What To Do If Your 401K Plan Sucks
Not all 401K plans are created equal. Some are okay or even pretty good while others are downright terrible. Two years ago mine was one of the worst. I’m talking about a very limited selection of awful funds with expensive fees. Everything was “A Share” (fund manager gets rich and you get screwed) crap from Black Rock or Goldman Sachs.
How To Know If Your 401K Plan Sucks
Most people have never looked at their 401K. They almost view it like taxes. It is just something that comes out of their paycheck and gets put into “the 401K”. Most folks I talk to have no idea where the money is going. People like this who are ignorant make for fantastic customers. “Here is my money please invest it intelligently but don’t worry I will never check on you or question you.”
If you want to know if your 401K plan sucks the easiest thing is to get setup with Personal Capital (promo link gets you $20 if you link an investment account) and use their “Retirement Fee Analyzer”. After linking my 401K account I saw how terrible my funds were. My expense ratios ranged from 1.12% to 1.53%. Anything over 1% is off the charts bad in my opinion. Really, fees over 0.5% should be addressed.
If you don’t want to setup a Personal Capital Account you can look up the funds individually on Morning Star. Just type in the five or three-letter symbol for your fund into the “quote” field and you will get the fund information and a Morning Star rating.
The only place you should not go is to your fund manager. As I’ve written about before, people who need your money to get rich sometimes aren’t the best folks to get advice from. I started with our fund manager asking about adding some low-cost index funds and he sent me back a full page dissertation about how I don’t understand the investment strategy while still avoiding the question.
Ok My 401K Plan Sucks, Now What
When I was just starting with my company I just let it go that our fund options were terrible. We focused on maxing out Theresa’s 401k and both of our IRAs. I was only contributing enough to get the match in mine. However, the next year we were in a position to max out both of our 401K’s.
I decided that if I was going to be contributing 18,000 bucks a year into a plan I was going to attempt to improve my situation. So I took action. I put together a presentation, sent it to HR, the President, and the VP then requested a meeting with them. In the presentation, I didn’t focus on myself but I instead focused on them and the company.
I spent a little time talking about the importance of managing fees. Threw in some quotes from Warren Buffet along the way. I did a direct comparison of a few of our large-cap funds vs a Vanguard Index Fund. Showed the ratings of both from Morning Star, Zach’s and US News. All that was great but the slide that brought it home was the screen shot below. They could realistically save our younger employees a million dollars! We are talking about being able to retire a decade sooner if they make a change.
Simple Fee Comparison Done For Free at 401Kfee.com
I closed by getting a commitment from them. Me: “So we are all in agreement, there is no reason not to make a change a here?” “Who is the best person to have work on this?” Felt strange talking to the president and VP like my employees but I didn’t want to leave anything open.
I was pretty nervous about sending this out and having this conversation but I had no reason to be. What I was proposing was a way to put more money in everyone’s pocket. They were extremely appreciative of what I had put together. I was told that no one had really looked at the 401k in 15 years when the company was only a few employees.
The Waiting Game
So our VP was personally working on getting us a better 401K. I had offered to help but was told he would take care of it and update me as they go. The process took about 9 months but I was told it went something like this.
- Hey, Mass Mutual (old provider) our 401K Plan Sucks. Can we get some better fund options and drop some fees? No, you can’t, it is very expensive to put gas in my yacht.
- Hey Vanguard/Fidelity, can we setup a 401K through you guys? You can but if there is under 20 million in assets you start getting charged back some of those fees you were trying to escape.
- Hey Ascensus, can you help us out here. Absolutely.
I had never heard of Ascensus (anybody?) but they seem good so far (only one month with them). They are offering us a variety of index funds with fees around 0.05%. A large cap, mid cap, bond and an international. Some other standard funds and target date stuff too but I’m not really even looking at that.
Moral of The Story
If something sucks in your life, take action and try to change it. It might be that it is out of your circle of control and won’t change but at least you tried. However, the odds are you will surprise yourself at what a little action on your part can do. When it comes to improving your 401K just remember what you are asking for is something to give everyone more money. I assure you the managers of your company will be open to hearing about this.
Does your 401K plan suck? Have you ever had one that did? What did you do about it? Anyone ever heard of Ascensus?