Employee benefits

It won't be easy in the aftermath of a global recession, but with the right mixture of transparency and expertise, wealth managers will be able to regain their status as trusted advisers.

Calling revenue-sharing agreements between mutual funds and 401(k) administrators “controversial,” today’s “Fund Track” column in The Wall Street Journal urges investors to pay attention to these fees, since some funds levy them and others do not. Actively managed funds in large plans, rather than index funds or small plans, tend to charge higher revenue-sharing fees, the column warns.

Noting that one-quarter of employers have either already cut or plan to cut their 401(k) match, financial advisers are reminding investors of the importance of saving for retirement.

Advisers to 401(k) plans recently have revisited the wisdom of offering annuities, in light of last year’s severe market downturn. But group annuities are being criticized for subjecting investors to lockup periods of five years or longer and a variety of additional fees.

Assets under management are down for nearly all firms due to market depreciation. And making matters worse, most funds have also been hit with steep outflows. According to Strategic Insight, only about 22% of equity mutual funds had inflows for at least four of the last five months of 2008. But a few firms have actually seen positive flows over the past year.

Regulatory leaders are questioning whether changes need to be made to target-date funds after several 2010 funds reported huge losses last year, but mutual fund industry leaders say these concerns are overblown.

With births declining and medical advances extending life spans, the population of people age 65 and older in the U.S. will rise from 13% today to 20% by 2030 and 26% by 2050, the Census Bureau announced Tuesday.

A new website launched by a financial journalist turned investor advocate slams the mutual fund industry in an 11-part series for charging investors too much through revenue-sharing agreements and 12b-1 fees.

Financial Engines has launched a Retirement Checkup service for near-retirees age 50 and older that finds the outlook is not as grim as people might think. Only modest increases in savings and a slight delay in retirement can put near-retirees back on track.

WASHINGTON - With 47% of 401(k) plans now using automatic enrollment, the programs have helped get millions of new workers enrolled to start saving early for retirement, but industry experts say the automatic nature of these plans needs to extend to helping "hands-off" investors when they change jobs.

At the hearing on target-date funds that the Department of Labor and the Securities and Exchange Commission held in Washington last Thursday, the focus was on better disclosure of holdings.

WASHINGTON - Many investment industry leaders are worried that the proposed 401(k) fee disclosure regulations currently being pushed through Congress will actually increase the fees investors pay and increase their confusion.

UAT Inc. has developed a 401(k) tool for sponsors offering target-date funds that will allow them to scrutinize the holdings and glidepath of the funds.

There is a big disconnect between employers’ perceptions of workers’ understanding of 401(k) fees and the reality, according to a survey by the Transamerica Center for Retirement Studies and Harris Interactive.

Nearly one-quarter, or 23%, of employers have eliminated 401(k) matches, according to a study by CFO Research Services for Charles Schwab. And 35% don’t expect to reverse the elimination, according to a separate survey by Watson Wyatt.

At the hearing on target-date funds Thursday, target-date fund managers, along with the Investment Company Institute, asked the Securities and Exchange Commission to butt out of asset management.ICI General Counsel Karrie McMillan said interfering in the mix of assets would be unprecedented: “In the 70-year history of mutual fund regulation, the government has never regulated the investment choices of mutual funds. Nor should it start now.”“We strongly oppose any efforts to regulate the glide paths or other aspects of the investment design or construction of target-date funds,” concurred John Ameriks, a Vanguard principal.Fund executives also said they were opposed to labeling target-date funds conservative, moderate or aggressive, based on the mandate of their glide path and current holdings.But SEC Chairman Mary Schapiro countered that target-date fund losses last year ranged from minus 3.6% to minus 41%, with an average loss of 25%. “These varying results should cause all of us to pause and consider whether regulatory changes, industry reforms or other revisions are needed with respect to target date funds.”Financial planners who testified Thursday tended to agree with the SEC that a target-date fund’s name should give some indication of its level of equity and other risk exposure. “The name of each fund must bear some relationship to the way the fund is managed, that is, its glide path,” said Joseph Nagengast of Target Date Analytics, which provides benchmarks for target-date funds. “If a fund labeled 2010 is really targeted to land at 2040, it should be relabeled as a 2040 fund.”

A significant number of older workers 50 or older, 44%, have decided to delay their retirement age, and 34% overall have upped their target date for leaving the workforce, Watson Wyatt found in a February survey of 2,200 employees. By comparison, only 25% of those under age 40 have changed their plans for years in the workforce.Nonetheless, among all workers 65 is still the average age at which they expect to retire.Among the older workers, when asked what factors have impacted their decision to delay retirement, 76% said declining 401(k) balances, followed by 63% citing high healthcare costs and 62% pointing to high costs of living.“The economic crisis has affected many workers’ retirement plans and nest eggs, but those nearest to retirement have been especially hard hit,” said Dvid Speier, senior retirement consultant at Watson Wyatt. “Older workers do not have the time to offset declining retirement account values, either by recouping their investment losses or significantly increasing their savings rate. For many, the only choice is to delay retirement.”With older workers remaining on the job longer, that could present hiring issues for employers along with higher benefits costs, noted Lisa Canafax, another senior retirement consultant at Watson Wyatt. For that reason, employers might want to reconsider defined benefit plans.

Lawmakers on the House Education and Labor Committee voted 13-8 each on two measures concerning 401(k) plans Wednesday, one that would require them to clearing disclose fees and break them down, another that would only permit investment advice to come from independent advisers.Fees would have to be displayed in all four categories: administrative, investment management, transaction and other.“The lack of transparency in the 401(k) system is unacceptable and must end now,” subcommittee Chairman Robert Andrews (D-N.J.) told Dow Jones.

The rapid increase in bankruptcies in the U.S. could result in more abandoned retirement plans, which occurs when a company goes out of business and assets in a defined contribution plan are left at a custodian or mutual fund company that is not authorized to distribute the monies.

Congress once again is scrutinizing 401(k)s this week, this time through two bills that would disallow advice through an interested party and require clear disclosure of fees.