BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Bipartisan Support in Washington for 401k Skimming

This article is more than 10 years old.

Let us all agree that Wall Street should be permitted to continue to skim hundreds of billions annually from what’s left in Americans’ retirement accounts, said the Wall Street Journal in its “The Borzi Savings Bomb” editorial recently. It’s not enough that taxpayers bailed out Wall Street when it spectacularly failed; we’ve got to continue to feed the beast. If we don’t, our national economy will suffer, says Democrat Carolyn McCarthy of New York.

According to the Journal there is bipartisan opposition to a Department of Labor proposal holding Wall Street more accountable when entrusted with investing worker’s hard earned retirement savings. That should come as no surprise given the political contributions both parties receive from the financial services industry. If elected officials are going to pander to their Wall Street contributors and throw workers to the dogs, at least be honest about it. Don’t pretend that the proposed regulation will harm investors. It won’t.

Why on earth wouldn’t we, as a nation, want to require (as the DOL has proposed) Wall Street to meet a higher “fiduciary” standard when handling retirement savings? After all, we’re talking about people’s life savings. The fiduciary standard simply requires that firms place client interests before their own. Is that a controversial notion? In my book, it’s the price you pay for being trusted with someone’s life savings. If certain Wall Streeters are uncomfortable with being held to that higher standard, then the nation benefits, in my opinion, when they exit the business.

What does the American public want? Americans know that the great 401k experiment of the past 30 years has been a disaster. It is now apparent that 401ks will not provide the retirement security promised to workers. According to a 2010 survey, 84% of Americans say it’s time for new and improved workplace retirement plans. 84% -- that’s a staggering dissatisfaction rate.

Can anyone in Washington produce a single American worker who believes he or she will benefit from allowing Wall Street to play by the same old rules? Let's ask Americans to vote on that question. Whose interests are being protected here?

According to the sleuths at the Journal, “there has never been a single, serious economic study that shows widespread fraud or malfeasance in the retirement savings industry.” Really? Did the WSJ guys ever hear of the mutual fund scandals? Might these widespread mutual fund abuses have had an impact upon the nation’s 401ks which heavily invest in funds? What about the pervasive conflicts of interest involving the investment consulting industry which were investigated by the SEC, DOL and GAO in 2005? Between mutual funds and investment consultants, pretty much the entire retirement plan industry has been found to be ethically challenged in recent years.

Phillis Borzi sent an email to the Journal citing widespread conflicts of interest in the marketplace for retirement advisory services. She went on to state that there is a good deal of evidence that these conflicts have resulted in reduced returns and higher fees for retirement investors, as reflected in the DOL’s own investigations and cases, SEC and GAO reports, published securities cases, academic literature and other sources. I can assure you, based upon  my professional experience, what she's saying is true.

I have investigated over $1 trillion in retirement plans, including many of the largest 401ks in the nation and Borzi is right on the money. At their request, my investigative findings have been shared with DOL, SEC and GAO. In early 2009 my firm issued a definitive research report, Secrets of the 401k Industry: How Employers and Mutual Fund Advisers Prospered as Workers’ Dreams of Retirement Security Evaporated which documented that industry practices have played a significant role in creating the defined contribution retirement plan crisis the nation faces today.

But “lower returns don’t necessarily mean that investors were systematically cheated, says the Journal.” Then tell me what the lower returns the nation’s 401k investors have systematically experienced do mean. Do they mean that Wall Street has profited handsomely as workers accounts have been drained? Do they mean that the investment advice workers got wasn't worth what they paid for it?

We are on the precipice of the greatest retirement crisis in the history of the world. In the decade to come, we will witness millions of elderly Americans slipping into poverty. Too frail to work, too poor to retire will become the “new normal” for elderly Americans.

The nation cannot afford to continue feeding the Wall Street beast. The beast must be tamed and the DOL fiduciary proposal will, at least, reign it in.