Bob’s Journal 7/10

Most 401(k) Plans Offer Underperforming Funds

Most corporate 401(k) plans offer too many investment funds that charge high fees and underperform their peers, according to a study by Abernathy Daley 401(k) Consultants, a firm that administers 401(k) plans.

The study examined the funds owned by 58,300 U.S. corporate plans. More than 99% of the plans offered at least one fund that charged higher fees and delivered inferior performance than publicly available alternatives. More than 85% of plans had at least five funds with those characteristics.

The study also concluded that more than 70% of corporate plans had funds that were inferior to at least 10 comparable funds, based on performance and fees.

The study attributed the situation to several factors.

Some plan administrators and fiduciaries suffer from complacency and inertia. They don’t have annual reviews of the plan’s offerings and compare them to alternatives.

In addition, plan administration companies and recordkeepers often offer revenue-sharing arrangements and fees to the businesses sponsoring the plans. Plan advisors also can offer or benefit from such arrangements. The arrangements create incentives to keep inferior funds in the plans.

When evaluating a 401(k) plan in addition to evaluating the individual funds, ask if there are revenue-sharing arrangements between the plan sponsors and firms that provide services to the plan. Such an arrangement often means the interests of the sponsor or administrator aren’t aligned with the interests of the plan participants.

Also, examine the expense ratios of the funds offered in the plan and compare them to the expense ratios of comparable exchange-traded-funds (ETFs) and mutual funds.

Tariffs Could Increase Medicare, Other Insurance Premiums

Higher medical costs and insurance premiums are one of the unintended, unexpected effects of the new trade and tariff policies.

Medical insurance carriers have to notify states when they plan to raise premiums. A number of medical insurers have started to notify states that they plan to charge higher premiums for individual and small group policies in 2026.

Tariffs are one reason for the increases. Insurers expect tariffs to increase the cost of prescription drugs, medical devices and other medical products and services, according to the Kaiser Family Foundation. Prescription drug price increases appear to be the biggest tariff-related concern of the insurers.

The insurers say tariffs alone account for planned premium increases of 2.2% to 3.6%.

Other factors also are expected to push premiums higher, including higher demand for medical services and cost increases due to factors other than tariffs. Proposed 2026 premium increases for private health insurance policies are 20% and higher, according to Axios.com.

Medicare premiums are based on the estimate of next year’s cost of the program by the Centers for Medicare and Medicaid Services (CMS). The premiums are expected to rise in 2026 because of the same factors that pushed up costs for private insurers. But CMS hasn’t indicated how much Medicare premiums might increase in 2026 and won’t set the final premiums until the last quarter of 2025.

Medicare Cuts Home Health Care Payments

Home health care agencies would receive substantially less money in Medicare reimbursements in 2026 under payment rates recently proposed by the Centers for Medicare and Medicaid Services (CMS).

On June 30, CMS proposed a 6.4% reduction in Medicare payments to the home health agencies. The total payment reduction is estimated to be $1.135 billion in 2026.

In explaining the reduction, CMS said a 4.059% cut is the result of two factors.

One factor is implementation of a program called the Patient-Driven Groupings Model. This program bases payments on patient characteristics and care needs instead of the number of therapy services provided.

Another factor is switching to a 30-day unit of payment. That 4.059% reduction is a permanent change.

The rest of the total 2026 reduction are considered temporary and are to comply with a congressional mandate to “recoup retrospective overpayments” from 2020-2024. That adjustment will be reevaluated annually.

Some in the home health care industry described the reduction as the largest cut ever. At this point, the reduction is a proposal, so CMS could change it before 2026. It’s also possible Congress will step in and modify the rate change.

The proposed rate cut caused stock prices of companies with significant revenue from in-home services to fall.

Firms providing in-home services under Medicare already are having trouble recruiting enough staff, partly because of the recent changes in immigration policies. That factor, coupled with the rate reduction, could make it harder for Medicare beneficiaries to obtain quality services that allow them to age in place.

The Data

The Small Business Optimism Index from the National Federation of Independent Businesses dropped a little in June to 98.6 from 98.8 in May.

The ISM Services Index rose to 50.8 in June from 49.9 in May.

The PMI Services Index was 52.9 in June, down from 53.7 at the end of May and 53.1 in mid-June.

The PMI Composite Index hasn’t changed much. It was 52.9 at the end of June, 53.0 at the end of May and 52.8 in mid-June.

Consumer credit outstanding increased by 1.2% in May after rising 4.0% in April.

There was a 3.2% decline in revolving credit (which is mostly credit card balances) and a 2.8% increase in nonrevolving credit (which is mostly vehicle and student loans).

The number of jobs in the United States increased by 147,000 in June after rising by 144,000 in May, according to last week’s Employment Situation reports.

Average hourly earnings increased 0.2% in June following a 0.4% rise in May. The 12-month increase in average hourly earnings was 3.7% through June and 3.8% through May.

New unemployment claims declined by 4,000 to 233,000 in the latest week.

Continuing claims, which lag a week behind new claims, were unchanged at 1.964 million.

The Markets

The S&P 500 rose 0.44% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 0.56%. The Russell 2000 increased 1.49%. The All-Country World Index (excluding U.S. stocks) fell 0.05%. Emerging market equities advanced 0.08%.

Long-term treasuries lost 2.39% for the week. Investment-grade bonds fell 1.13%. Treasury Inflation-Protected Securities (TIPS) dropped 0.43%. High-yield bonds decreased 0.22%.

In the currency sector, the U.S. dollar gained 0.82%.

Energy-based commodities increased 1.76%. Broader-based commodities rose 1.20%. Gold declined 1.05%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.