Total IRA assets now exceed money in 401(k)s by $7 trillion. That's a troubling trend, according to retirement expert Alicia Munnell, as the shift moves employees' money to a different regulatory environment.
The standards of conduct for broker-dealers "selling IRA investments are much less protective than the ERISA fiduciary duties of loyalty and prudence, which have consistently been characterized by the courts as 'the highest known to the law,'" Munnell, senior advisor of the Center for Retirement Research at Boston College, wrote in a recent blog post. "In addition, in the 401(k) environment, much greater emphasis is placed on the disclosure of fees in an understandable format than in the case of IRAs."
Assets in 401(k)s stand at $11 trillion, versus $18 trillion in IRAs.
In addition to the exemptions from the 10% penalty tax withdrawals from 401(k) plans and traditional IRAs made before the employee reaches age 59½, "the barriers to accessing funds are much lower in the case of IRAs than 401(k)s," Munnell writes.
IRAs "offer withdrawals for three additional reasons: to cover postsecondary education expenses; up to $10,000 to cover a new home purchase; and to pay medical insurance expenses for those unemployed for 12 or more weeks," Munnell said.
"The growing role of IRAs has resulted in a much less effective retirement system," according to Munnell. "Without fiduciaries serving as a buffer between the participant and the market, investments will be suboptimal. With many more options for withdrawing money from accounts, leakages will increase."
Alicia Munnell. Photo courtesy of Trustees of Boston College
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.