadly defined, financial repression is a wealth transferfrom savers to debtors using negative real interest rates — with the government as one of the key debtors.

via institutionalinvestor.com

As investors in your 401(k) plan you have to invest your money as you choose without government pressure.

Please comment or call to discuss.

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Seven 401(k) Strategies for 2012

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There are seven strategies listed in this article. In my opinion, the most influential is managed portfolios. By offering a more pension fund like plan your company will improve the quality of your plan to the point of becoming a true employee benefit. The most effective plans will automatically put an employee, based on age, into a risk adjusted globally diversifed portfolio. As the employee ages the portfolio will be adjusted to a more conservative risk level. The employee have the option of choosing a more conservative or aggressice portolfio or opting out of the models all together a choosing their own mix. The majority will do nothing and stay in the age appropriate portfolio. This one action will improve results.

Image via Wikipedia

Reconsider custom target-date funds. Custom target-date funds are tailored to a plan’s specific participant demographics rather than a standard target retirement date that a plan provider applies to all of its clients. These funds and other “default investments” are now cost-effectiveat much lower asset levels, owing largely to efficiencies gained from the growing number of plans employing automatic enrollment and automatic escalation of participant contribution levels, says Toni Brown, director of U.S. client consulting for Mercer’s investments business. 

via www3.cfo.com

This one strategy will do more to improve the results of your plan than any other. By automatically putting plan participants in an age based professionally managed globally diversified portfolio results will dramatically improve over the long term.

Please comment or call to discuss how to make you compnay 401(k) plan a pension fund like plan.

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Employees Want a More Pension Fund Like Plan.

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Retirement savings for various periods with sq...
Image via Wikipedia

The Pension Protection Act of 2006 made significant
improvements to the features available to qualified retirement plan sponsors.
The most notable include auto enrollment and auto escalation which helps more
employees contribute to a retirement account with increase deferral amounts
each year. The employee can opt out of the plan within 60 days with no penalty.

Studies have shown that this negative election results in
a significant amount of employees staying in the plan and saving for their own
retirement. Experts call this inertia, meaning employees prefer to not change
anything. Another overlooked feature is the qualified default investment
alternative QDIA.

This allows plan sponsors to by default enroll employees
in a risk adjusted portfolio. Of course, the employee may opt out of the QDIA
and choose their fund mix. This hands off approach, will allow more employees
to successfully retire.  When plan
sponsors provide low cost, globally diversified, professionally managed
portfolios and adjust the risk level as the employee ages, a successful
retirement will result.

Individual investors are unable emotionally manage their
own investments, many times making bad decisions at the most inappropriate
times. Numerous studies have proven this to be the case. Professionally managed
portfolios remove the anxiety and the emotions of saving for retirement.

These features combined,  result in a more pension fund like plan leaving
plan participants more time to concentrate of their careers and personal lives.

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