Objective information about financial planning, investments, and retirement plans

Comments

  1. Good post Roger! It always amazes me to speak with people that work at companies that offer horrible plans. I think at times it can come down to the company not valuing their employees or ignorance on their part in regards to what a good plan looks like. I would agree though that you should look at other options and at the very least get the full match in order to take advantage of the free money.

    • Roger Wohlner says:

      Thanks John. Over the years the wide range of quality among 401(k) plans has never ceased to amaze me. I’d like to give plan sponsors the benefit of the doubt and start with the assumption that they generally want to provide the best retirement savings vehicle that they can but don’t always know how to go about doing this.

  2. We have been there. The last 401K my husband had didn’t offer many low cost diversified index funds. We settled on a Mid Cap Index and a cash alternative. I’m happy to have gotten out of that plan and rolled the proceeds into an IRA.

    • Roger Wohlner says:

      Sadly there are a lot of bad 401(k) plans out there Barb, glad you were able to move the money to an IRA eventually.

  3. Roger, As one who has actively been in the 401(k) business since the 1980′s I was interested in reading your perspective on the 401(k) industry and specifically the platform providers. While there are many things I do not like the federal government mandating, I’m totally onboard and fully endorse the advent of regulations 408(b)(2) and 404(a)(5), as long overdue.
    Having worked in the “open architecture” arena, as well as insurance company group annuity contracts I think your slam on the two insurance companies you mentioned in your piece does a disservice to those companies. From my perspective the two “worst actors” in the 401(k) industry today are the wirehouses and payroll service companies (which you did reference). When it comes to non-disclosure of total fees, wirehouses and payroll services are blatant. Hopefully these regulations will incentivize these organizations to do the right thing going forward.
    Over the years I have found CEO’s and CFO’s who will make decisions as to their 401(k) provider based upon which wirehouse handles their personal portfolios, regardless of cost or performance. I had another situation where a non-profit moved their plan to a firm who’s president sat on the pension committee. When I politely pointed out the obvious conflict of interest and the fiduciary issues surrounding this move, the other committee members made up of CPA’s and attorneys simply did not care.
    The bottom line in all of this is that nearly 75% of all 401(k) plans today are being handled by advisors who have only one or two plans on the books which in my opinion can lead to higher cost. In addition, as I cited above you have decision makers making decisions many times based upon issues totally unrelated to cost or performance.
    More government interference in our lives, is not the answer. The answer lies with 401(k) providers doing the right thing, which I believe they will when given the opportunity and more importantly 401(k) participants taking an active interest in not only understanding their plan, but most importantly the total cost for the plan and who (plan sponsor / participant) pays what.

    • Roger Wohlner says:

      Scott thanks for your comment. I gather you were referring to the mention of Principal and John Hancock in the post entitled 4 Signs of a Lousy 401(k) Plan vs. this post. In any event my comment was not so much a slam on these or any other companies but rather a slam on plans that are full of the product of company who is also the plan administrator. Note I also mentioned Vanguard and T. Rowe in the next section regarding this issue as well, and these are two fund companies for whom I have the utmost respect. My point was that a plan dominated by a single fund family is rarely a good idea, if that fund family happens to be the same group administering the plan it is an even worse situation and may be a conflict of interest.

      I couldn’t agree more with your comments about wirehouses and payroll services offering plans, and especially about execs going with the brokerage firm who handles their personal investing.

  4. Ed Mills says:

    As a teacher, I do not have access to lousy 401k plans. Instead, I get to choose from fee-bloated 403b and 457 plans. I used to complain about it, but that did no good. So, I decided to make lemonade out of the lemon grove by fully funding both my 403b and 457 plans (my wife did the same). We parked our money in the short-term fixed account and maxed out our accounts for three years straight. We saved a lot of money in our “horrible” retirement accounts, roughly $220K. Then, we did the logical thing and quit our jobs in order to be able to roll our money over to Vanguard. Quitting is often needed to roll 403b money out of fee-bloated accounts.

    • Roger Wohlner says:

      Ed thanks for your comment. Boy I agree with you, some of the high-fee, low investment quality plans offered to teachers are just pathetic. Sound like you are making the best of a bad situation, kudos to the two of you.

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