05/03/2010 05:12 am ET Updated Dec 06, 2017

Where the Next 401(k) Will Come From

Robert Reynolds, CEO of Putnam Investments, wants to reform the U.S. retirement savings system, but there's plenty of reason why he shouldn't really want to. The man made his fortune peddling 401(k)s, first as the founder of Fidelity's 401(k) business, and since 2008 as the top guy at Putnam, which has some $22 billion in 401(k) assets -- the 14th most in the industry. But that's exactly why, if our retirement system is ever going to evolve beyond the cave man stage to something fair and effective and adequate, it's going to be because of people like him.

It's not as if no one else has noticed our retirement saving system could use an overhaul. Problem is, a lot of those other advocates are professional political do-gooders, easily dismissed by Wall Street and the 401(k) industry. Look at last fall's Time Magazine cover story, to date the biggest media broadside at 401(k)s: Time's sources hail overwhelmingly from the blue side of the aisle: Dean Baker, The Center for American Progress, Representative George Miller (D - CA) and Theresa Ghilarducci of the New School.

I've explained my position on 401(k) reform in this space before. It has nothing to do with politics, and everything to do with a single number--$78,000-which was the average sum that people on the verge of retirement had in all their retirement plans in 2007, according to the Federal Reserve's most recent survey. In other words, even before the crash, people were ludicrously underfunded for life after work. To my mind, that settles the question of whether the 401(k)-based system is working. It's not even close.

That's where Reynolds comes in. He's from the industry, not a liberal think tank. And he's way ahead of his peers on evolving the 401(k), making speeches in Washington and industry forums about what he thinks has to happen. That includes two imperatives:
  • Make 'em save. The 401(k) lobby seems to believe that all would be fine if employees would just learn the basics of investing. But clearly they're not going to. "I've been in the 401(k) business since the beginning, and over that time we spent millions on employee education," Reynolds said to me in an interview a few weeks ago. "Whatever we did, we could never, as an industry, get more than two-thirds of employees to sign up to save." Since 2006, employers have had the option simply signing employees up for the 401(k) automatically and forcing them to save more each year-both techniques, not surprisingly, are a lot more effective at getting people to save than "educating" them into it. Reynolds thinks Washington and the industry should stop fooling around regarding automatic enrollment and escalation, as they're called. "Make them mandatory," he says.
  • Push annuities into the mainstream. Everyone acknowledges that the goal of retirement savings is to replace the salary you no longer receive, not "The Number" that ING and others fixate on. Annuities can guarantee your income over a lifetime, but they're tough to buy because they're expensive and too dependent on the financial health of a single insurance company sponsor. Reynolds" plans to fix annuities are multi-faceted, but they essentially involve creating a national insurance charter, protecting members by a kind of FDIC that would make annuities as secure as bank savings accounts. He'd then create tax incentives that would strongly encourage retirees to put a chunk of their money into them. "If I was 65 and facing maybe 30 years of retirement, I'd like to be sure that half my money was safe from a market crash and that it wouldn't run out as long as I live." he says. Hard to argue.
The point of this post is not to canonize Reynolds (the picture above notwithstanding). He's running a business, which happens to be number 14 in its category. And when you're number 14, it's good to have a gimmick that separates you from the pack. If the gimmick is to adopt a high-minded policy stance, well, your PR director won't argue with you.

But nobody's motives are pure in this world. And if 401(k) reform is going to happen, which it had better do, it's not going to come solely from liberal think tanks or from the Obama Administration's retirement skunk works. Or from bloggers like me. It's also got to come from insiders like Reynolds. I wish there were more like him.

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