According to Forbes, there are 13 mistakes plan participants make with their 401(k). I'd like to add No. 14: no plan for how they won't burn through their savings after they retire.
Almost 80 million baby boomers will be settling into retirement soon, and the aftermath of the financial crisis (not to mention a pending threat for a second recession) has fortified the need to draw down savings. Retirees need a way of generating monthly income, not cashing out all at once.
But automated income features haven't been very appealing for sponsors or participants. There's concern not only about the lack of experience in evaluating products, but that selecting a product can lead to fiduciary missteps.
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Concerns like these have been manifesting for years. Back in October 2009, when the economic crisis was in full swing, Bloomberg Businessweek looked at why the burgeoning guaranteed income market wasn't getting interest in the workplace: products are too complex, they're not sufficiently portable, and they're not trusted.
Though the marketplace has evolved, there's still another concern from employers: that introducing a retirement income product would be crossing an ethical line. The Institutional Retirement Income Council examined this theory in a new brief:
"Despite the availability of retirement income products for employer-sponsored retirement plans, employers have been somewhat hesitant to consider these vehicles for their 401(k) plans and participants," says William Charyk, a partner at Arent Fox, advisor to IRIC and author of the issue brief. "[Employers'] greatest concern, however, could be that employees will view the introduction of a retirement income product as an inappropriate intrusion by the employer into their personal financial world."
Should that be a relevant concern? Charyk says no. Participants would readily accept the introduction of a retirement product, just as they've accepted other steps taken (like automatic enrollment) to stop the "crippling" inertia that happens when employees are left to plan on their own.
"The nervousness over personal investment management decisions that has led participants to embrace automatic enrollment, to shy away from excessive investment choices, and to gravitate towards automatic investment alternatives, should result in a sense of appreciation of an investment option that addresses the complexities of post-retirement years," Charyk writes.
"We feel strongly that there is every reason to assume that a similar level of participant acceptance would be extended to retirement income products. In fact, such employer activism might actually be welcomed."
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