Nobody’s perfect. It’s unfair to expect recordkeepers to be. Everyone makes mistakes—even recordkeepers. The problem is what happens when a mistake occurs.
Due Diligence
Among the tactics introduced by behavioral finance is the notion of “framing.” For individuals, however, it’s much easier to understand things if they are reframed into “buckets” representing specific individual goals.
Today, in reading some of the headlines, you’d think they’re greater than sliced bread. They may be. They may not be. Still, there are differences, and 401k plans sponsors would benefit from practicing the utmost in due diligence when determining if CITs are the right fit for their plan.
If the numbers don’t add up for annuities (or anything else, for that matter), where is the demand for these products coming from?
There’s not a sin in listening to radio shows sponsored by those selling gold and silver. It’s quite another thing to actually act on their “recommendation.”
Normally, interest rates rise with inflation. In turn, bond rates rise with interest rates. But that hasn’t happened. In fact, short rates remain at historic lows. This means folks sitting in money markets or “safe” government bonds (and bond funds) are seeing their retirement savings eroded away.
The conflicts-of-interest inherent in selecting proprietary funds are apparent. Less so are the criteria used to determine what a suitable process might be.
But that idea contained a flaw. In the early years, limited choices made it easy for employees. The proliferation of the number of options in later years, however, exposed the lack of sophistication within the employee cohort. That can lead to bad decision-making. Alternative solutions were needed.
Depending on what the plan sponsor decides to place on the 401k menu, plan participants might have an easier time dealing with making investment choices to battle the ravages of inflation.
It’s not just plan sponsors and plan participants that need convincing. The entire retirement plan infrastructure must also get on board. That doesn’t mean the hurdles can’t be overcome.
