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Showing posts from June, 2014

A Simple Communications Challenge

Since the dark days of 2008, employers have taken some steps to fix the 401k, the backbone of the nation's private retirement savings system. But Nobel laureate Robert C. Merton says that in the rush to upgrade these plans, sponsors and administrators have overlooked one big problem: They are managing the plans with the wrong goal in mind. "The only way to avoid a catastrophe is for plan participants, professionals, and regulators to shift the mind-set and metrics from asset value to income," explains Merton, who won the Nobel Prize in Economics in 1997.

In recent years, employers have tried to improve 401k's by introducing features such as automatic enrollment and products including target-date funds. But these moves are not likely to be sufficient. To fix the 401k, he argues, employers and the financial services companies that manage the plans must get past the ongoing obsession with two things: account balances and annual returns. These metrics, Mert…