12:34 PM Eastern - Wednesday, November 21, 2012

Things Your 401(k) Won't Say #retirement-security

401K.jpg.jpgIf a 401(k) retirement plan could talk, it would withhold a lot of information. This is sad considering the quality of one's retirement is tied to the quality of one's 401(k) nowadays.

Read more on eight things these defined-contribution plans won't tell you, according to the Wall Street Journal after the jump.

1. We weren't meant to carry the weight of your future. 401(k) plans started out as a source of extra cash for individuals who already had traditional defined-benefit pensions and Social Security. Traditional pension coverage began to decline in the private sector in the 1980s as companies determined 401(k)s provided a cheaper retirement plan option with less employer responsibility, according to the WSJ.

2. We have no clue how much cash you'll need in retirement ...
When it comes to defined -contribution retirement plans, workers are often forced to be amateur retirement actuaries. And once they retire, it's up to workers to figure out how to turn their nest egg into steady income.

3. ... and figuring it out isn't high on our agenda. The WSJ reports that more than half of large employers recently surveyed by Towers Watson say they offer a 401(k) plan to their employees. But when companies were asked to name the top issues driving plan design, workers' ability to retire came in fifth, behind the competitiveness of benefits, benefit plan costs, employee attraction and retention, and legislation and compliance.

4. The system isn't working for employees--or employers. The expansion of 401(k) plans has not led to an increase in retirement security. The Center for Retirement Research at Boston College estimates that America's retirement income deficit ⎯ the gap between the retirement savings workers have and what they need for retirement is $6.6 trillion. Clearly employees aren't saving enough, but it's not only their problem. Employers are dealing with low morale and productivity from workers forced to stay on the job well into their retirement years.

5. Fee transparency? What fee transparency? New U.S. Department of Labor regulations went into effect this year requiring plan providers to disclose the amount in fees that both companies and their workers' pay for their 401(k) plans. But retirement experts at Dēmos find more than half of workers don't realize how much they're paying in fees, which are nearly $155,000 over the course of a lifetime for an ordinary American household.

6. Fewer choices don't mean better ones. Fewer product options usually lead to less confusion among customers, but this isn't the case with 401(k) plan providers who recently reduced their number of fund options. Consumer advocates find the choices that remain are still too expensive overall.

7. Small business employees are missing out. Just half of workers in companies with fewer than 100 employees have access to retirement accounts, according to the Bureau of Labor Statistics, compared with larger companies where the majority of workers have access to plans. When they do have 401(k)s, small company employees are likely to pay more for them than their larger counterparts for a number of reasons including administrative fees.

8. Autoenrollment alone won't save you. Automatic enrollment has risen in recent years, placing employees in 401(k) plans even if they don't opt in. While it's good that employees are saving, they're usually not saving enough. That's because companies often deliberately set the default contribution rate low--generally around 3 percent of pay--so they don't have to match as much. Of course, employees can always change their default rate, but few bother or even know their contribution rate.

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