Thursday, June 07, 2007

Alternative 401(k) Plan Structures

Zvi Bodie has made a number of concrete recommendations to improve the structure of Defined Contribution Plans:

"First, to enable participants in employer-sponsored 401k-type plans to hedge minimum levels of retirement income, employers should offer inflation-protected annuities in the plan.

Second, advisors should explicitly take account of the individual's willingness to postpone retirement in suggesting an optimal asset allocation. The greater one's willingness to continue working past the expected retirement date, the greater the proportion of one's assets should be invested in stocks.

Third, sponsors of self-directed investment plans can enhance the risk-reward opportunities available to investors by offering option like securities or contracts as an additional asset class. These assets can provide a means of leveraging participation in stock market gains while protecting one's minimum standard of living."

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