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Outstanding Incompetence or Lack of Integrity



April 24, 2013 – Comments (0)

Board: Macro Economics

Author: yodaorange

Tonight PBS aired the Frontline program entitled: The Retirement Gamble [1]

The bottom line message it delivered was that middle income American’s are not well set for retirement. 401K’s have largely replaced defined benefit retirement plans to the detriment of the worker. That is NOT news to METARites.

A few points:

1. The focus was on workers typically in the $50k to $70k range that had set aside money in 401K programs, since they did not have defined benefits plans. There is nothing wrong or incorrect on focusing on this group.

2. They did NOT mention or discuss the larger demographic of people with lesser incomes that do NOT attempt to save anything meaningful towards retirement. We can argue whether this group is being imprudent or needs 100% of their income, just to survive.

3. The thrust of the program was to blame “Wall Street” for skimming excessive fees off of 401K programs. They interviewed Jack Bogle who pointed out that reducing a 7% annual return by a 2% fee lowered the retirement fund by ~66% over a 50 year period. The show said that Wall Street “took 2/3rd’s of your money.” The numbers are correct.

4. Without quite saying it outright, the show essentially claims that if everyone used index funds, the 401K retirement “problem” would be solved. I would probably agree that 401K balances would be better off with an all index strategy, but I am not convinced that alone would save the system. A little thing like the secular bear market from 2000 through today might be a factor also . . .

All in all, I would not expect METARites to learn anything new from the program. That was one section where Yoda had to reach for the beta blocker. I think Yoda’s blood pressure hit about 350/200 for a minute. 911 was on standby.

At the 38 minute mark in the show they had covered the 66% loss due to 2% fees issue with Jack Bogle. The host, Martin Smith, had this exchange with Christine Marcks, President of Prudential Retirement.

Smith: “The evidence is overwhelming. Year after year, actively managed funds fail to beat index funds. I asked the head of Retirement at Prudential which markets dozens of actively managed funds what she thought about this.”

Marcks: “I have not seen any research that substantiates that.”

Prudential needs to give her some help. She kept a totally straight face when answering the question. At least the Chase VP, smiled and laughed a little when he was asked the same question. Either Ms. Marcks is outstandingly incompetent or lacking in integrity. In either case, it was not a bright moment for her or Prudential. You have to watch the clip to see how dumfounded I was. I am sure you will be also.

Overall, it is NOT important you watch this program. It is NOT a waste of time, but the average METARite will not learn anything new from it IMO.



[1] Frontline: The Retirement Gamble

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