The Very Best 401k Plans

I just read an article that listed six features of “great” 401k plans: high company contributions, instant eligibility, immediate vesting, low fees, auto enrollment, high employee contribution rates.

I agree, but something is missing. What about the investments… a black hole of understanding, in spite of all the information available on the internet. Neither participants nor plan sponsors are fluent in what’s inside the program.

Performance numbers don’t produce understanding or develop reasonable expectations. The focus is on market value “performance” … and expense ratios, regardless of their impact on participants.

Just google a few bond or target fund names see how difficult it is to determine the “yield”, i.e., the income you receive in retirement.

The Vanguard Target Retirement Income Fund, for example, yields less than 2% and has a 30% stock market exposure… the same company’s 2015 “target retirement program” is 52% invested in the stock market, now at about the highest prices in the history of mankind?

The income generated by this extremely popular program (the spending money of retirement) is a disgraceful 2% or so. Hey, these numbers are from their website… and proudly?

But it’s not totally their fault…. more income could increase expense ratios or impact “market value” performance numbers… and the DOL is coming.

401k regulatory “wizards” don’t help very much… nowhere in their search and destroy missions is any mention of income received by people when they choose to retire. Instead, they focus on market value performance and costs of the mix of products available.

Barely anyone speaks of “convertibility” of the program into a real live retirement income machine… certainly not the government. In the mind of the Federal Government (an oxymoron?) it seems, a taxable 2% in employee’s pockets (after low expenses) is somehow better than 6% taxable with a higher expense ratio… it’s da law!

The market value of fixed income purpose securities are expected to “perform” in the same manner as common stocks … and they look at me like I’m smoking something funny!

Although 401k plans are not pension plans (even the modern variety of inadequate income development programs), they are looked at as such by nearly everyone…. especially politicians. In my experience with 401k plans in general, only one type of “investment” product has a focus on the income objective that should actually be the main “target” of any retirement program.

If 401ks are perceived by participants (and much more importantly) by the regulators as retirement programs, one would think that advisers would make a concerted effort to find more suitable income producers to put inside them..