401(k)s - fees and returns

This month the Center for Retirement Research at Boston College published two briefs on 401(k) plans, both with an eye to increasing retirement income.

The first brief finds 401(k) fees "so complex, confusing, or obscure that many sponsors and participants report that they do not understand either their magnitude or their consequences." The report raises three design issues: (1) charging a percent of assets, which often varies by type of asset, does not allow participants to weigh benefits against costs of their plan's services; (2) a constant expense ratio transfers wealth from higher balances to lower ones because twice the assets do not incur twice the management cost but participants pay twice the fee; and (3) 401-(k) funds in asset pools with other investors "can decouple fees and costs in a way that needlessly reduces" the returns on those 401(k)s.

The second brief discusses guaranteed returns, particularly in light of the current financial crisis that has "decimated" retirement accounts. It considers the cost and effect of guarantees in retrospect, specifically smoothing replacement rates and avoiding sharp drops, and prospective guarantees. The brief concludes that "the feasibility of providing attractive guarantees for returns in a new tier of savings accounts depends on whether applying private insurers' risk preferences to the government is appropriate."

The Structure of 401(k) Fees, Feb. 2009
      Report (pdf, 8pp/148kB)
      Summary

What Does It Cost To Guarantee Returns? Feb. 2009
      Report (pdf, 14pp/276kB)
      Summary

E-books

In an article recently published in the International Journal of the Book, John Warren of the RAND Corporation examines the pros and cons of e-books with three examples:

• I Want You! The Evolution of the All-Volunteer Force (RAND, 2006) a history e-text that includes 1,700 primary-source documents linked from footnotes


• Pinzas de Metal (Metal Tweezers), 2003, by Tina Escaja, a hypertext novel that "presents the reader with a menu of choices in character, place, and object—the reader uses a magnifying glass to select one choice of each set and a brief text ensues, overlaying a jigsaw puzzle....In Escaja’s work, the reader becomes an active participant in the story."


• Digital textbooks. The authors cites Yale Books Unbound and Rice University's Connexions as examples of innovative collaboration in scholarly works.

Innovation and the Future of e-Books (pdf, 15pp/556kB)

Keeping competitive

From the Brookings Global Economy and Development Program comes a paper on rebuilding American competitiveness, proposing that "policymakers need to build a foundation for sustainable, long-term prosperity that can drive our economy once we move beyond the present crisis."

The paper's four-part agenda for America's future call for investing in:

• Infrastructure: prioritizing transportation infrastructure, reducing traffic, upgrading freight efficiency, expanding access to broadband, selling the wireless spectrum


• People: building an affordable, flexible health care system, encouraging lifelong learning, providing economic security


• Ideas: providing incentives for innovation, patenting only the best, investing in blue-sky R&D, promoting innovation clusters


• Green transformation: putting a price on emitting greenhouse gases, investing in green R&D, promoting green government decisions

Strengthening American Competitiveness: Regaining Our Competitive Edge - Four Priorities and 20 New Ideas (pdf, 28pp/352kB), Feb. 2009

Recent GAO reports

From the Government Accountability Office (GAO):

FOSTER CARE: State Practices for Assessing Health Needs, Facilitating Service Delivery, and Monitoring Children's Care, GAO-09-26 (pdf, 58pp/944kB), Feb. 6, 2009

State child welfare programs, including foster care, are federally funded by the Administration for Children and Families (ACF), but states are responsible for their foster children's health care, which is often financed by Medicaid. For this study, GAO reviewed policies and practices in 10 states (CA, DE, FL, IL, MA, NY, OK, TX, UT, and WA) of efforts to improve the delivery of health services. It covers state actions (1) to identify health care needs, (2) ensure delivery of appropriate health services, and (3) document and monitor the health care of children in foster care.


TROUBLED ASSET RELIEF PROGRAM: Status of Efforts to Address Transparency and Accountability Issues, GAO-09-296 (pdf, 112pp/2.7MB), Jan. 30, 2009

The Troubled Asset Relief Program (TARP) was authorized by the Emergency Economic Stabilization Act of 2008. Among other information, the report gives the status of $293.7 billion of TARP funds disbursed as of Jan. 23, and a timeline of programs and selected actions under TARP from Oct. 2008 to Jan. 2009. From the Highlights page:

While GAO does not question the need for swift responses in the current economic environment, the lack of a clearly articulated vision has complicated Treasury’s ability to effectively communicate to Congress, the financial markets, and the public on the benefits of TARP and has limited its ability to identify personnel needs

TROUBLED ASSET RELIEF PROGRAM: Status of Efforts to Address Transparency and Accountability Issues, GAO-09-359T (pdf, 13pp/176kB), Feb. 5, 2009

This is testimony by the Acting Comptroller General on the Jan. 30 report.


Update of State and Local Government Fiscal Pressures, GAO-09-320R (pdf, 8pp, 177kB) Jan. 26, 2009

This letter is an update of GAO's testimony of Nov. 19, 2008, covered in an earlier post. GAO has developed a model that simulates fiscal outcomes of state and local governments for several decades into the future. GAO's two findings: (1) Long-term fiscal challenges faced by the the state and local sector are exacerbated by the current recession, and (2) Consideration of state fiscal relief requires attention to targeting and timing of temporary assistance, specifically Medicaid.

Just in ... on education

Facing the Future: Financing Productive Schools is the final report from the Center on Reinventing Public Education on the School Finance Redesign Project, based on a six-year study of America's school finance system. Its four recommendations for a new finance system optimized to promote student learning:

• Drive all funds to schools based on student counts
• Keep linked data about uses of funds and results
• Encourage innovation and experimentation
• Hold schools and districts accountable for student performance and continuous improvement

LB2825 H54 2008
Report (pdf 69pp/1.6MB), Dec. 2008
Summary


Making Charter School Facilities More Affordable: State-driven Policy Approaches is the latest in the Innovations in Education series from the U.S. Dept. of Education (ED). It profiles policies in 8 states (Arizona, California, Colorado, Massachusetts, Michigan, Minnesota, New Mexico, and Texas) and the District of Columbia "that have been developed to help charter schools address various facilities-related challenges." The report offers the following considerations in implementing the models presented:

• Context is key (different circumstances suggest different approaches)
• Policy remedies are evolving and can be interdependent
• The current environment presents questions about the extent to which charter schools should be in the real estate business
• Challenges remain and innovative solutions are needed
• Policy decisions touch on equity and cost-effectiveness

LB1027 U54 (08-1)
Report (pdf, 78pp/585kB), Dec. 2008
Overview