Wall Street Wants to Change the Rules for Your 401(k). It Could Put Your Retirement at Risk.

Financial firms want a bigger piece of the $10 trillion in America’s 401(k) plans, and the Trump administration is planning a regulatory rollback to encourage  less-regulated — and often riskier — investments.

By Paul Kiel, Propublica

Most Americans don’t look to their 401(k) plans for excitement or experimentation, instead relying on the promise that steady saving and sober planning will guarantee security in their golden years. But the Trump administration wants to transform the well-worn patterns of retirement investing.

To do so, it is moving to weaken the main protection workers have over their retirement money. The man in charge of the regulatory rollback is an industry insider whose former clients are among the large companies likely to benefit from his plan.

Since taking office last year, President Donald Trump has loudly called for plans to include less-regulated — and often risky — investments like private equity and cryptocurrency. To achieve that goal, the administration is softening one of the strongest legal protections American workers have: the right to hold an employer accountable when retirement savings are mishandled. The change is designed to give employers cover if their workers’ 401(k)s are deflated by expensive, opaque or unproven investments.

“What they have done is lower the standard for everything,” said Ali Khawar, a former senior official at the Department of Labor, which is charged with enforcing the federal law that governs retirement savings.

Backing this push are Wall Street firms, which want a bigger piece of the $10 trillion in America’s 401(k) plans, and America’s largest employers, who want to avoid class-action lawsuits from their employees. They have a powerful ally in Trump’s pick to lead the effort at the Department of Labor: Daniel Aronowitz, who previously ran a firm that helped large companies protect themselves against worker lawsuits. Now Aronowitz is the one driving changes to the rules those same companies play by.

When the 401(k) replaced pensions as the main way Americans fund their retirement, the investment risk shifted from employers to employees. Instead of the promise of a monthly check, the 401(k) participant gets a tax-sheltered account, usually with an employer matching their contributions, but with no guarantees of how that nest egg will grow. Traces of the old system remain, however. Employers are responsible for overseeing the company’s plan. They choose all the financial service providers and have the final say on what investment options are available to employees. But it’s typically workers who pay for those services out of their 401(k) savings. And it’s workers who suffer from diminished savings if the plan has poor options.

There are plenty of pitfalls for 401(k) savers. The “recordkeepers” that administer 401(k)s may attempt to steer workers to their own in-house funds, whether they are the best options or not. They may sell advisory services of questionable value. And then there are the investment fees, which are the main cost to participants. These are charged as a percentage of each investment. Roughly, a 1% fee for a $10,000 investment would result in a $100 yearly charge. Recordkeepers — companies like Fidelity, Principal, Vanguard and Empower —  and other service providers often receive a cut of these fees. This means that they have the incentive to recommend more-expensive options.

If employers are lax in their oversight, workers might find themselves overpaying to invest in funds that underperform. Even modest differences in fees or performance can, when compounded over time, make a huge difference in how much someone is able to save for retirement, potentially tens of thousands of dollars at the end of someone’s career. By the Labor Department’s own math, 1% in additional fees can shrink someone’s nest egg at retirement by 28%.

When overseeing retirement accounts, employers have a fiduciary duty to make prudent decisions and put their workers’ interests first. If they allow financial firms to fleece plan participants, they can be held responsible under the Employee Retirement Income Security Act of 1974, a pension-era law that now governs 401(k)s.