Big Changes Coming In U.S. For Retirement Savers

Rekenthaler proposes removing employers as the key architects of the plans. That’s a solution echoed by the Center for American Progress, a Washington-based group aligned with Democrats.

David Madland, managing director for economic policy at the center, would create a fund that isn’t run by employers and would follow workers from job to job. It would pool savings to smooth out uneven investment returns and provide lifetime payments like a pension.

The structure also would credit participants with at least a zero percent return in years where financial markets decline, and a maximum of 8 percent in top performing years. Any outperformance would be put in a reserve to cover losses in future years, Madland said.

Fees Debate

Fees are among the most contentious areas of debate among those seeking to redesign 401(k)s. Some of those advocating for lower costs have fought for changes through legal action. The U.S. Supreme Court is scheduled to decide next year on a case involving expenses in the plans.

Some companies, like Abbott’s law firm, have sought to simplify and reduce fees for workers by shifting to a per- participant charge for administrative expenses and by adding low-cost index funds as investment options. Employees at his firm pay about 35 basis points for administrative and investment costs for their 401(k) accounts, he said. A basis point is equal to .01 percentage point.

Micron Technology, a maker of computer-memory chips, switched to a per-participant cost of $60 for its 401(k) administrative expenses in April 2013, according to its filing with the U.S. Department of Labor.

The flat fee makes it easier for the Boise, Idaho-based company to control what it pays to manage the plan compared with the percent-of-assets structure usually charged, Daniel Francisco, a company spokesman, said in an e-mail.

The Illinois legislature passed a bill this month to establish a retirement savings program for people without a plan at work that would cap fees at 75 basis points.

The typical 401(k) plan has a total cost paid by workers of almost 1 percent, or 91 basis points, of assets for services including administration, investments and advice, according to the Investment Company Institute and BrightScope Inc.

Reduce Balances

Some pay as much as 2 percent, according to BrightScope, a San Diego-based firm that rates 401(k)s. A 1 percent difference in costs can reduce people’s balances by 28 percent, according to the Labor Department.

The Center for American Progress has gone so far as recommending labels on 401(k) investments that would be similar to those on cigarette packs or those that list the nutritional content of food products. They would show costs of a mutual fund in the plan compared with the average of low-cost competitors, Madland said.

Laurie Rowley, founder and president of the National Association of Retirement Plan Participants, supports the idea of better labeling.

“There are some real holes in the system,” Rowley said. “These are Americans’ lifetime savings. We need to give them the best shot.”