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Win, Win, Win ... A Better 401(k) Plan
By Louis S. Harvey, CEO Dalbar, Inc. on Dec 18, 2012


A New Years Wish: Making 401(k) Plans Better
Whether you are a participant, plan sponsor, service provider, advisor or a government agency a common goal is to make retirement plans better. The only problem is that what is good for one may hurt another.
Is there a common good that will benefit all?
Lower fees cannot be that magic bullet. While participants benefit by having a bigger retirement nest egg, and plan sponsors are less likely to breach fiduciary duties, the lower revenues will ultimately mean poorer service, fewer service providers and limited product offerings.
But increasing fees is not the answer either. Since this will have the opposite effect on plan sponsors and participants.
More effective investing is not an answer either. Shifting the balance of risk and reward toward risk, in theory can increase returns. There is no evidence that the higher risk will be worth the potential return. Conversely, lowering the level of investment risk may or may not improve the participant’s retirement investment. Clearly, trying to time the market to capitalize on the upside and avoiding the downside is 21st century alchemy.
One major possibility remains… Increasing participant contributions.
Increased contributions will undoubtedly enhance participant retirement funds by transferring some of today’s discretionary income to secure a better future.
Participants are not the only winners when contributions increase. Plan sponsor exposure to fiduciary liability decreases. Service provider revenues increase and with that better service and more choice. Advisors also enjoy increased revenues.
With all the benefits of increasing contributions and virtually no downside, the greatest value would come from making every effort to raise contribution.
Such an initiative could start with a collaborative effort among service providers to educate plan sponsors and participants on the benefits of simply raising the plan contributions. This education can be centered on the fact that there are no contribution limits, there are only tax limits. Such a campaign would be supported by promoting after-tax saving to supplement the tax advantaged contributions.
This campaign can make very powerful arguments for why retirement savings should not be limited by a tax advantage.
Do we stop working because we pay income taxes?
Do we check deductibility of health care expenses before visiting the doctor?
Do we refuse to by products because there is a sales tax?
Do we not invest because there is a capital gains tax?
Why then, should we stop retirement contributions when the tax advantage expires?

After Tax Savings
Created by Louis S. Harvey, CEO Dalbar, Inc. in 3/8/2013 9:28:16 AM
We are not limited to tax advantaged savings instruments. After tax dollars can be saved at will, without restrictions.
New Comment
Created by Thomas in 2/16/2013 11:32:10 AM
To contribute to an IRA or Roth IRA you need eearnd income or a spouse with eearnd income. If you later get a paying job, you can look into whether they have an employee retirement plan and whether the employer provides matching funds for how much of contributions.But until you have eearnd income, you can only contribute to a retirement account if you have a spouse with eearnd income. IRS Publication 590 explains IRA/Roth IRA.

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Louis S. Harvey
President & CEO



Founder and leader of Dalbar, Lou Harvey is relentless in the search for the forces that are shaping the world of financial services today, tomorrow and for years hence. Using Dalbar’s research capabilities, Lou Harvey seeks insights from inside and outside the industry to understand and anticipate changes in customers’ needs and the ways products are distributed.


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