President Obama Joins the 401K Fight

The president publicly states that he is against excessive and hidden fees for retirement accounts “Obama Wants Rules That Force Brokers To Put Clients' Interests First” NPR, FEB. 23, 2015

Saving for retirement can be tricky. For a low wage earner, it is even more challenging. This is especially true if the cards are stacked against her.

The plea for retirement reform is old. But, now President Obama has joined the fight. It is gaining attention again. This is important because if fiduciary rules for retirement plans are not altered, a segment of America will have little in their old age returned to them from these accounts. The rest of us could well end up paying for it.

Did you read me? We, the more fortunate due to higher income, would then have less, too, because money would have to be shifted from the more fortunate to the less.

This was the thrust of my recent article, The 401(k) Scoop: Care Now or Pay Later. The conclusion, “By being aware of and supporting 401(k) fiduciary change, Americans with money are more likely to be able to keep it. This is simply because they are less likely to have to supplement lower paid worker’s retirement later (in the form of higher taxes).”

What could be clearer? We have to care about reforming fees for 401K’s or it could impact our own pocketbook adversely. Instead of having X number of dollars in retirement funds, due to taxation to support those with less, our sum too could be considerably less.

This concrete example of how fiduciary reform for 401K’s could help is paraphrased below from my article, 401K Expenses in the News Again: How it Can Help You.

For example, if a 35-year-old 401K participant invested $15,000 at a 10% return that grew tax-free until she was 60, the return after management expense is:

$81,411 (3% expense)

$102,727 (2% expense)

The retiree with lower expenses (2%) receives $21,316.00 ($102,727 — 81,411) more for her old age. Though the 1% difference in expense seems so small at the beginning, it compounds in importance over time in terms of dollars returned to the employee. And imagine, this is only on an original $15,000 investment. The greater the initial outlay, the greater the difference. These dollars, lost to the retiree, go to the plan advisors and others.

Of course, there are nay-sayers from the investment industry who have a lot to lose if the proposed changes are made. The way I look at this is that they are the winners if the present status quo continues.

On the other hand, if the suggested amendments are made, 401K recipients receive more from their own retirement funds rather than their investment managers. They are victorious. This, too, could impact us, the higher wage earners. We would then less likely need to support lower wage 401K participants in their elderly years because they would have sufficient funds on which to live.

For Further Information:

Making Your 401(k) Money Work Smarter

The 401(k) Scoop: Care Now or Pay Later

401K Expenses in the News Again: How it Can Help You

Obama Wants Rules That Force Brokers To Put Clients' Interests First