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Rekenthaler Report

Charley Ellis Foresees a 401(k) Crisis

His advice for avoiding "grievous harm."

The Prediction
This past Wednesday, Charley Ellis gave a keynote speech at Morningstar's ETF Conference. Ellis is well-known among institutional investors for his early support of index investing and for authoring perhaps the most famous investment article of the 1970s, "The Loser's Game." His argument that money managers succeed more by avoiding mistakes (including those of cost) than by finding winners was decades ahead of its time.

Let's hope that he is less prescient with 401(k) plans, because he is pessimistic indeed. He opened his presentation, "Falling Short: The Looming Problem with 401(k)s and How to Solve It," by declaring that 401(k)s represent "the most important investment challenge" that the United States has ever faced. The "demographics on this issue are undeniable," yet "millions of Americans have no idea that [the problem] is coming their way."