Should 401(k) Platforms Allow for More Diverse Investments?

6 Feb

This article was presented as opinion in the Wall Street Journal last week. In it, the author, a fellow named Scott Higbee, argues that 401(k) plans should open up their options to things like hedge funds, private equity and other investment offerings that are currently not on the table for most employees participating in these plans.

He used the Super Bowl coaches as examples of how complication and diversity can be the ticket to success.  Funny thing is, most football experts agree- Seattle, who we now know trounced the Broncos 43-8, don’t employ any fancy schemes or complicated tactics to dominate opponents on the gridiron.

Seattle simply has all 11 players on each side of the field clear on their role and each man executes his own role very well. Funnily enough, if you have a simple blend of quality choices in your 401(k), one need not over-complicate things to achieve long-term success. Quite the opposite of what Mr. Bigbee is talking about. Seattle keeps their playbook relatively simple and do simple very well. Super Bowl champion well.

We can use that simple analogy for 401(k) plans.  Adding in complicated derivatives or private debt offerings, as Higbee suggests, will only further cloud an already overcast sky for employees trying to save for their future. If participants understand their options, if the fees and objectives are transparent, if the conflicts of interest are removed, there is no better way for American’s to save.

Scientific studies have proven that participation in 401(k) plans increases and in general people save more money when their options are clear and easy. For every mechanical engineer in the company that would love to play markets daily, there are 20 less sophisticated employee participants who are overwhelmed by the language of finance and the daunting task of managing their own investments. Mr. Higbee wants to add to their challenge. When most folks just need simple ways to help their savings grow over the long-term.

I don’t know Mr. Higbee personally, so I don’t want to take an easy swipe at his motives for such an opinion. But perhaps, just maybe, it is because the business he is in is currently shut out of a $4.3 trillion dollar market place and they want in? Perhaps I’m just being cynical…

I can’t believe the path to righting the lilting American savings ship is to add a further degree of complication so a massive private equity industry, that make profits hand over fist, have another avenue of exploiting the American worker.

I can just see the faces of 401(k) plan participants in Santa Rosa and around the Bay Area that we advise when I try explain the types of investments Bigbee wants them to have in their plans.

Something like the kids in Ferris Bueller’s classroom…

The answer to helping Americans save more comes is not a further layer of confusion and risk. But rather hewing to the old Navy acronym from the 1960’s, KISS. Keep it Simple, Stupid.


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