Greetings and welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
Though not officially a critic, a NY Times contributing writer Michael Steinberger raised issues just by the title of his recent article entitled, “Was the 401(k) a Mistake?”
Quoting the trinity of recent detractors, New School’s Theresa Ghilarducci, Boston College’s Alicia Munnell and BlackRock’s CEO Larry Fink, Steinberger describes how a little known and understood IRC section was used by private companies to offload liability onto unsuspecting and unprepared employees. The results have been predictable with more savvy, higher income workers with access to personal advisors faring better even though the system is designed to foster equality.
The question raised in the column and by critics is whether lower income workers would be better off in a federally mandated system and/or boosted Social Security program. Ghilarducci claims that 401ks are “unsuitable for lower income workers” and that offloading liability has been a “betrayal of the social contract.”
The debate is especially relevant as 401k plans are projected to grow by 50% in less than a decade to almost 1 million plans due in part to state mandates, tax credits and PEPs.
Is advisor RIA succession planning a fiduciary duty? Mercer Advisors Vice Chair and Head of M&A David Barton argues that under the ’40 Act §206, fiduciaries have a duty to provide clients with continued and uninterrupted care which he claims inlcludes a written succession plan.
Yet less than 30% of RIA firms have a formal plan while 40% are expected to retire over the next decade.
RPAs duty of care is even higher under ERISA not just to the plan sponsors but also to the participants they advice. Raising the question of whether plans should be asking their advisor if they have a succession plan and, even if they do, if there is a change, does the plan have to conduct an RFP like they would when their record keeper is sold or exits.
With commitments from 14 plans with $25bn and 500,000 employees as well as from three major record keepers, BlackRock is making a big push in the in-plan retirement income market using their immense clout to offer their ETF TDF with an option to buy a lifetime income stream called “Life Path Paycheck”.
Though roadblocks from record keepers have stymied in plan retirement income, getting Fidelity, Voya and Bank of America is a good start not just for BlackRock but for the entire industry. Institutional Investment Consultants like AON and WatsonTowersWyatt as well as RPAs like Lockton and Marsh Mac are also on board. Alliance Bernstein recently announced that they are making their institutional income service available to more DC plans.
Though concerns about costs of the underlying annuities as well as transparency remain, experts believe that consumers will get a better deal leveraging BlackRock’s clout who currently use annuities from Brighthouse and Equitable.
Stay tuned for more discussion at the RPA Retirement Income Roundtable in NYC June 18-19 right before the P&I event on the subject for plan sponsors on how the industry needs to collaborate to democratize retirement income.
In what is a nightmare scenario for any media organization, the 401kSpecialist printed a retraction about an article by guest columnist Ron Surz claiming that CITs understated their fees by not including the costs of the underlying investments. The article was taken down.
We all know to be skeptical about “fishy” stories on social media sites but we expect that established journalistic outlets will at least vet what they publish. But as revenue dwindles, so do the staff and resources for resulting in the unfortunate column by Mr. Surz who also published an apology.
Not just hurting the credibility of 401kSpecialist, it hurts all of us as advisors and industry professionals need to be careful not just about “fishy” stories from thinly staffed publications, some relying increasingly on AI and less experienced writers to cut costs, but also those owned by organizations that may have other agendas than to report the news accurately and fairly without bias.
Adults learn differently than children or even college students, something that most university executive education programs know and practice. Yet financial services, especially the 40(k) industry, have yet to learn those lessons.
Defined contribution plan sponsors and participants are uniquely challenged. The plan administrators are thrown into their roles with little to no training. Plan participants are even more challenged having to manage their own personal pension plan which includes how much to save, where to invest, and regularly rebalancing and adjusting.
Read my recent WealthManagement.com column about how the DC industry needs to completely revise the way it trains plan administrators and participants to engender more engagement and leverage the convergence of wealth, retirement and benefits.
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
- Will personalized TDFs take hold?
- Alliance Bernstein makes its retirement income service more available
- How Morgan Stanley is trying to deliver financial planning at the workplace
- Fidelity finally opens its small plan platform to TPAs
- Commonwealth appeals $93M SEC fine
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.
