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The Latest Attack on Target Date Funds

"Target-date funds are neither relatively expensive nor visibly poor performers. To be sure, most have trailed their expense-free benchmarks over the past decade, owing to their costs, the drag of cash, and the occasional investment glitch. But the same may be said for pretty much every other flavor of mutual fund. For those sins, target-date funds very much do not stand alone."

The Supreme Court Considers Defined Contribution Plans

"The primary issue before the court was specific: whether to overturn a 7th Circuit judgment that defined contribution plans that offer both acceptable and unacceptable investment offerings fulfill their fiduciary duties, because employees may freely choose the sound options while ignoring the duds.... That question may have been answered.... Most of the discussion, however, ranged elsewhere, and messily at that." [Hughes v. Northwestern Univ., No. 18-2569 (7th Cir. Mar. 25, 2020; oral arg. transcript Dec. 6, 2021)]

With 401(k) Plans, What You Don't Know Can Hurt You

"401(k) investors who use plans that have revenue-sharing agreements subsidize investors who do not. That is illogical. Why should one firm's employees have a weaker retirement plan because that organization's benefits department failed to understand the implications of revenue-sharing arrangements? Surely it would be better to require recordkeepers to bid for exactly what they will receive. No undercover payments, no surprises."

There's No Evidence of a Retirement Crisis

"For several decades, people worried about future retirees have argued their case based on broad trends, such as the waning of defined-benefit plans, surveys suggesting that workers don't own enough investment assets, and the ever-increasing length of retirement as Americans live longer. Those are all worthwhile topics, but they represent questions to be addressed, not answers to be delivered. To put the matter another way, unless they are accompanied by specific supporting evidence, demographic arguments are insufficient."

How Fares the World's Largest 401(k) Plan?

"During TSP's history (the plan was founded in 1986), the investment markets have been extraordinarily generous.... If the board is to be criticized for anything, it is that one third of TSP assets rest in the short-government fund, its equivalent of a cash account."

Going Boldly: The Retirement Savings for Americans Act 2022

"Congress earlier this month introduced the Retirement Savings for Americans Act of 2022 [HR 9462], which advances the idea of a national 401(k) plan.... Rather than replace the existing system, it would supplement it, by installing the 'American Worker Retirement Plan' in all companies that lack acceptable 401(k) plans.... [Its] contribution limit is a modest $6,000; it cannot be used by higher-income employees; and it does not provide an immediate tax benefit, as it is structured like a Roth IRA."

Don't Believe What You Read About Target-Date Funds

"It is easy to make allocation choices look silly in hindsight, particularly by compounding the results ... What matters are the answers to the following queries: [1] Can the investment's strategy be justified? [2] Was the investment competitive with the realistic alternatives? ... [3] Did the investment succeed by its own measures?"

How to Use Annuities During Retirement

"[S]ubstituting [single premium immediate annuities] for investment-grade bonds appears to be almost unambiguously sound. However, the competition tightens considerably when using bonds to generate total return rather than for income alone. That is, instead of clipping bond coupons while retaining principal, our retiree in effect creates her own annuity by dipping into capital. Doing so would sharply increase her sustainable withdrawal rate."

Sequence Risk During Retirement

"Sequence risk during retirement -- the danger arising from withdrawing assets from a shrinking portfolio -- is a familiar subject.... This column will use a streamlined model to demonstrate the principles underlying the problem."

Investing When Bonds Do Not Hedge Stocks

"Balanced-fund investors have three options.... [1] [P]retend that this year never happened, by continuing to do what they have long been doing.... [2] Rather than rely on what essentially are two assets -- stocks to provide high returns, and bonds to function as ballast -- balanced portfolios should invest more broadly.... [3] [B]alanced-fund shareholders might benefit by temporarily adjusting their allocations to favor inflation-resistant assets such as commodities, gold, and liquid alternatives. Then, when the economic climate reverts to the norm, swap those assets for Treasuries, thereby returning to the previous formula."