New Proposals to Reform Retirement Plans

Congress is debating the end of 401(k) plans as we know them. But don't be concerned-all proposed changes are for the better.

Since the 1980s, American workers have been able to save for retirement through employer-sponsored 401(k) plans. The changes to 401(k) rules have been fairly minor since inception, but that's about to change.
Congress is abuzz with proposed rule changes these days, and some of them could have a far-reaching impact on how you build your retirement nest egg.

What's new?

Among the most likely changes is a fee disclosure requirement, forcing plan managers to tell you all about the fees and investment strategies behind your fund choices. Today, it's up to you to go digging for information, fund by fund, if you want to make the most of your available investment choices.
Some 401(k) plans give you a breakdown of the most important numbers, but they're under no obligation to do so. Annual reports detailing the plan's performance, fees, and strategy should be mandatory by year's end.

The increased transparency is not only good for your decision-making process, but could also protect smaller plans from higher fees that the big boys get. When it's all out in the open, it becomes harder to guard a privileged fee structure for the chosen few. For that reason, small 401(k) managers are lobbying for more detailed and granular reporting, while the larger ones generally want to report a single, collapsed fee ratio.

Bigger changes

The issue is percolating in the Senate too, where Sen. Hillary Clinton (D-NY) has introduced a bill that would make 401(k) plans available for all Americans, regardless of employment status, and would match up to $1,000 a year of everyone's plan contributions from government funds. This is a costly proposal with a federal price tag of about $20 billion to $25 billion a year, but one that would benefit nearly every citizen. It would be the deepest change in 401(k) rules ever; but it's not going to have an easy time being passed into law.

The investment choices themselves could change, too. One bill asks for a choice from the "balanced fund" category in all plans. It's a somewhat controversial move that might not pass, and should spark a debate over what choices are appropriate for every long-term retirement plan-and whether the government should have a say in what choices we have.

Change will do you good

All in all, you could end up with universal access to 401(k) plans with contribution matching, clearer plan documentation, and mandatory access to sensible investment choices, if all the initiatives discussed above pass muster. That's a brave new world indeed, and good news for every American.