Here are some specific actions government and industry can take to nudge plan participants toward better retirement income results:

Require 401(k) plan participant quarterly benefit statements to address income potential as well as asset balances. Current reporting requirements place an exclusive emphasis on point-in-time asset balances. This information tends to reinforce many participant's (erroneous) view of asset balance as the only measure of value. Result: Novice investors – practically all lower-wage workers – tend to overreact to market downturns, selling low when markets temporarily turn south. Income reporting would instead show that short-term corrections have little effect on long-term outcomes, giving participants the potential encouragement to stay the course with their financial plan.
Reform lifetime annuity purchase restrictions for plan sponsors. Currently, plan sponsors have additional, burdensome requirements for those choosing to offer annuity purchase options. The result of the regulation is that plan sponsors (and practically all small-business 401(k) sponsors) opt for mutual funds or similar investments for their plan. Because there is little demand for these investment vehicles, Wall Street has little incentive to create and market competitive products. Revise the regs and level the playing field for sponsors and providers. Competition will drive us to an efficient solution.
Tweak ERISA to promote income security as the No. 1 priority. We need to realize that the DB train has left the station. Instead, we need to adapt ERISA to incent income security in a DC world. Employees are ill-equipped to fight this battle on their own. Government needs to recognize the realities of today's retirement savings landscape and enact regulations that promote more competition while limiting predatory marketing techniques.

Imagine a world where low-cost annuities are marketed by plan fiduciaries whose sole objective is to assist employees in establishing a secure retirement without conflicts of interest or hidden agendas. Welcome to 1974!

Instant Insights /

Let’s put ‘income’ back in ERISA

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