Save Retirement: Researchers Say Blow Up the 401(k) and Start Over

NEW YORK (MainStreet) — The retirement savings system in America is broken. It’s too complicated, too costly and unmanageable by employees and employers alike. That’s the thesis proposed by Russell Olson and Douglas Phillips, investment officers at the University of Rochester endowment. Their solution? Blow it up and start over.

Olson and Phillips have impressive resumes: investment management at Princeton and Kodak, educations at Rutgers and Harvard Business School – they’ve been around the investment block a time or two. In a recent white paper, the two experts recommend a new “private pension system” to replace the current “patchwork” of retirement plans.

The researchers say it’s time to simplify the system, noting that over 40 years more than 14 variations of employer-sponsored defined contribution (DC) retirement plans have evolved, including 401(k)s, 403(b)s, SEP IRAs, SIMPLE IRAs, Roths, Keoghs and more.

“Their proliferation has been complex and bewildering. Each has its own deduction or contribution limits, distribution restrictions, and nondiscrimination rules, and there are many variations of each vehicle,” Olson and Phillips write. “Some are available through employers, others not. Some workers have retirement assets in multiple DC plans as they change employers. While the details for each vehicle seemed to make sense when created, the resulting rules and options can be confusing for many workers, and this confusion can lead to insufficient or poorly invested savings.”

The challenge for retirement plan participants is knowing how much to save to achieve financial independence when they retire, the authors say. And Americans simply aren’t saving enough.

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