Ninety-one percent of employees view their 401(k) plan as one of the most critical savings vehicles on their path to a secure retirement. This statistic, from a recent Bank of America Merrill Lynch survey, comes as no surprise to David George Ball, an early champion of 401(k) plans and former Assistant Secretary of Labor for pension and welfare benefits under President George H. W. Bush.

Ball has written a memoir, "A Marked Heart," published by iUniverse, in which he outlines how, as a senior executive at AMAX Inc. in 1981, he helped launch one of the first 401(k) plans at a large company and how, as Assistant Secretary of Labor, he helped push through legislation that made the adoption of 401(k) plans easier for companies. In fact, Ball recently wrote to President Bush, calling 401(k) plans - the widespread acceptance of which was facilitated by a regulation implemented during his presidency - the most important domestic policy achievement of his administration.

Ball recently sat down with EBN to discuss challenges facing the 401(k) industry today, as well as how a meeting with Martin Luther King Jr. changed his life and put him on the path to helping people achieve financial security.

 

EBN: What communication challenges did you face at AMAX when you undertook that first step in 1981 to amend its thrift plan and make it into a 401(k) plan? Were employees nervous?

Ball: It was very well received. But we need to go back before that. I got caught up in the policy issue surrounding the decline of defined benefit plans and the development of 401(k) plans, and it really all started when I was a student at Yale and Martin Luther King Jr. was my guest for three days. He inspired me to try and help make the world a better place. At first I thought my calling was civil rights, but that dream inspired by Dr. King led me in an unexpected direction. I became interested in helping workers who changed jobs and were unable to take their DB pensions with them [because] they left before they vested in the traditional plan and they lost their benefits.

The amendment to the Internal Revenue Code that added 401(k) actually happened in 1978. In the beginning, nothing really happened. I felt that this was responsive to the needs of workers at AMAX, some of whom complained they lost their DB pensions because they hadn't stayed long enough to vest.

We sold the 401(k) in the beginning as a tax benefit. And that was very popular because people could use the tax savings to participate in the 401(k) plan and not have much in the way of incremental layout of funds. It caught on right away.

I expected other companies to follow us, but I was very surprised. In the beginning, other companies hesitated because 401(k) plans gave workers control over their investments, and some managements were afraid of liability for lawsuits from workers' instructions. I was a member of the Labor Policy Association, and it was very difficult, in the beginning, to persuade other large companies to follow. That problem needed to be addressed by a federal regulation.

 

EBN: How did that regulation relieving fiduciaries from liability for investment losses resulting from plan participants' control over the assets in their accounts come about?

Ball: [401(k) plans] really didn't take off until George H. W. Bush was president and nominated me as Assistant Secretary of Labor. My mission was to get out a roadmap to open up the 401(k) plan and take care of that problem companies had of being afraid of liability. We took care of that; it took a long time because the federal government moves slowly. But in October of 1992, two weeks before George Bush lost the election to Bill Clinton, the regulation was published in the Federal Register under my signature. From then, there was a tremendous boost in the growth of 401(k) plans, which has continued. Today, there are about 70 million workers with 401(k) plans and only about 18 million with old-fashioned DB plans.

 

EBN: You've experienced up and down markets over the course of your career, and some would say we're still coming out of the recession of 2008. What advice would you give to companies today about sponsoring a 401(k) plan in a recovering economy?

Ball: The thing to emphasize to employees is that they are long-term investors. They're not trying to be traders. If it bothers them to see the market go down, they really shouldn't look at the paper [statement] because it's irrelevant. Once they've invested wisely and diversified their assets, they shouldn't mess around with it.

The 401(k) plan was never meant for traders. It's for long-term investors with long horizons. Many people have a 30-year time horizon. ... Over short periods of time [returns] can be distorted by the market, but it's not really relevant. And always keep investing.

 

EBN: What do you make of the recent 408(b)(2) regulations forcing more fee disclosure in 401(k) plans? Is that a positive development? And would you expect participants to be shocked at the fees that they're paying?

Ball: Absolutely [the regulations are a positive development]. Unfortunately one of the things that's happened is that some providers - not all, but some - have imposed fees that are really not in the best interests of the participants in the plan [but rather] in the best interests of the provider who's trying to make money on the back of the plan. And I think this is an excellent provision, a very good idea.

I think they [plan participants] might be annoyed. But I doubt very much that it will change [participant] behavior. After all, the regulations are out there, and this is being dealt with. Even through the Great Recession of 2008 investors, by and large, stayed the course. And this is just a minor thing compared to what happened in 2008.

 

EBN: There also seems to be a push from providers in the industry toward being able to offer annuities within 401(k) plans. What do you make of that trend?

Ball: I don't have any objections to that. It's another form of diversification.

The trouble with annuities is that the provider of the annuity is, in most cases, a for-profit institution. So they need to make a profit off the annuity. So, in effect, the participant is taking a haircut. That's not always the case. There are some not-for-profit providers that do it on a purely economic basis. It's a sound idea as long as you keep an eye on the integrity of the annuity provider.

 

EBN: Who were your mentors over the course of your career and how did they shape your career?

Ball: My greatest mentor was Bill Coleman. Bill Coleman was Secretary of Transportation under President Ford. He was on the board of AMAX, and he was also chairman of the compensation committee. I had to deal with him to implement that 401(k) plan [at AMAX], which he did support on the grounds that this would help our employees help themselves. He was a wonderful supporter to me while I was at AMAX and while I was in the government.

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