Daniel Hemel on the 401(k)'s Midlife Crisis

401(k)s Are Failing; Here's What We Need Instead, Professor Says

You write also that the 401(k) is inefficient. “In particular… high administrative and management fees are eating up too much of Americans’ nest eggs.” How much are employees paying in fees?

We cite a [2016] study that says the average fee is 97 basis points. There’s no reason why people should be paying close to 100 basis points.

What could be done to lower fees?

That’s the most controversial part of our op-ed. We thought the most obvious solution was for members of Congress to look at their own retirement plan — the Thrift Savings Plan — which has fees of 3 basis points. So in the op-ed, we suggested it as a public option.

The TSP certainly has lower fees. Why else did you suggest it?

We think it’s a politically attainable approach that would make the world a better place.

Can employees transfer their TSP when they leave government?

Yes, you can roll your Thrift Savings Plan account into something else. I was a federal employee for three years [law clerk]. But I have no desire to roll over my TSP account.

Why not?

Because I think: Wow! A 3 basis-point retirement savings account that allows me to invest in diversified index funds. Why would I want to take my money out of that before I’m 70-1/2?

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Tax policy