Eight ways to improve 401(k)s

Congress is working on the SECURE Act 2.0. It provides for automatic enrollment, increases the catch-up contribution limit and makes many other changes.

Here are eight more ways to make 401(k)s fairer. Call it SECURE 2.0.1.

  1. Mandatory Roth
    Not all 401(k) plans allow for Roth 401(k)s. Mandate that plans provide this as an option.
  2. Don’t punish good savers
    If you max out your 401(k) before December 31, you can lose the benefit of the company match, unless the plan offers a true-up. Many plans do not have this feature. Make true-ups mandatory.
  3. In-plan conversions
    Some plans allow you to convert traditional 401(k) contributions to Roth contributions, requiring you to pay the taxes. But not all plans do. Once idea (1) is implemented, more plan participants could take advantage of this, Make in-plan conversions mandatory.
  4. Immediate vesting of matches
    Some plans require participants to be with the employer for many years before they can keep any earned matching funds. Retirement plan money should not be used as leverage/a threat. Ban vesting periods.
  5. No waiting periods
    Some employers don’t allow contributions to 401(k) plans until the employee has been there for several months. Ensure all employees are eligible on their first day of work.
  6. No fractional matches
    Some employers will match 50% of up to 4%. This is confusing and punishes those who can least afford it. This match should be 100% of the first 2% instead. Only allow matches 1:1 or greater. 
  7. Immediate custodial transfers
    Many providers send funds via paper checks via untracked mail. This is slow and increases the potential loss. Require all providers to make transfers electronically by default, and complete them within 72 business hours of the request.
  8. Good selection of index funds
    Many plans greatly restrict the choice of funds. Often, these choices have high fees or poor returns. Require plans to provide access to a complete set of index and target date funds from at least one provider (Schwab, Vanguard, Fidelity, etc.)

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