Retirement Plans Should Protect Employees From Retirement-Plan Experts

(RealClear Markets) - Retirement plan “providers who have taken on the legal duty of a fiduciary should have an analogous duty, to learn whether participants are misusing their menu.” Those are the words of Ian Ayres and Quinn Curtis, law professors at Yale and the University of Virginia. They’re also authors of Retirement Guardrails: How Proactive Fiduciaries Can Improve Plan Outcomes.

That Ayres and Curtis are retirement experts is not in question, but their conceit about how individuals allocate retirement funds is. Missed by the professors is that while they may know more than any individual employee participant in the retirement plans they study, those same employee participants collectively know exponentially more about retirement and their specific needs than Ayres and Curtis do.

In their desire to place guardrails in front of employee participants, Ayres and Curtis are ignoring that the participants are the market. And while certain participants might allocate their funds in ways that Ayres and Curtis would recommend against, much more perilous would be Ayres, Curtis, or a collection of experts like them substituting their limited knowledge for the broad knowledge of employee investors in various company retirement plans.

Ayres and Curtis report that in one retirement plan they studied, half of the participants directed 5% of their investable assets to a fund that tracked the price of gold. So far, so good? Figure that Goldman Sachs has long recommended a similar allocation to inflation hedges like gold.

What makes Ayres and Curtis uneasy is that seemingly with gold there’s an emotional quality to the allocation process. They deem it “worrisome” that of those who placed money with the gold-tracking fund, 35% had over half of their money in it and 11% had all of their money in it. Dangerous stuff, at least in theory.

Of course, what Ayres and Curtis seemingly don’t know is what other investment accounts the plan participants have separate from their employee retirement account. This information might be useful for perhaps revealing broader diversification than their retirement account would indicate.

Ayres and Curtis are plainly of the view that left to their own devices, the hoi polloi who put their retirement funds to work will do so emotionally (less diversification), as opposed to prudently (as defined by the professors) allocating their funds across asset classes, including those that gradually lean toward short-duration fixed income instruments over equities. Good thinking? Not so fast.

Consider something as vanilla and “certain” as the 10-year Treasury. A flight to safety into 10-years over the last ten years would have first deprived investors of much better returns in the stock market, and then in recent years a pivot toward Treasury safety would have resulted in very real market losses versus the theoretically less certain stock market.

Looking at gold itself, any fund that tracked the yellow metal would have crushed those diversified into equities and fixed income in the 1970s, and a similar outcome would have revealed itself in the 2000s. Acknowledging once again that free people are the market, it’s not unreasonable to at least speculate that those investing as though the dollar faces future peril have good reason for doing so.

Ayres and Curtin’s lightly veiled disdain isn’t just directed at individual choice, they also allude to something amiss with retirement plan providers. In their words, the retirement plans they studied “made it too easy for employees to invest too narrowly and pay too much in fees.” Except that there are thousands of fund options out there, and countless retirement plans too. Assuming lousy menus, the professors can be assured that bad fund selection exists as a huge opportunity for the plans that DO choose well.

The main thing, however, is that force isn’t required despite the protests of Ayres and Curtin. As evidenced by the mass migration of individual investors into low-cost index funds over time, the people who comprise the markets broadly get it. Since they do, it’s better that they be left alone to plan their retirements rather than being told what to do by professors no more capable of beating the markets than actual fund managers with actual money at risk.

John Tamny is editor of RealClearMarkets, President of the Parkview Institute, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors ( His latest book is The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution.

By John Tamny
September 07, 2023


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