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401ks Are Not Broken, You Are

Posted By Barry Ritholtz On March 9, 2014 @ 10:00 am In 401(k),Investing,Psychology | Comments Disabled

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My Sunday Washington Post Business Section column is out. This morning, we look at the 401k.

The print version headline was What’s the problem with 401(k)s? You [2] while the online version was There’s nothing wrong with 401(k)s, except the players involved [3].

Here’s an excerpt from the column:

“What’s wrong with these plans? Human behavior, which has managed to turn a relatively simple idea into a complex, overpriced, underperforming mess. Returns have lagged behind a myriad of asset classes doing exceptionally well over the long haul.

The solution is not very difficult: Simplify the plans, reduce the fees, make enrollment automatic and get out of the way.

To understand how to do this better, consider the three parties to any tax-deferred retirement plan, and what each gets out of it: the employer, the employee and the investment-management firm.”

I also got to throw in a snarky comment about Tim Armstrong’s distressed baby foolishness:

“The employer gets a low-cost compensation tool. Nearly all companies — the exception being AOL [4], which seemingly uses its 401(k) plan to discourage people from working there — use these plans to attract and retain high-quality employees . . .”

The entire column is worth the read . . .


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Source:
There’s nothing wrong with 401(k)s, except the players involved [3]
Barry Ritholtz
Washington Post, March 9, 2014   http://wapo.st/1cIBkAe


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2014/03/401ks-are-not-broken-you-are/

URLs in this post:

[1] Image: http://www.ritholtz.com/blogwww.washingtonpost.com/barry-ritholtz/2011/03/31/AFWBwIBC_viewAll.html

[2] What’s the problem with 401(k)s? You: http://bit.ly/1hXFQPV

[3] There’s nothing wrong with 401(k)s, except the players involved: http://www.washingtonpost.com/business/theres-nothing-wrong-with-401ks-except-the-players-involved/2014/03/07/2037fc06-a3d6-11e3-8466-d34c451760b9_story.html

[4] the exception being AOL: http://www.washingtonpost.com/business/economy/aol-chief-ignites-firestorm-over-401k-cuts-and-distressed-babies-remark/2014/02/07/2116c03a-9012-11e3-b227-12a45d109e03_story.html

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