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GAO warns 401(k) savers

By Jennie L. Phipps ·
Tuesday, March 1, 2011
Posted: 2 pm ET

The Government Accountability Office took aim at two retirement planning tools during the past week. In two separate reports, it said:

Beware of administrators pushing funds. Anyone who has a 401(k) should be cautious if the investment firm running the plan offers "education," because this kind of advice could be little more than a sales pitch. Investment companies are legally prevented from promoting funds for which they receive a special sales incentive. But the report said that doesn't prevent them from subtly promoting funds that are particularly profitable for them. They do it by urging savers to invest in a certain type of fund and then only offering one or two choices. The GAO said in the report released Monday: "Participants who confuse investment education for impartial advice may choose investments that do not meet their needs, pay higher fees than with other investment options, and have lower savings available for retirement."

Read the target-date fund fine print. Target-date retirement funds are loosely defined and therefore, investors can't count on getting what they think they're getting, the GAO reported last Wednesday. The purpose of target-date funds is to invest in "age appropriate" investments to produce an increasingly conservative portfolio the closer investors get to retirement. But after examining an array of the funds, the GAO concluded that the equity allocations for funds with the same target date ranged from less than 35 percent to as much as 65 percent. The result of this mishmash of investment styles is an unpredictable result, the GAO pointed out. Between 2005 and 2009, among the largest target-date funds with five years of return data, annual returns ranged from a 28 percent gain to a 31 percent loss.

The GAO urged the Department of Labor to require plan sponsors to evaluate and document whether target-date funds in their plans are "appropriate" for participants. It also said investment companies should explain clearly in plan prospectuses how the plans expect assets to be distributed during participants' retirements.

The DOL is expected to issue new disclosure rules this year and these recommendations are almost certain to be part of them. In the meantime, if you're invested in a target-date fund -- in or out of your 401(k) -- make sure you're comfortable with the fine print.

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April 21, 2011 at 1:03 pm

Most agents of these programs are just that, agents. They have no idea what they are doing or talking about. This industry is an overun, revolving door of "has beens". Fired from numerous, previous jobs, they have backgrounds that make them ineligible to apply for "real jobs"! "Investment advisors", and I use that terminology very loosly, are mostly inept at what they do. Be very careful!!

April 21, 2011 at 11:59 am

I see a lot of comments on here about Republicans....Amazing, what you guys don't know does hurt. First Paul Ryan's Plan says NOTHING about Medicare or Medicaid...Talk about Lying? Obama Opens his mouth and you clown fall for everything he says...Try READING Ryan's Plan. That's Point 1. Point 2. There are no "democrats" anymore...they're left wing liberal commies targeting young stupid "kids" like what I'm reading here...Never send a BOY to do a Man's Job

April 21, 2011 at 9:12 am

The Rethuglicans and Corporatist Democrats want the middle class to serve as slaves begging for minimum wages. We need a 2nd party in the USA.

The Corporate lackies in DC and Wall Street are no better than Ghaddafi or Mubarak thugs, the same ruling elite are running our country. Why does GE need more tax breaks? Record profits and a refund from the USA taxpayers too boot. And they still move the jobs out of US. Obama just allowed Mexican trucks into the USA! Hey thats was Bush's idea. Maybe they are on the same team.

Google USA Uncut, or goto

April 21, 2011 at 9:06 am

Patriot you lie like a rug on the floor. Social Security was raided by Bush Jr with by 5 trillion move from SS to general fund during 2000-2008 when the Republiconns had control of the house senate and presidency. It is still solvent by doing nothing for at least 40 years, and permanently solvent if you raise the taxes on the wealthy, the only grove the government works for anyway.

Medical services being provided by all other industrial companies (our world competitors) exceeds the USA. We will have our own death panels if Paul Ryan and the other Republicans are successful in taking your medicare away from young people like me. You should be tarred and feathered, you are no patriot.

April 20, 2011 at 8:56 pm

The GAO should mention that while they warn about fund pushers and fine print, the REAL problem is that the middle class is holding all of their retirement in US Dollars.

Look at the Russian Ruble in the 80s. The Russian Middle class lost their life savings and retirement. Think that couldn't happen here?

We Americans should be advised to DIVERSIFY holdings. Hold overseas currencies, commodities, land, etc. Not just dollar backed 401Ks.

Scott F
April 20, 2011 at 6:15 pm

How many times a day are we warned about buyer beware? And Republicans say we don't need more regulation. That just plain and simple doesn't make sense. Am I the only one tired of the bar being set so low that we accept as OK that politicians lie because they are politicians? It is not ok to lie period.

April 20, 2011 at 7:51 am

"It all depends on the labor of other people to fund it"

The problem with this is that the US has sent decent jobs overseas. NAFTA and Free Trade with China was a very bad deal for American workers, American productivity, American know-how, etc. The US touts stimulus money as an economic benefit when a lot of what we've done is allowed for the 'buying' of technology, goods, services and know-how from other countries. It's happened within all industries. We enslave the workers in this country by forcing a ridiculous percentage of their life in hours (related to income) to be stolen by a government that FEEDS like a leach.

As a contributor to social security for 35 years it is extremely disheartening to see how the demand and use of this system has been administered without any concern about runaway costs/use. All social programs designed by government become maligned/abused and deemed untouchable once implemented.

People must be held accountable for how they live their lives and healthy choices should be the main goal. Because government cannot live within its means or address out-of-control abuse with any common sense it must allow for people to address the needs of their own families, communities, state, etc. Trickle down transfers is costly, unmanageable and easily abused.

We need representative government and far less of it. Those we elect should enjoy the average pay & benefits as the working people within the communities they represent. Only then, will they have an incentive to make decisions that improve most lives in this country.

What a disgrace our government has become. It really is time for Americans to take their country back. All they do is take/take/take/take and offer so very little in return to those who are forced to work longer and longer to support those who don't. It is modern-day slavery, make no mistake about it.

April 19, 2011 at 2:05 pm

Social security needs a tweak. I have to look up the details, but pretty soon it starts drawing down the huge ($2 trillion) loan it has made to the US government and in 2037 it runs out of money. (Or is it 2057? Like I said, I need to look it up.)

So we make a minor adjustment, raise Normal Retirement Age to 70, reduce benefits 1/4%, or something. No big deal.

A worse danger is calls (I've already heard them) to reduce everyone's benefit because "everyone has to share the pain equally".

Great idea. Let's turn Social Security into a Tax on Working. In the meantime, the rich get more tax breaks, and bailouts when their investments go bad, because the economy can't handle the failure. Like I said, one of the great ideas of all time.

I knew it was a bad idea to incorporate Social Security into the Unified Budget. First of all, everyone thinks Clinton had budget surpluses when in fact all he had was huge borrowing from Social Security. And now they think that a completely self-funding program (Social Security) is a perfectly fine cookie jar to raid. And it will be if we (the voters) let them.

Oh, one more thing. It doesn't matter if your retirement plan is Social Security, real estate or pieces of paper (stocks and bonds). It all depends on the labor of other people to fund it. It's all just promises.

Jackson Rogers
April 19, 2011 at 9:21 am

Congress, under President Johnson, began raiding the Social Security Trust pay for their special projects. Beware of "special interests" and beware of "loopholes".... 401K plans, what a joke, only people who made money on it were the Wall Streeters who manipulate the market.....voice of experience talking here....

April 19, 2011 at 8:50 am

hey Ray, interesting to see there are "Tories" still in Ametrica. You know the people that opposed the Declaration of Independence and wanted to stay with big Government England? Go read your history on Social Security. The DemoCRAPS pledged to make it a "volutary annuity" but gee I guess that didn't happen huh? Then LBJ passed a law that allowed the Government to "dip into it" and the worst president in our histiory Jimmy Carter allowed illegal immigrants who didn't pay ANYTHIONG into it to collect benefits. Sounds like Socialism to me buddy. The colonists threw the British tea into the harbour in Boston because they resented Government without representation. Real Americans resent DemoCRAPS and their big Government stealing our money to throw at the bottom of the food chain. Enjoy your life as a slug because you'll never be an American.