Initiative on Financial Security | One Dupont Circle, NW | Washington, D.C. 20036 | 202.736.2910 | ifsinfo@aspeninstitute.org| www.aspenifs.org

www.aspenifs.org

The Initiative on Financial 

Security at the Aspen Institute is 

a leading policy program focused 

on bold solutions to help all 

Americans at every stage of life 

to save, invest, and own.

The Initiative on Financial Security at the Aspen Institute (Aspen IFS) appreciates this 

opportunity to comment on the proposed rules for providing investment advice to plan 

participants and beneficiaries under ERISA Section 402(g). Aspen IFS agrees with the 

Department of Labor’s conclusion that “DC plan participants and IRA beneficiaries often 

make costly investment errors.” It does not, however, agree that “quality investment advice” 

is the preferred – or only - solution to this problem. What savers need is not more advice 

but auto-pilot investment options that don’t need advice.

The mission of Aspen IFS is to promote sound public policy that enables all Americans, 

especially low- and moderate-income Americans, to build financial security that lasts a 

lifetime. Aspen IFS believes that one of the significant policy failures in 401(k) plans over 

the last twenty years has been the transfer of investment risk to plan participants who are 

unprepared and often uninterested in assuming this responsibility. The result has been a 

401(k) plan system that is not yet delivering adequate financial assets for a secure retirement. 

Many believe that the best way to improve 401(k) performance is to “fix the people,” that is, 

to educate participants to make better investment decisions or, failing that, to offer them, at 

their own, substantial expense, personal advisors to assist them in making better decisions. 

Aspen IFS recognizes that there are behavioral challenges to turning people into savers and 

savers into investors. It believes, however, that the better, and cheaper, alternative to “fixing 

the people” is “fixing the product”, that is, offering plan participants an investment option 

that mitigates the need for complex decision-making and professional advice yet is capable 

of delivering superior returns at a low cost.

Aspen IFS has developed just such an investment option that is a much less expensive but 

equally effective alternative to the use of investment advisors to enable unsophisticated 

investors to achieve better investment returns without a professional advisor. Our proposal, 

called “Real Savings Plus” (RS+), is a computer-driven model, based upon generally-accepted 

principles of modern finance theory which automatically allocates individual account assets 

to:

•	 Fully guarantee all contributions and matches (if any) against loss due to default 

risk, basis risk or market risk as well as erosion of purchasing power due to inflation.

•	 Provide upside potential through automatic investment of those contributions not 

needed for the guarantee in an index of common stocks.

•	 Minimize the expense ratio of managing the underlying assets to 5 basis points or 

less through the use of just two passively-managed but widely-traded assets, TIPS 

and a low-cost S&P500 index or exchange-traded fund.

Department of Labor: Proposed Rule on Investment A

Comments from Lewis Mandell, Ph.D., Senior Fellow & Pamela Perun, Ph.D., 

Policy Director to The Aspen Institute Initiative on Financial Security

April 29, 2010
2 The Aspen Institute Initiative on F

Initiative on Financial Security | One Dupont Circle, NW | Washington, D.C. 20036 | 202.736.2910 | ifsinfo@aspeninstitute.org| www.aspenifs.org

Aspen IFS recognizes that some plan participants with complex incomes, assets and tax situations could benefit from the 

services of a sophisticated investment advisor and/or a sophisticated computer model. It believes, however, that the majority of 

401(k) plan participants, particularly those with low- and moderate-incomes, would prefer to avoid the front-end and continuing 

expenses of such advice. RS+ provides them instead with an “auto-pilot” investment option – one that is inexpensive, simple, 

safe and fully-transparent and yet provides the upside potential needed to provide a comfortable retirement. Such a welldesigned, automatic investment plan will continue to meet the basic objectives of most workers, without modification, over most 

or all of their working lives. RS+ savers can set their investment contribution and retirement targets just once and never have 

to change them again. 

RS+ guarantees the return of real contributions at retirement, while providing the upside of common equities by investing 

a sufficient proportion of each retirement contribution in Treasury Inflation Protected Securities (TIPS) to guarantee each 

worker the return of his or her contributions, fully adjusted for inflation, when that worker retires. For example, the cost of 

guaranteeing the real return of a $1,000 contribution at retirement in 30 years is the present value of $1,000 for 30 years at the 

real interest rate on 30 years TIPS, recently about 2.2%, which would result in a cost of $520.56. The difference between the 

entire retirement contribution ($1,000) and the amount invested in TIPS ($520.56) would be $479.44 which would be invested 

in a low-cost stock index, such as the S&P 500, to give savers some of the upside potential available through equity investing. 

In design, RS+ resembles a target-date fund but it is important to differentiate RS+ from the target-date funds which disappointed 

many workers in the past two years. First, RS+ produces an automatic, individualized target-date fund for each saver based on 

a selected retirement date. Second, RS+ contains a guarantee that contributions will be returned, adjusted for inflation, at the 

selected retirement date. Aside from the lack of asset-allocation transparency of many target-date funds, a flaw which can easily 

be remedied, target-date funds suffered from levels of market risk that proved to be unacceptable to many workers, particularly 

those approaching retirement age. For workers who are highly risk-averse, either in general or specifically with respect to their 

pool of retirement assets, a principle-guarantee may well be desirable, particularly if it is not expensive. 

RS+ gives savers the benefits of a principle-guarantee for their contributions without default or inflation-risk but it also provides 

them with some potential upside from equity investing. This is particularly important for low- and moderate-income savers who 

need the most help in growing small nest eggs into adequate assets for retirement. These are also the savers who are least likely 

to seek out a professional advisor or to be able to bear the expense of such a service. The following table gives returns expected 

from investing $1,000 annually in RS+ in comparison to a totally secure investment in “R-bonds” which is the Department 

of the Treasury’s proposed label for an all-TIPS investment option. Using Monte Carlo simulations and the parameters given 

below, the table also gives the probability that RS+ will outperform R-bonds. 

•	 The S&P 500 has a historical (nominal) mean return of 9.65 per cent and a standard deviation of 20.52 per cent. 

•	 TIPS have a historical (real) mean return of 2.207 per cent and a standard deviation of .25 per cent. 

•	 Inflation (increases in the US Consumer Price Index) has a historical mean of 3.02 per cent and a standard deviation 

of 3.11 per cent.

The results tell us that, as the result of the upside potential of common stocks, RS+ is likely to result in higher retirement 

accumulations than the R-Bond in all four time periods, offering workers sizeable upside potential in comparison to a totally 

safe instrument while continuing to guarantee invested principal fully. However, it is very clear that the longer the accumulation 

period, the greater the expected difference in accumulation and the greater the probability that RS+ will outperform the R-Bond. 

For example, in 40 years, savers using RS+ will expect to accumulate a nominal value of $523,405, which is more than 4 times as 

much as they would accumulate using R-Bonds. In addition, there is a 98.8 percent probability that they would do better using 

RS+ than R-Bonds, or just a 1.2 percent chance that they would do better using R-Bonds.
Department of Labor: Proposed Rule on Invest

Initiative on Financial Security | One Dupont Circle, NW | Washington, D.C. 20036 | 202.736.2910 | ifsinfo@aspeninstitute.org| www.aspenifs.org

Because of the simplicity of its design, RS+ is low cost. RS+ is composed of two products, TIPS and S&P500 index funds, 

which are already available, highly liquid and nearly costless. For example, the expense ratio for S&P500 exchange traded funds 

offered by i-Shares (symbol IVV) is just 9 basis points and their TIPS ETF (symbol TIP) costs 20 basis points, for an average 

of about 14.5 basis points. It should be noted that TIPS can be bought at Treasury auction without a brokerage fee, potentially 

reducing the total expense ratio of investment management to as little as 4 or 5 basis points, depending largely on number of 

years worked. 

In conclusion, Aspen IFS believes that, while some workers with complex financial situations can benefit from the expertise of 

investment advisors, this is an expensive solution to the wrong problem for most savers and especially for low- and moderateincome savers. A better alternative to “fixing the people” is “fixing the product” by offering savers instead a well-designed, 

auto-pilot, automated investment system such as Real Savings Plus that will guarantee the safety of contributions while providing 

upside potential, all at a minimal cost. More information about Real Savings Plus can be obtained at http://www.aspeninstitute.

org/policy-work/financial-security.

Table 1. Expected Value of Retirement Savings for RS+ and Real R-Bonds

and Probability that RS+ Savings Will Exceed R-Bond Savings 

for Various Savings Periods

 

10 Years 20 Years 30 Years 40 Years

RS+ Retirement 

Accumulation

$14,212 $49,458 $158,905 $523,405

R-Bond Retirement 

Accumulation

$12,915 $33,431 $65,140 $111,708

Probability that RS+ 

will Exceed R-Bond

90.1% 94.1% 97.5% 98.8%
Initiative on Financial Security | One Dupont Circle, NW | Washington, D.C. 20036 | 202.736.2910 | ifsinfo@aspeninstitute.org| www.aspenifs.org

The Initiative on Financial Security at the Aspen Institute is a leading policy program focused on 

bold solutions to help all Americans at every stage of life to save, invest, and own.