Bad Company: 401(k) Sponsors aim at Wrong Target

Your company may be doing a pretty good job setting you up to fail at saving for retirement.

In it's most recent survey of how companies run their 401(k)s, PlanSponsor reports that the single most important criterion employers rely on when picking a target date fund for the company plan is past performance.

In essence, the folks making the important decisions on what your plan offers are nothing more than misguided performance chasers.

Making a Case for Employer Education So can we now maybe dial back the rhetoric that employees are solely to blame for the sorry state of their 401(k)? As much as the financial services lobby would like to divert attention from the need for meaningful financial regulatory reform, the 401(k) fix isn't about improving the financial literacy of employees. The financial and fiduciary literacy of employers is what needs work. PlanSponsor says survey respondents ranked a target fund's glidepath (asset allocation) and fees as less important in their decision making than past performance. That's just pathetic. You don't need a Ph.D in porfolio optimization to know that diversification and expenses are two central drivers of success and that past performance is no guarantee of future performance. If anyone in Washington is serious about fixing the 401(k) they might start by taking aim at the poor choices made by employers who are supposed to be acting in the best interests of plan participants. Reformers could start with the 28 percent of PlanSponsor respondents who were upfront enough to admit they were "not sure" if the target funds in their plan were the most appropriate.

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