How Should Retirement Plans Be Organized?

Abstract

Americans have a tough time saving for their retirement. To make matters worse, the move from defined benefit (DB) to defined contribution plans (DC) over the years has required greater investor sophistication, discipline, and sound investment advice. Unfortunately, the current rules regarding investment advice for defined contribution plans do not address the two critical deficiencies of the current system, namely opacity and conflicts of interest. We propose that one-master standard be instituted along with strict transparency requirements to control the conflicts of interest and improve retirement savings advice. We also recommend that only passive, well-diversified index funds for stocks and bonds should qualify as retirement vehicles.