Investment Company Institute President Paul Schott Stevens testified before the U.S. House of Representatives Education and Labor Committee on Tuesday to avow that the 401(k) model is working, in spite of the market’s downturn.

Americans have continued to contribute to their 401(k) as a responsible measure to prepare themselves for retirement, Stevens said. Half of the $16 trillion that Americans have saved for retirement is held in 401(k)s, and that $8 billion would probably have not been set aside for retirement were it not for these instruments, Stevens said.

And despite the market’s steep declines, Americans are “not panicking,” he noted. “As of October, only 3% had stopped contributing to their accounts, and [only] 3.7% had taken withdrawals. Clearly, 401(k) savers are staying the course.”

That said, Stevens spelled out a number of ways 401(k) plans can be improved, beginning with better education about saving at all stages of Americans’ lives, beginning in the first grades of school all the way through the workplace. Stevens also said that the current state of the market has made it abundantly clear that required minimum distributions at age 70-1/2 are penalizing those retirees who must withdraw their money now, when the market is so weak.

Further, fees, risks, holdings and performance must be much more clearly spelled out, Stevens said.

In addition, 401(k) plan sponsors should be required to make automatic enrollment and automatic savings escalation mandatory. That said, Stevens said Congress should not determine what the default investment choice should be. Rather, that should be left up to plan fiduciaries.

In addition, decumulation options for those workers about to retire should also be left up to the discretion of the plan fiduciary. “The optimal distribution choice for a participant could be a single product or combination of products,” Stevens said. But that “will depend on individual circumstances, including health status, other income sources, such as Social Security and defined benefit plans, and whether a retiree hopes to leave an inheritance to children. That there is no solution that is right for all retirees means that education and advice are of great importance in the distribution phase.”

It should also be easier for employers to diversify participants out of heavy concentrations of company stock as they near retirement, and easier for employers to offer savings plans. For those workers whose employer does not offer a 401(k), they should be able to invest in an “R” series of Treasury savings bonds.

Finally, Stevens said, “as President Obama has emphasized just this week, we must put Social Security on sound financial footing for the indefinite future.”

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