Dan Danford, CEO of Family Investment Center, Responds to Recent Bloomberg Dark Picture that Only One-Third of Americans are Contributing to a 401(k)

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Danford Suggests Blocking Auto-Enrollment is ridiculous

Family Investment Center

With tax-deductible contributions, tax-deferred growth, growth-oriented investments, and a free employer match, most competent advisors recommend 401(k) participation as a bedrock foundation of family retirement planning.

Are traditional 401(k) pension plans dying? Possibly. And what will cash-strapped Americans do to actually prepare for retirement? Recent Census data – combined with plans from Congress to lower 401(k) participation or do away with auto-enrollment – might paint a picture darker than previously realized. Dan Danford, CEO and founder of Family Investment Center, recently responded to the Bloomberg article titled “Two-Thirds of Americans Aren’t Putting Money in Their 401(k)” by sharing perspectives on whether the 401(k) plan is in jeopardy – and what new opposition to auto-enrollment really means.

Danford explains that while the Bloomberg article titled paints an already bleak picture, some members of Congress have also voted to lower plan participation. “Bowing to Wall Street, they seek to end auto-enrollment, one powerful tool in the 401(k) plan rulebook. Brokerage firms sometimes complain that auto-enrollment creates unfair competition to products they sell,” says Danford.

Why the “dark” picture now?
The Ben Steverman article cites W-2 tax records gathered by U.S. Census workers to provide surprising numbers about how many Americans are taking part in their company sponsored 401(k) investment plans. It was once thought that 40 percent or more of private sector employers offered retirement plans such as the 401(k). However, the new survey shows that only 14 percent of all employers offer a 401(k).

Echoing other experts, Danford says that the original idea behind 401(k) plans is sound: create a workplace plan where employees can save toward retirement on a tax-advantaged basis. “Yet, this type of plan has always faced a challenge because some workers perceive that it’s not worth the effort. Money is tied up for a long time and the types of investments offered can seem daunting to novice savers. Plus, a lot of low-wage workers aren’t willing to give up incremental dollars to a long-term retirement plan, even if it includes a free matching contribution as most plans do,” says Danford. Additionally, many employees are not familiar with long-term investing, and choosing between several investment options can be frightening. Coupled with complex withdrawal rules, many employees choose not to participate.

In recent years, high plan costs have rightfully earned scrutiny by both regulators and the media, and even the largest plans face considerable administrative and compliance issues. Because 401(k) plans feature transactions every pay period for every employee, plus an array of investment options, it is not an easy plan to offer or administer.

Auto-enrollment: Still a solution?
One popular solution has been “auto-enrollment.” In certain states, employers are allowed to automatically include all new hires in the 401(k) plan unless they opt out. Under this scheme, default contribution levels and investment options dramatically increase savings for employees. Auto-enrollment bypasses the usual issues that deter participation by employees. Of course, any employee may opt out, but most don’t.

While the 401(k) is not without some basic challenges, Danford says recent talk toward opposing auto-enrollment is “another example of good policy being hijacked for bad reasons.”

“With tax-deductible contributions, tax-deferred growth, growth-oriented investments, and a free employer match, most competent advisors recommend 401(k) participation as a bedrock foundation of family retirement planning. To block auto-enrollment so brokerage firms have a larger market is ridiculous,” adds Danford. “Auto-enrollment is a 401(k) enhancement that helps Americans prepare for retirement in a productive, mostly-painless manner. The idea of stopping it for the benefit of brokers and advisors is ridiculous. It’s hard to imagine any unbiased politician supporting this change.”

About Dan Danford and Family Investment Center:
Dan Danford serves as Founder/CEO of Family Investment Center, a full-service, commission-free investment advisory firm. Based in St. Joseph, MO, Family Investment Center also serves clients in the Kansas City Northland area and across the country.

Danford holds an MBA and in 2012, he was featured in the book “America’s Top Financial Advisors.” A 2009 Wall Street Journal article outlined Danford’s unique birthday messages to clients, complete with a $2 bill inside the envelope. In 2009, Danford was also quoted on “ABC News” for his insight into how parents can protect funds for their children’s college education. He is a CFP® and was listed as one of the 150 Best Financial Advisors for Doctors in 2008 and 2009 by Medical Economics magazine. A 2006 article in The New York Times quoted Danford’s insights on working with a financial advisor. In 2014, Danford was featured in an article exploring solutions to math anxiety in the Voices section of the Wall Street Journal.

Danford is author of the recently-published book “Stuck in The Middle: The Mistakes that Jeopardize Your Financial Success and How to Fix Them.” The book asks the question “What if your middle class background is holding you back from the financial success you want?” Danford answers the question by explaining that many middle class money beliefs are just plain wrong, and he explains why in simple terms.

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Family Investment Center
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