Ted Benna, the inventor of the 401k plan, says that he created a monster and that fees took too much of the average employee’s investment return.
Social Security out performed his own 401k plan.
intercst
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Well, not really.
" If you could go back and do it all over again, would you have done anything differently?
I definitely wouldn’t do it differently. I had to work with what the legal parameters were, so I didn’t have a lot of opportunity. But the biggest benefit from the 401(k) has been the fact that it has converted spenders into savers. Many employees have said “I would have never been able to retire without it.”
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Used to be the “JCs” did the saving for them. I have mentioned before, my dad was hopeless managing money. If the company he had worked for, from 1950 to retirement in 1977, had not paid for a pension for him, he would not have had a pension.
Company paid pensions were replaced with 401k, where most of the money comes from the pocket of the employee, with some partial match, if the “JC” feels like it.
Back when I was in school, when we weren’t being taught about the “three co-equal branches of government, with checks and balances”, we were being taught about the “three legged stool” of retirement funding: company provided pension, personal savings, and Social Security. The “JCs” took the pensions away thirty years ago. “personal savings” became the 401k. Now the (L&Ses) are throwing up obstacles to people claiming the SS they paid for.
Steve
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Yep. 401ks largely benefited the Top 10% of the income pyramid. Even today with all the 'investor education" less than 50% of participants have found their way to a low fee index fund.
My first 401k (when I joined Exxon in 1981) had institutional funds with expense ratios of 0.02% (2 basis points) The last Fortune 500 chemical company I worked at before I quit and retired in 1994 had an S&P 500 index fund with a 0.90% exp. ratio during a time when Vanguard was charging 0.20%.
intercst
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And then there’s this quote from the article.
{{ I became very disturbed by what happened with investment expenses. With the original 401(k) plan, employers were supposed to pay the administrative fees, record keeping audits, etc., rather than the participants. The next thing that happened, that I unfortunately had a hand in and regret, was helping to clear the way for investment advice to be given to participants.
In the original version there would have been a $10 to $20 a year fee paid by the employer to get investment advice. But when I was helping Fidelity and Vanguard meet with major mutual fund providers, I said: “This is something you should make available to your participants.” But one of the major players in the room said, “Well, I don’t want to do that because I don’t want our financial results impacted by an independent financial adviser.” Then they learned, “Hey, this is a way we can make more money rather than less money.” So what they did was add another layer of fees. }}
Ideally, you’d want to “turn people into savers” in the most cost effective manner possible.
intercst
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As offered before, to “JCs”, the rest of us are nothing but a ledger entry under “source of funds”.
Steve
And again. 9876543210