Financial companies want retirement saving to be harder

[FireLane]

Here's an article we can all get mad about:

https://www.publicintegrity.org/2018/04/02/21643/investment-industry-threatens-state-plans-help-workers-save

It says that 55 million (!) Americans work at companies that don't offer a retirement plan, mostly small businesses in the service industry. To help them save, some states like Oregon and California are creating their own state-administered retirement plans that allow employees to set up automatic payroll deductions.

But the financial industry is aggressively lobbying against this idea, because nudging people into cheap state-run retirement plans makes it harder to entice those people into ripoff investment accounts with high fees:

The fees tied to state retirement plans are far lower than the higher charges associated with plans operated by banks and investment firms. Corporate fees — upwards of double what states allow on their plans — generate massive profits for investment and insurance companies, which see state programs as unfair competition. Most state retirement plans cap fees around 1 percent of the total amount invested, but plan to reduce fees significantly as more workers enroll and the asset pool grows.

“They don’t want the state to demonstrate how easy and cheap and effective it can be to put together a retirement plan for these folks,” Fitzgerald said.

Obviously, you can save for retirement with or without the state's help. I wish more people would take the initiative to set up their own IRAs with Vanguard or Fidelity or whatever, and put these scam artists charging ridiculous fees out of business.

However, the sad truth is that most people aren't Mustachians. Unless they're given a nudge, they're not going to do this on their own. Either they don't know they can, or they're afraid to invest without someone to hold their hand, or they don't have the self-control not to blow their paycheck as soon as they get it. Anything that encourages people to save for their own futures can only be a good thing.

The banks and insurers that are fighting this plan deserve a spot on the wall of shame. Just think of it: the financial industry wants to make it harder to save for retirement!

[NoStacheOhio]

On the one hand, I would love to see retirement accounts completely separated from employment (and healthcare while we're at it). Just make IRA limits higher and phase out other account types. Maybe put some rules about what kind of fees you can and can't charge.

On the other hand, I have access to Vanguard Institutional Plus shares in an account with no fees beyond the fund expenses, so I can't complain too much.

[Midwest]

On the one hand, I would love to see retirement accounts completely separated from employment (and healthcare while we're at it). Just make IRA limits higher and phase out other account types. Maybe put some rules about what kind of fees you can and can't charge.

On the other hand, I have access to Vanguard Institutional Plus shares in an account with no fees beyond the fund expenses, so I can't complain too much.

and/or allow the Simple Plan through the employer to exist with or without a match (and a at a higher amount).  1% in fees is pretty high for these people

[Dragonswan]

The problem with separating retirement funds from employers is no more employer matching funds.

[dreadmoose]

What a shame, I really hope the lobbyists fail at this.

It would be fantastic if a "for the people" investment opportunity existed like this, simply put people would trust it more and the sheer breadth of people they could sign up would allow conversations about investing to stop being so shady and taboo. I do see the hit this would have on investment firms, but there's nothing to say they can't start competing properly on price or service.

Predatory commissions and fees have made so many of my friends think the stock market isn't worth investing in. It appears to at least be partly because their (including my) parents went through some agent or MLM company that charged up to 4% interest so even average years came out a wash while their Uncle / Brother / "Investment Guy" drove around in a nicer car than them. They've spent so long making it seem so hard to invest that most people I meet actually believe they need some greasy salesman to get started.

That and the news cycle that makes a huge stick over a 5% drop in the market with no opposite headline when it's rendered moot in no time, but that's a different rant.

[NoStacheOhio]

The problem with separating retirement funds from employers is no more employer matching funds.

Says who? Designate it as a retirement account in the direct deposit paperwork and they can contribute their match with the rest of the money. I'd be fine with a lower match and immediate vesting. Alternatively, keep employer-only contribution accounts and have them throw money in there. There are tons of way to skin that fish.

[Missy B]

The problem with separating retirement funds from employers is no more employer matching funds.

Says who? Designate it as a retirement account in the direct deposit paperwork and they can contribute their match with the rest of the money. I'd be fine with a lower match and immediate vesting. Alternatively, keep employer-only contribution accounts and have them throw money in there. There are tons of way to skin that fish.

Yes. Not only is matching funds entirely doable, it means no more having multiple pension accounts from different employers, or transferring funds around. Its your fund.

[BlueHouse]

The problem with separating retirement funds from employers is no more employer matching funds.

Says who? Designate it as a retirement account in the direct deposit paperwork and they can contribute their match with the rest of the money. I'd be fine with a lower match and immediate vesting. Alternatively, keep employer-only contribution accounts and have them throw money in there. There are tons of way to skin that fish.

Yes. Not only is matching funds entirely doable, it means no more having multiple pension accounts from different employers, or transferring funds around. Its your fund.

Then, when a company starts fucking around with its benefits package, people actually notice.  A lot of times when employers reduce their matching amount, nobody even blinks!

[TornWonder]

I don't think I would trust the fiduciary responsibility of politicians in California and Oregon to handle my retirement savings.

[NoStacheOhio]

I don't think I would trust the fiduciary responsibility of politicians in California and Oregon to handle my retirement savings.

Even if it's exactly the same as an IRA?

[Nickyd£g]

In the UK, employees have to put a minimum of 3% into a retirement account (going up to 5% in April 2019) and employers have to pay a minimum of 1% - unless the employee physically opts out. I think the government looked at who was saving for retirement versus who was going to rely on the £159 a week state pension pensioners currently get, ran the numbers and with an ageing population realised they would have to force people to save. It's a good thing, in my opinion. My company only matches up to 4%, but I'm putting in 16% so that's 20% of my income invested tax free.

Oh yeah, and universal healthcare here so although companies can offer private healthcare insurance as a benefit, few people use it.

[MrMoogle]

I don't think I would trust the fiduciary responsibility of politicians in California and Oregon to handle my retirement savings.

Even if it's exactly the same as an IRA?

I stopped reading the article after a while, but I wasn't overly fond of it.  These funds have a "low ER" of 1%, because they're managed funds.  It was also vague on if you could choose the funds, or if you could later move the funds to a financial institution. 

I don't think the state should be in the business of managing funds.  I believe TSP (the for federal workers) offers mostly index funds, which is fine with me.  They also allow you some choice. 

Since it's auto-enrollment, putting it into something with 1% expense ratio seems like it could lead to cronyism.  If it was put into a cash account or a standard low cost index, that would be fine with me. 

I also don't understand how it is auto-enrolling.  Is it adding a withholding from your paycheck?

The article goes into detail that there is a problem, but not what the proposed solution is.

In Iowa, the financial industry has proposed other retirement options that involve less government intervention. The state could, for example, set up a marketplace where workers could shop for lower-cost investment options.

I'm all for something like this, to me it sounds like the financial industry has the better position from the limited details I saw.

[katthjul]

In Iowa, the financial industry has proposed other retirement options that involve less government intervention. The state could, for example, set up a marketplace where workers could shop for lower-cost investment options.

I'm all for something like this, to me it sounds like the financial industry has the better position from the limited details I saw.

Only if you want people to lose a lot of their retirement money.

Sweden has this system for one part of its national pension system and it has so many problems:

• Aggressive sales calls to get (mostly old) people into expensive funds
• People chasing returns instead thinking long term
• Many companies has been thrown out for questionable fee structures

I should also mention that the default alternative is a age-based fund with a TER of 0.08-0.13%, but people still choose the more expensive options.

[MrMoogle]

In Iowa, the financial industry has proposed other retirement options that involve less government intervention. The state could, for example, set up a marketplace where workers could shop for lower-cost investment options.

I'm all for something like this, to me it sounds like the financial industry has the better position from the limited details I saw.

Only if you want people to lose a lot of their retirement money.

Sweden has this system for one part of its national pension system and it has so many problems:

• Aggressive sales calls to get (mostly old) people into expensive funds
• People chasing returns instead thinking long term
• Many companies has been thrown out for questionable fee structures

I should also mention that the default alternative is a age-based fund with a TER of 0.08-0.13%, but people still choose the more expensive options.

I'm guessing they will be losing a lot of their money with the current setup: the default here is a managed fund with 1% ER.