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Center for American Progress – Fixing the Drain on Retirement Savings

Fixing the Drain on Retirement Savings – How Retirement Fees Are Straining the Middle Class and What We Can Do about Them, By Jennifer Erickson and David Madland | April 11, 2014

“Less than one in five American workers in private industry has access to defined benefit pension plans. As a result, most Americans’ quality of life during retirement depends on whether they have invested in retirement savings vehicles such as 401(k)s and Individual Retirement Accounts, or IRAs, and how their investments perform. The reality is, the corrosive effect of high fees in many of these retirement accounts forces many Americans to work years longer than necessary or than planned. Clearer, more transparent information has helped inform consumers about a variety of decisions from choosing between appliances to choosing between dinner options. With 52 million Americans relying on 401(k) funds as part of their retirement savings and a similar number depending on IRAs, why not offer better labeling for retirement funds? All retirement funds should have a clear, understandable label that provides consumers with relevant, concise, and accessible information about fees. Improved fee disclosure could help individuals make better financial decisions—especially since data show that higher-cost funds do not necessarily perform better—and could encourage firms to provide lower-cost options. Perhaps most importantly, it could also force a national conversation about how to best improve our retirement system. Fees are not the only problem with many private retirement plans. Indeed the Center for American Progress has proposed allowing all workers to save in the highly cost-effective 401(k) style plan: the government-employee Thrift Savings Plan. CAP has also proposed creating a new type of plan that combines the best elements of 401(k)s with the best elements of pensions to address the inherent weaknesses of self-directed retirement plans, as described at length in previous reports. But the impact of fees is critically important and can at least be addressed partly by better disclosure.”

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