“My retirement plan is free”. uh, not so much

There has started to be and will continue to be some news regarding new fee disclosure regulations that kick in beginning 7/1/2012 that will probably come as quite a shock to apparently 71% of you with retirement plans. You are going find out a lot more about what your retirement plan costs you. The bad news may come in the form of fees that you realize are subtracting from your piggy bank and that you didn’t know about before. The good news is that now you will know about them, and can make better decisions about how you select and manage your retirement plan if you are a business. As an employee in one of these plans, you will know more about what to suggest to your employer who really does have some legal responsibilities to you and your retirement savings.

Full Disclosure of my own: My day job is working for PAi and I make my living from fees that PAi charges to run micro and small business retirement plans, maybe even yours as PAi often runs as a back office to larger partners and brands.

I wanted to add my 2 cents to this conversation because it is hard to make sense of all the various opinions out there, some of which while well intended, fail on a key mantra of mine: be really careful what you delegate to a single point of control or failure. Yes of course, this is the software geek coming out. And of course I have my own biases.

The prevailing anti-private market solution, aka anti-401k plan opinions out there focus on a centrally or government run plan with guaranteed returns and  an annuity to pay it out over time at retirement. There are millions and millions of possible investments out there, and it takes thousands to possibly millions of people to evaluate the best investments. This is a worst case example for a centrally run retirement plan. Putting artificial massive demand the small number of investments a centrally run plan could reasonably expected to evaluate would actually change the outcome for those investments, completely independent of the merit of the underlying investment. Simple supply and demand would affect the valuation. The best you could ever hope for is average returns as anything currently losing value is automatically out, and anything remotely risky is probably automatically out. Whether government run, or privately run would make no difference.

You must have an opinion on the investments your retirement plan is participating in. Cost is one of those factors to watch and the new fee regulations will allow you to see more about how it works and what is best for you. But this is important: when people keep talking about the power of the 1% to invest and help create jobs (or not), they forget that they themselves have this power of investment by the choices we make in what to invest our retirement in. The masses of retirement dollars out there are an important part of our economy and you actually have input on where those dollars are invested and how wisely they are managed.

So go for it, learn, talk to your friends, and use that power.

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