For retirement planning, keeping it simple would be so much better
A Supreme Court opinion on complex 401(k) plans contains a broader message
When you’re trying to build toward financial security in retirement, complexity is the enemy.
That message came through loud and clear in an opinion delivered last month by the U.S. Supreme Court in a case brought by employees against Northwestern University. The plaintiffs alleged that the university’s retirement plan had too many investment choices and excessively high fees.
Retirement plan sponsors have a fiduciary duty to monitor and control plan costs. Northwestern operates a 403(b) plan - a sibling of 401(k)s used by public schools and universities, nonprofits and churches. At the time in question, the Northwestern plan had more than 400 investment choices, and the high court ruled that offering workers a broad range of choices did not shield employers from claims that some of the funds on the menu were imprudent selections because of their high fees. The high court disagreed with a lower court ruling, and sent it back for further consideration.
A Northwestern spokesperson expressed disappointment with the ruling, and denied that the university had violated its fiduciary duty.
But no matter how the case is resolved, it serves as a reminder of the complexity of many of the retirement systems we have built in the United States, and the increasing burden we put on the individual to navigate a myriad of choices.
Wouldn’t it be great if we could also simplify the other big questions we all face in figuring out retirement? When to file for Social Security. What to do about long-term care insurance. How to hire a trustworthy financial planner. Or, consider my favorite poster child for complexity: Medicare, a once-simple social insurance system that we have mucked up with marketplace-driven choices for prescription drugs, managed care and supplemental insurance. The sheer number of choices can be intimidating - and even Medicare’s own data suggests most people shy away from the recommended regular coverage check-ups.
Learn more in my Reuters column this week.
PBS NewsHour features “The Great Retirement”
Among the reasons for the current labor shortage in the U.S. is the exodus of older workers retiring early during the pandemic. NewsHour correspondent Paul Solman explored the reasons in this engaging report, which features interviews with several people who made the decision to retire earlier than they expected.
What I’m reading
The best investments for taxable accounts . . . Medicare will cover at-home rapid tests for COVID-19 . . . Too young to retire but at risk for Covid, older Americans struggle to find work . . . Entrepreneurs are creating services to better connect an aging population . . . Medicare plan to limit use of controversial Alzheimer’s drug draws criticism from drug makers.