Hughes: One of the things that's very important to mutual fund investors is retirement planning, and your book does also talk about retirement planning. Can you talk about the state of retirement planning today and what you see for the future?
Pozen: Well I think the good news is we have a lot more people involved with 401(k)s and defined contribution plans. I think it was pretty much the rule 10 years ago, but now definitely the rule is, there are no more define benefit plans coming into existence, so people are going to have to learn to live with 401(k)s.
But I think at one point employers thought, "well, we'll just offer as many alternatives as possible," and I think the result was that lot of people just felt overwhelmed.
Now, we see more and more "one fund solutions"--meaning that if somebody is in a plan, they can just do ... whether it's a balanced fund or a target timeline fund or something, and that will serve them rather than they are trying to make a decision over a large range of funds.
Another thing that changed with the Pension Act in 2006 is, we now allow people to go to an opt-out rather than an opt-in. And this has been a significant change because there are lots of people who said they wanted to invest but somehow they just didn't get around to retirement investing.
Here under the opt-out system you're automatically enrolled, some money is taken out every month, unless you opt-out. Now, it may seem like a small thing; you could fill out the paper work to opt-out versus fill out the paper work to opt-in. But apparently people don't like to do that paperwork. So it's a huge difference.
I think the thing going forward that's the most important is a proposal which I am strongly supportive of called the automatic IRA. We still have roughly half of all workers in the U.S.--and I'm talking 75 million people--who do not have a retirement plan of any sort at work, and those people are in theory eligible to go and start an IRA at a financial institution, but very few of them get around to doing this.
The automatic IRA would say that for most employers above a certain amount--we probably wouldn't have employers who only had 10 employees--but everyone else, all they have to do every quarter is hook up to a financial institution, hook their payroll up, and then deduct this amount every quarter, unless, of course, the employee decided to opt-out. And the virtue of this is that all these places, which now don't have a retirement plan, would essentially be offering one.
It's important to recognize that under this proposal the employer would not have to make a contribution, and the employer would not be under the same elaborate legal obligations that employers are now. Here the employer is only required to hook up his or her payroll to the financial institution, and the financial institution then takes on most of the responsibility.
So, if we had 75 million people now who have no retirement plan at work and through this, say, half of them were to actually get involved with retirement planning and retirement contribution, it would be a big change. It would be great for them and excellent for the mutual fund industry.
So, I think that's probably the single biggest vehicle for increasing retirement savings, increasing savings in the U.S. and also, getting people closer to where they want to be when they retire.
Hughes: That's important.
Hughes: Well, thank you so much Bob for being with us.
Pozen: Great, glad to be with you Bridget.