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Another 403(b) article. Same story....

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On a slightly related note...

Suppose you wanted to embrace the alleged Republican ideals of maximizing consumer choice, privatization, and “simplifying” systems. I would be quite intrigued with doing away with EVERY workplace plan (401k, 457b, 403b, etc) and increasing the contribution limits of the IRA accordingly.

Maybe employers would be required to send payroll deductions to the IRA of each employee’s choosing (using a formalized mechanism that every IRA vendor has to support). Or maybe not.

For me, that would be an acceptable middle ground, which doesn’t quite reach the promised land of every employee nation wide being automatically enrolled in the TSP with an asset allocation based on their age (opt out and modification allowed obviously).

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2 hours ago, EdLaFave said:

On a slightly related note...

Suppose you wanted to embrace the alleged Republican ideals of maximizing consumer choice, privatization, and “simplifying” systems. I would be quite intrigued with doing away with EVERY workplace plan (401k, 457b, 403b, etc) and increasing the contribution limits of the IRA accordingly.

Maybe employers would be required to send payroll deductions to the IRA of each employee’s choosing (using a formalized mechanism that every IRA vendor has to support). Or maybe not.

For me, that would be an acceptable middle ground, which doesn’t quite reach the promised land of every employee nation wide being automatically enrolled in the TSP with an asset allocation based on their age (opt out and modification allowed obviously).

I agree that the current system sucks for the vast majority of employees. It's way too expensive with many inappropriate investments even some 401k plans. It's expensive because the system is a pot of gold for the financial industry, not employees.

However there are exceptions, those of us who educated ourselves about these plans, how to create a diversified portfolio, watch those costs and understand how this thing called the stock market works, and do all of this without an expensive adviser, then these plans are excellent. 

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I recently, after months, discovered that my 401k adds 0.6% on top of the funds’ expense ratios. This was so well hidden that I didn’t find it for months, the company told me no such fee exists during hiring/interviewing, and none of the employees knew about it until I found it.

Lots of knowledgable people are stuck with less than excellent plans. 

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Nothing is free Ed-Nothing. If the fees were so well hidden then how did you find out about them?

I would like to see 401k-403b plans disassociated with employers too. I understand why its done through employers and in some ways that may help get more people to buy into saving. Still you are subjecting employees to high fees and bad choices. Obviously doing it this way locks in profits for companies and often locks  employees into substandard plans.

The IRA is really not a good escape from this because of the limitations to contributions although opens the door to picking better choices as long as the investor is knowledgable.

Why can't an IRA have much higher contribution rates similar to employment plans? Why must the employer be in the middle of retirement plans?  If an IRA had the same contribution rates you could still do auto invest through your checking or savings account. It could still be tax deferred just the same.

Tell me why this idea couldn't work? I would think school systems would welcome not having to offer retirement plans as it would lower costs  and workloads for them.  A high contribution-non employer IRA seems like the way to go. Obviously though this would probably hurt insurance industry profits as you wouldn't have employees as captive audiences  so it won't happen with all the lobbying they do.

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24 minutes ago, tony said:

If the fees were so well hidden then how did you find out about them?

So the fees weren’t listed in any of the documentation I was given (unless I overlooked it multiple times). I think my company gave me generic documentation and not plan specific documentation. Everybody in the hiring/on boarding process confirmed there weren’t such fees.

Once per quarter (I haven’t been at my job for too long), the vendor updates a page on their web site that tells you what you paid in fees for that quarter. The first time I went to that page it listed $0. One day I was bored and brought it up again to find out I was being charged fees!

24 minutes ago, tony said:

Tell me why this idea couldn't work?

For me, an IRA with a larger contribution limit, no income restrictions, and no employer sponsored accounts would be ideal.

For others they may be overwhelmed with the responsibility of having to take the initiative to open the IRA (choosing from a near infinite list of possibilities). These folks may not save anything if it weren’t for HR handing them the 401k form on their first day.

I’m not sure what is best for the typical person. This solution is clearly a compromise between ideologies. My ideal is the TSP for everybody with automatic enrollment and default target date.

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I agree

I guess if you have the right plan with the right fees, the right choices and full transparency  a 403b-401k does have its benefits. I still would prefer a disassociation with employer however from my personal standpoint. My experience wrestling with the bad choices given me, the general ignorance, and constantly having to advocate for better choices was exhausting.

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I generally agree with your desire to shift more from the employer to the individual.

My employer controls quite a bit about my life. I don’t particularly like them controlling my healthcare and retirement...although if they proved to be better stewards or were forced to be better stewards then my complaints could be mitigated.

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I think the data is clear that people in general save more when the process is automated and by default.  (Or mandatory, as in the case of pension contributions.)  So that probably needs to be taken into account when reforming the current mess.

The ideas here for simplifying and opening up the tax-privileged retirement options, e.g. anybody can direct the full maximum into an IRA, or making the TSP a universally available default plan, are sensible and workable.  They would be politically very popular, I think, across most if not all of the ideological/cultural divides in the US. 

The problem is the money that the existing financial services industry will use to pay lobbyists to stop such changes, to fund friendly congresspeople and to launch misleading fear-based advertising campaigns (think of the TV ads against the fiduciary advisor rule).  As with so many other issues, the corruption of democracy by the current funding system  (essentially, legalized bribery) stands in the way of reforms that are unambiguously in the interest of the citizenry at large.

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As far as going with a high contribution IRA with  disassociation with employer, that  would probably eliminate any employer match. Employer matches somewhat negate the poor choices and higher fees you might pay.

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2 hours ago, whyme said:

The problem is the money that the existing financial services industry will use to pay lobbyists to stop such changes, to fund friendly congresspeople and to launch misleading fear-based advertising campaigns (think of the TV ads against the fiduciary advisor rule).  As with so many other issues, the corruption of democracy by the current funding system  (essentially, legalized bribery) stands in the way of reforms that are unambiguously in the interest of the citizenry at large.

probably right.

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7 hours ago, whyme said:

The ideas here for simplifying and opening up the tax-privileged retirement options, e.g. anybody can direct the full maximum into an IRA, or making the TSP a universally available default plan, are sensible and workable.  They would be politically very popular, I think, across most if not all of the ideological/cultural divides in the US. 

I think the Right would absolutely HATE universal TSP with automatic enrollment.

7 hours ago, whyme said:

the corruption of democracy by the current funding system  (essentially, legalized bribery) stands in the way of reforms that are unambiguously in the interest of the citizenry at large.

There is a lot of truth to this, which is why I support systemic reform.

However, I spend a lot of time talking to people on the right about economic issues and they fully support creating policies that favor employers and maximize corporate profits. They take pleasure in the idea of busting unions. They’d celebrate if the minimum wage was eliminated. They’re very supportive of forced arbitration. They think it is wrong and should be illegal for workers to share salary information. They view workers on strike as un-American and entitled. They’re against pensions, healthcare programs, and sometimes, to varying degrees, social security. All of that is to say, I think they’re intentionally electing people who represent those values.

I’ve heard people argue that they don’t really support those things, that they’re being duped into it thanks to the PR/“news” campaigns that corruption can buy. I'm not sure how to test that hypothesis, but I tend to believe people when they tell me what they believe in. 

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22 minutes ago, EdLaFave said:

I think the Right would absolutely HATE universal TSP with automatic enrollment.

True that some would object for ideological "small government" reasons, others because they represent the entrenched players (often attached to direct financial support for their campaigns), but it isn't clear to me that such opposition would be anything like universal on the right.  In 2014, Marco Rubio promoted expansion of TSP availability to those who don't have access to existing 401k-type plans.  Not exactly your universal TSP/automatic enrollment proposal, Ed, but I think that is a piece of evidence that (some percentage of) conservatives would embrace (some version of) expanding TSP access.  Even right wingers who want "right to work" (i.e., union busting) laws and who want to dismantle or privatize social security seem ok with privately owned tax-privileged retirement accounts.

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