2. 401k plans have absolutely NO IDEA how much you are going to need for retirement. Only 28% of employers offer automatic projections of how much retirement income a participant’s 401(k) account might produce, according to a study done earlier this year by MetLife.
3. Figuring out your needs is not a priority with 401k companies. When said companies were asked to name the top issues driving plan design, workers’ ability to retire came in fifth, behind the competitiveness of benefits within the industry, benefit plan costs, employee attraction and retention, and legislation and compliance.
4. The system is broken. The aggregate retirement income deficit for all Baby Boomers and Gen Xers — that is, the amount by which their savings, plus Social Security, fall short of what they’ll need — is $4.3 trillion, according to the Employee Benefit Research Institute.
5. Fees ! Everyone hates them. But at least in a lot of places, we know what they are. the Department of Labor intends to make companies disclose the fees, as typically, neither employer or employee have any clue what the charges are. For example, a fund’s “expense ratio” can encompass everything from marketing fees paid to the investment firm to commissions paid to the broker who recommends particular funds.
6. The draining affect of these fees. Take for example a portfolio that says its fee is 1%, a number that wouldn’t be uncommon. That may not sound like a whole lot. But when it’s chipped annually from your retirement nest egg, the cumulative effect can be significant. A worker who makes $75,000 per year and saves 8% of that annually in a 401(k)would lose 2.8 years’ worth of savings in a target-date fund with a 0.2% fee and 11.6 years in one with a 1% fee, over the course of a career, according to an analysis by Towers Watson.
7. Things are getting better with fee disclosure. The Department of Labor’s spotlight on fees has already pushed plan providers to offer lower-cost options, such as exchange-traded funds, in 401(k)s.
8. Fewer choices in funds is not really better. The number of large employers that offer 20 or more funds declined by 8% from 2010 to 2012, and the number of sponsors that offer nine options or fewer increased by 3%, according to Towers Watson. The choices that remain are still too expensive overall, consumer advocates agree. The average plan has approximately 60% of assets in stocks, according to the Plan Sponsor Council of America.
9. Small business gets shafted. Just half of workers in companies with fewer than 100 employees have access to retirement accounts, according to the Bureau of Labor Statistics, compared with 79% of workers in companies with up to 499 workers, and 86% of workers in large companies.
10. Autoenrollment is not the answer. Automatic enrollment has risen in recent years, placing employees in 401(k) plans even if they don’t opt in. Companies often deliberately set the default contribution rate low — generally around 3% of pay — so they don’t have to match as much.