Author Topic: CNBC Making the Call 401k's are a failure  (Read 19002 times)

I'm a red panda

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Re: CNBC Making the Call 401k's are a failure
« Reply #50 on: March 24, 2015, 12:43:13 PM »
My biggest beef with the 401k system is the EMPLOYER gets to choose which funds are and are not included.  Far better to let the employees choose their own funds - ideally from any brokerage they choose, but at least from all funds offered by the employer's chosen brokerage.
This is up to the employer. For example, my 403b allows me to pick from a variety of Vanguard funds. Or you can select auto-pilot and they pick funds based on your risk level, which looks very similar to the portfolio used by Betterment. Employers have the option to pick low-fee retirement plan services that give employees lots of control.

Emphasis mine.
That was the exact point made.

I'm confused if you are agreeing with them or refuting it.  Because you seem to be refuting the argument by giving an example of how great your funds are, but by pointing out it was up to your employer to give that option, you seem to be agreeing with them.  If your employer's options suck, you are screwed.

Paul der Krake

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Re: CNBC Making the Call 401k's are a failure
« Reply #51 on: March 24, 2015, 12:44:12 PM »
My biggest beef with the 401k system is the EMPLOYER gets to choose which funds are and are not included.  Far better to let the employees choose their own funds - ideally from any brokerage they choose, but at least from all funds offered by the employer's chosen brokerage.
This is up to the employer. For example, my 403b allows me to pick from a variety of Vanguard funds. Or you can select auto-pilot and they pick funds based on your risk level, which looks very similar to the portfolio used by Betterment. Employers have the option to pick low-fee retirement plan services that give employees lots of control.
Right. The problem is that employers are often choosing, either knowingly or not, to pass on the good stuff. The employee has no choice in the matter.

I would love to vote with my labor and only seek employment at places with top notch plans (and I do, somewhat), unfortunately there is a strong lack of transparency there.

r3dt4rget

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Re: CNBC Making the Call 401k's are a failure
« Reply #52 on: March 24, 2015, 03:15:56 PM »
My biggest beef with the 401k system is the EMPLOYER gets to choose which funds are and are not included.  Far better to let the employees choose their own funds - ideally from any brokerage they choose, but at least from all funds offered by the employer's chosen brokerage.
This is up to the employer. For example, my 403b allows me to pick from a variety of Vanguard funds. Or you can select auto-pilot and they pick funds based on your risk level, which looks very similar to the portfolio used by Betterment. Employers have the option to pick low-fee retirement plan services that give employees lots of control.


Emphasis mine.
That was the exact point made.

I'm confused if you are agreeing with them or refuting it.  Because you seem to be refuting the argument by giving an example of how great your funds are, but by pointing out it was up to your employer to give that option, you seem to be agreeing with them.  If your employer's options suck, you are screwed.

I misunderstood. I realize now you are saying the IRS could force employers to offer certain flexibility in choosing funds, brokers, etc. instead of letting them chose high fee retirement plans.
« Last Edit: March 24, 2015, 03:19:05 PM by r3dt4rget »

netskyblue

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Re: CNBC Making the Call 401k's are a failure
« Reply #53 on: March 24, 2015, 08:34:30 PM »
My biggest beef with the 401k system is the EMPLOYER gets to choose which funds are and are not included.  Far better to let the employees choose their own funds - ideally from any brokerage they choose, but at least from all funds offered by the employer's chosen brokerage.
This is up to the employer. For example, my 403b allows me to pick from a variety of Vanguard funds. Or you can select auto-pilot and they pick funds based on your risk level, which looks very similar to the portfolio used by Betterment. Employers have the option to pick low-fee retirement plan services that give employees lots of control.


Emphasis mine.
That was the exact point made.

I'm confused if you are agreeing with them or refuting it.  Because you seem to be refuting the argument by giving an example of how great your funds are, but by pointing out it was up to your employer to give that option, you seem to be agreeing with them.  If your employer's options suck, you are screwed.

I misunderstood. I realize now you are saying the IRS could force employers to offer certain flexibility in choosing funds, brokers, etc. instead of letting them chose high fee retirement plans.

I just think, I can choose which bank I want my paycheck deposited into, I don't see why I can't choose which brokerage & funds I want my 401k contribution & match to be deposited to.  Ideally, I'd love it if you could go to any brokerage you wanted, give them whatever documentation they need to see that your employer offers a 401k, and open an account.  Then all employee/employer contributions could be made by direct deposit to your account.

randymarsh

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Re: CNBC Making the Call 401k's are a failure
« Reply #54 on: March 24, 2015, 09:33:15 PM »
Opening the Fed TSP to everyone would be a decent idea right? Very low fees and more people could only decrease those fees due to volume.

Employers could choose to match those funds, or not. They're already sending money to the treasury for taxes, so it should be an easy adjustment for payroll. Plus they no longer have to deal with the admin cost and hassle of 401Ks.

This also would open up interesting options like allowing/encouraging your tax refund to be deposited into the TSP. I think people do want to save, but without it feeling like a sacrifice or something they had to put much effort into.

MrsPete

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Re: CNBC Making the Call 401k's are a failure
« Reply #55 on: March 25, 2015, 06:08:12 AM »
My biggest problem with 401Ks is that almost everyone is expected to get retirement income from them now, but there isn't much education in our school system regarding something so important.
I don't know why people say schools don't teach this stuff. 

I have specific memories of my high school algebra teacher making us repeat, "I want a simple interest, no pre-payment penalty loan" over and over and over.  And I remember thinking, "This is important to remember."  I specifically remember playing a several-week long game dealing with stocks; I remember I lost big and thought, "Uh-oh, I'd better do better when it's real." 

In more recent years, I have seen my own children (and students in my classroom) with readings and worksheets on when it's appropriate to use credit /when it's better to use cash.  I've seen them doing math problems dealing with figuring up interest.  With my high school seniors, I use articles dealing with student loans as non-fiction reading. 

The real problem is that it doesn't "stick" with so many high school kids because 1) it doesn't yet seem real to them.  2) they figure they're going to earn so much in the NFL or being the next Beyonce that money'll just be easy to manage.  3) at this very minute, they're much more interested in texting about where everyone's going to eat before prom.


zephyr911

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Re: CNBC Making the Call 401k's are a failure
« Reply #56 on: March 25, 2015, 06:46:43 AM »
My biggest beef with the 401k system is the EMPLOYER gets to choose which funds are and are not included.  Far better to let the employees choose their own funds - ideally from any brokerage they choose, but at least from all funds offered by the employer's chosen brokerage.
I think one of the most universal points of consensus is on that point. Nobody beyond a few plan administrators thinks employees' options should be limited by their choice of employer. Every plan should have a wide array of low-cost options from multiple companies.

Opening the Fed TSP to everyone would be a decent idea right? Very low fees and more people could only decrease those fees due to volume.

Employers could choose to match those funds, or not. They're already sending money to the treasury for taxes, so it should be an easy adjustment for payroll. Plus they no longer have to deal with the admin cost and hassle of 401Ks.

This also would open up interesting options like allowing/encouraging your tax refund to be deposited into the TSP. I think people do want to save, but without it feeling like a sacrifice or something they had to put much effort into.
That's actually kind of a cool idea, but only if they'd open up the TSP beyond the handful of index funds it currently includes. You're right about the low costs... overhead is subsidized by forfeitures of non-vested agency contributions, giving an average expense ratio of .029% for 2014.

More info on TSP Administrative Expenses

Jack

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Re: CNBC Making the Call 401k's are a failure
« Reply #57 on: March 25, 2015, 07:43:41 AM »
Opening the Fed TSP to everyone would be a decent idea right? Very low fees and more people could only decrease those fees due to volume.

It would be a decent idea, but I'm not sure it would solve the whole problem. I feel like I remember Nords and other military mustachians talking about how the TSP is great, but many soldiers fail to participate in it to the extent they should.

I'd be interested to see a comparison of retirement outcomes among people with 401Ks vs. outcomes among people with TSPs, to see if the failure rate is actually any better.

My biggest problem with 401Ks is that almost everyone is expected to get retirement income from them now, but there isn't much education in our school system regarding something so important.

I don't know why people say schools don't teach this stuff. 

I have specific memories of my high school algebra teacher making us repeat, "I want a simple interest, no pre-payment penalty loan" over and over and over.  And I remember thinking, "This is important to remember."  I specifically remember playing a several-week long game dealing with stocks; I remember I lost big and thought, "Uh-oh, I'd better do better when it's real." 

I did a similar stock-trading game back in high school, except in my case it happened in my AP microeconomics class. (Actually, I might have done it a couple of times -- there might have been exercises like that in my gifted class in middle school or something.)

However, I strongly suspect that such a thing is not part of the curriculum for non-gifted kids, at least in the school system I attended. They're so busy trying to "teach to the test" that they probably don't have time for "extras" like that.

ash7962

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Re: CNBC Making the Call 401k's are a failure
« Reply #58 on: March 25, 2015, 08:13:43 AM »
You guys are all having interesting discussions, but I'm just sitting here laughing at this person's comment.. its a long one but also a good one.

Quote
"A historical accident?
It wasn't supposed to work out this way."

Actually, it is working out exactly as planned. Congress gets paid off to make laws that get stupid Americans to fund Wall Street instead of Main Street. Wall Street and the banks crash the market taking huge profits leaving the suckers holding the bag...or losses. Then the banks use money from the FED at zero percent interest to drive the market back up and then suckers get on board again. Then the banks pull the plug again taking huge profits and leaving the suckers to hold the losses again...and again...and again...until they have everything and you are nothing but a debt slave.

The system is working exactly as planned.

But, listen to your investment advisers mantra. It is always the same. Look at the stock market since 1900. Up Up Up...invest for the long term...diversify diversify diversify.

What they never tell you is that if you zoom in on any point in the big up up up graph you will see saw teeth. That is the drops every 5 to 7 years when the big banks and big investors shear the sheep...again and again and again.

Keep believing the lie people. I can't wait to hear from the guy that says I made so much money in the market it's ridiculous. Well I have this to say. You only made it if you are out of the market. If you are still in you made nothing yet. If you did get out with a profit I can only say even Vegas lets some win to keep the suckers rolling in.......

I'm a red panda

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Re: CNBC Making the Call 401k's are a failure
« Reply #59 on: March 25, 2015, 08:40:57 AM »

I did a similar stock-trading game back in high school, except in my case it happened in my AP microeconomics class.

We did a stock thing in my economics class too- except it was essentially day trading. We had the whole semester, but it was kind of a "whomever has the most money at the end wins" situation. 

There was no discussion of index funds (were they a thing in 1999?)- you picked individual stocks. You followed them, and traded them to do the best you could.

Now, in the real world, it doesn't seem very useful. If anything, it prevented me from getting into the market for way too long- because all I saw was risk.

zephyr911

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Re: CNBC Making the Call 401k's are a failure
« Reply #60 on: March 25, 2015, 09:29:00 AM »
You guys are all having interesting discussions, but I'm just sitting here laughing at this person's comment.. its a long one but also a good one.
Quote
**insane tinfoil hat bullshit**

WAKE UP SHEEPLE THE ILLUMINATI LIZARD MACHINES ARE MAKING A NEW WORLD ORDER WITH CHEMTRAIL MIND CONTROL AND THE FED IS BEHIND IT ALLLLL

slugline

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Re: CNBC Making the Call 401k's are a failure
« Reply #61 on: March 25, 2015, 09:45:01 AM »
There was no discussion of index funds (were they a thing in 1999?)

I gained much of my early personal finance orientation from Eric Tyson's books and he was recommending index funds in the early 1990s. And I'm pretty sure he wasn't first.

dude

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Re: CNBC Making the Call 401k's are a failure
« Reply #62 on: March 25, 2015, 09:55:48 AM »
its just a complainypants article though.  the 401k system works fine its people making poor life decisions that lead to them having no money for retirement. 

Al gore invented this thing called the internet where you can educate yourself on just about anything.

Well, sorta.  I mean, you have to design programs for humans with HUMANS in mind.  It's no secret that people generally suck at investing (http://www.businessinsider.com/typical-investor-returns-20-years-2014-8).   So if you design a system that doesn't take this into account, it's destined for failure for the majority of people.  Don't get me wrong, I like the 401k, but our country needs something more to ensure retirement security for its citizens, assuming we all agree that doing so is a worthwhile societal goal.  I happen to think it is.

zephyr911

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Re: CNBC Making the Call 401k's are a failure
« Reply #63 on: March 25, 2015, 10:11:10 AM »
Well, sorta.  I mean, you have to design programs for humans with HUMANS in mind.  It's no secret that people generally suck at investing (http://www.businessinsider.com/typical-investor-returns-20-years-2014-8).   So if you design a system that doesn't take this into account, it's destined for failure for the majority of people.  Don't get me wrong, I like the 401k, but our country needs something more to ensure retirement security for its citizens, assuming we all agree that doing so is a worthwhile societal goal.  I happen to think it is.
Back (again) to what I consider the central question: are we just looking at practical problems that could be solved to make it more effective, or is the premise itself fundamentally flawed?
It obviously works for people who use it, although certain specific implementations (lack of choice, excessive costs) do reduce its benefits, and most "failure" cases stem from lack of participation. That tells me that it could go from mediocre to great if we just mandate a higher level of choice, cap expense ratios, and improve education/outreach to workers.
Unless those challenges are all somehow insurmountable, which seems unlikely, the headline should be "Some 401(k)s Need Improvements", instead of declaring systemic failure.

dude

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Re: CNBC Making the Call 401k's are a failure
« Reply #64 on: March 25, 2015, 10:15:43 AM »
My biggest beef with the 401k system is the EMPLOYER gets to choose which funds are and are not included.  Far better to let the employees choose their own funds - ideally from any brokerage they choose, but at least from all funds offered by the employer's chosen brokerage.
I think one of the most universal points of consensus is on that point. Nobody beyond a few plan administrators thinks employees' options should be limited by their choice of employer. Every plan should have a wide array of low-cost options from multiple companies.

Opening the Fed TSP to everyone would be a decent idea right? Very low fees and more people could only decrease those fees due to volume.

Employers could choose to match those funds, or not. They're already sending money to the treasury for taxes, so it should be an easy adjustment for payroll. Plus they no longer have to deal with the admin cost and hassle of 401Ks.

This also would open up interesting options like allowing/encouraging your tax refund to be deposited into the TSP. I think people do want to save, but without it feeling like a sacrifice or something they had to put much effort into.
That's actually kind of a cool idea, but only if they'd open up the TSP beyond the handful of index funds it currently includes. You're right about the low costs... overhead is subsidized by forfeitures of non-vested agency contributions, giving an average expense ratio of .029% for 2014.

More info on TSP Administrative Expenses

Those costs would likely go up considerably, and especially so the more options you add.  It sounds nice in theory, but as a TSP participant, I'm not in favor.  I think it would end up fucking the whole thing up.  Congress can create a private, portable pension system like Tom Harkin has proposed several times, that would be far better, I think.

http://www.help.senate.gov/newsroom/press/release/?id=841825d1-509e-4934-9d7e-968d0853b795

For and against arguments:

http://www.govexec.com/pay-benefits/2014/05/would-tsp-all-constitute-government-overreach/84754/

The U.S. government is my EMPLOYER, and as such, like other employers, provides a 401k option.  Nobody is clamoring for Exxon to open its 401k to everyone.  I get the public/private distinction, but both are employers.

zephyr911

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Re: CNBC Making the Call 401k's are a failure
« Reply #65 on: March 25, 2015, 10:29:32 AM »
Those costs would likely go up considerably, and especially so the more options you add.  It sounds nice in theory, but as a TSP participant, I'm not in favor.  I think it would end up fucking the whole thing up.  Congress can create a private, portable pension system like Tom Harkin has proposed several times, that would be far better, I think.

http://www.help.senate.gov/newsroom/press/release/?id=841825d1-509e-4934-9d7e-968d0853b795

For and against arguments:

http://www.govexec.com/pay-benefits/2014/05/would-tsp-all-constitute-government-overreach/84754/

The U.S. government is my EMPLOYER, and as such, like other employers, provides a 401k option.  Nobody is clamoring for Exxon to open its 401k to everyone.  I get the public/private distinction, but both are employers.
If the only option you added was a simple pay-for-play brokerage account, with commission equal to that charged by whatever company was contracted to implement it, that would add no cost. Increasing the size of the program might actually add economies of scale and redue expense ratios.
I'm neither for nor against it, FTR. My comment was strictly intended to help illuminate pros/cons based on what I know of it (I'm also in TSP).

Nords

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Re: CNBC Making the Call 401k's are a failure
« Reply #66 on: April 18, 2015, 05:59:42 PM »
Opening the Fed TSP to everyone would be a decent idea right? Very low fees and more people could only decrease those fees due to volume.
It would be a decent idea, but I'm not sure it would solve the whole problem. I feel like I remember Nords and other military mustachians talking about how the TSP is great, but many soldiers fail to participate in it to the extent they should.
I'd be interested to see a comparison of retirement outcomes among people with 401Ks vs. outcomes among people with TSPs, to see if the failure rate is actually any better.
That's an interesting question-- I'd like to see that study too.

The military has a couple of issues preventing people investing in the TSP-- one of them is that contributions are not matched.  A second (big) issue is that enrollment is still optional for servicemembers, not mandatory.  A third is the attitude of "I'm too busy with work/training and I could be killed tomorrow-- why should I plan for the future?"

A distant fourth factor is the institutional paranoia that the Dept of Defense is trying to sneak the TSP into our paychecks as a replacement for the current pension system. 

I think the biggest common factor between 401(k)s and the TSP is that people don't contribute enough of their paycheck to achieve financial independence.  15% should be an absolute minimum for a full traditional working career, and only around 40% does FI start to become a murky reality. 

Otherwise opening the TSP to every American would make us all Canadians, wouldn't it?