‘Pooled’ 401(k) Plans Back From The Dead

A 401(k) plan that was all the rage in the 80s has reared its head once more. This retirement savings option — resurrected from the days when the term “Corporate America” didn’t cause villagers to grab pitchforks and torches — is being touted as a viable solution once more.

They’re called “pooled” 401(k) plans. Just when you thought you knew everything about investing, right?

According to Market Watch, pooled 401(k) plans “take a lot of pressure off small-business owners and their employees.” The premise is that instead of the 401(k) we’re all used to navigating, which requires that employers and employees wade into the shark-infested waters of the stock market without a little thing called “years of expertise with investing,” contributions are “pooled” into a single account that is overseen by an experienced financial adviser.

What a concept, eh? Having someone who actually knows something about the near-occult complexity of modern investing guiding the process? You already know the alternative: you staring at a mind-numbing list of mutual funds every time you change jobs, or whenever your company’s plan manager delivers that boring annual PowerPoint and suggests that you *GASP* consider rebalancing your fund selections!

Why haven’t you heard about pooled 401(k) plans, you ask? That’s a good question, because they’ve been an option since Congress gave its blessing to 401(k)s in 1978. In fact, there are some companies that have been offering pooled plans for some time now, creating the rough equivalent of that most endangered breed of retirement vehicles: the pension.

So why did pooled 401(k) plans slip off our retirement radars? Maybe a bit of greed was involved. The bullish ’90s ushered in the era of the “armchair” stock trader, when we all convinced ourselves that we were the Gordon Gekkos of our fiduciary domains. Ah, the dangerous excitement of chasing the green dragon with dollar signs for scales!

But the reality is that too many of us did what amateurs do when things get tough and markets become bearish: we got scared and started buying and selling haphazardly, usually at the wrong times.

Ted Benna, the man called “the father of the 401(k),” has himself lamented that the program he helped develop has become bloated with too many confusing choices. He has also stated that he never intended for 401(k) plans to replace pensions.

Have you ever heard of pooled 401(k) plans? Do you think you would participate in such a plan, if given the option by an employer?

[Image via Bloomberg Businessweek]

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