U.S. Rep. George Miller of California is probably the best friend 401(k) investors have on Capitol Hill.
He commissioned a
Many in the mutual fund industry are pushing back - probably because, if the truth were told, their assets under management would shrink.
The inconvenient truth about mutual funds is that the low-cost, generic version of a fund also is a better performer than its managed counterpart.
What's more, if a plan sponsor is considering offering a managed fund to participants, the fund should be benchmarked on its 10-year track record, not just one or five years. Investors have the right to know whether a manager performed well because of the luck of a raging bull market or because of skills at stock picking.
Benchmarking a fund in a 401(k) plan can inadvertently result in churning. It's not uncommon for an employer to dump a poorly performing fund as frequently as once a year.
According to a recent
If plan sponsors could only offer index funds, as is the case with the thrift savings plan that covers many federal employees, the funds would never be dumped because they are the benchmark.
The
In his book "Supercapitalism," former Secretary of Labor Robert Reich described ERISA as "the single most complicated piece of legislation ever to be enacted, subsequently providing guaranteed livelihoods to thousands of lawyers and administrators."
Employers already pay lawyers too much to abide by this complicated and often counterintuitive law. These legal costs are often passed on to the participants.
The bottom line is we need to save 401(k) participants money by enabling them to spend less on fees. Let's start by ensuring that they have the opportunity to choose funds that can't lose.
Jane White is the president of Retirement Solutions LLC, an advocacy and educational organization dedicated to the retirement adequacy of 401(k) participants.