Monday, October 08, 2007

Five Reasons to Doubt Your 401k

New Higher Fees!My employer first began offering a 401k plan in 1997. Since then, we've changed plans and administrators twice ... the most recent being last month.

"We've grown tremendously as a company since then, and we have lots more dollars being invested by employees," our HR department told us in the summer. "We're now able to listen to offers from higher-quality 401k providers. We're pleased to announce that we'll be changing plan administrators, and we think you'll find your 401k investment offerings to be much improved."

Our previous plan offered something like 10 funds, all from the American Funds group. Quality-wise, American Funds were okay overall. But they're also a bit too high-fee for my tastes.

However, as they say, "Ya make the best of what ya got."

Our new plan? Well, let's just say that once again I'm singularly unimpressed. We now have 17 funds to choose from, which I suppose is better. But other than that, a few items jump out at me ...

Five Reasons to Doubt Your 401k

1. Index funds? None to be found.
This is my single biggest, throw-my-Swingline-against-the-wall gripe. I'm a big fan of index funds, and — somewhat less so — of low-cost fund families. As such, Vanguard and T. Rowe Price and I get along quite well.

All I've ever really wanted in my 401k — all I've ever really asked for — has been a decent S&P 500 index fund. Or a total-market index fund. I don't think I'm asking too much. But have we ever been offered such?


I can only assume that since there's so little money to be made in expense and management fees on index funds, then the 401k providers we deal with intentionally leave these funds out of our plan.

Index fund expenses tend to be rock-bottom low. And low management fees mean that nobody's (read: no managers') bread gets buttered nearly as heavily as it could be.

Especially when they have what amounts to a captive investing audience.

2. Regarding your plan manager's website: You have to look very, very hard to find your funds' ticker symbols ... if you can find them at all.

I'm a cynic by nature. So when my 401k plan seems to go out of its way to make sure I can't figure out the ticker symbols for any of the funds I'm offered — such ticker symbols would make my life a whole lot easier if I wanted to track their performance on my own, right? — then I get nervous.

I can only assume that such a basic investment-tracking tidbit as a fund's ticker symbol could only be left out on purpose.

3. Regarding your plan manager's website: You have to look very, very hard to find out how many shares of each fund you own at any given time.

Or, as in my case, you just have to wait until you receive your quarterly statement. (Although we haven't gotten one yet, so I'm mostly just hoping on this.)

Again, as I see it, knowing how many shares of a fund you own is necessary if you want to (diligently) track your holdings in Quicken or Money. So why would such a data point be so noticeably omitted from the plan administrator's site?

Hmmmm ...

Oh, sure, I know. Anyone could do a little third-grade math: Divide the value of your fund holdings by the fund's closing share price. There — you just figured out how many shares you own. Wow.

But I'm not the one being paid to administer the 401k plan.

I. Shouldn't. Have. To. Do. That.

4. Fund families? More like fund disownments.

Though I don't write about it much, I consider myself to be a fairly avid market follower. So when I scan down the list of my 401k's available funds, and I can't recognize half of the fund companies' names, then my inner radar starts screeling.

Am I supposed to just trust that our plan manager offers us only the highest-quality funds available ... and not just the highest-fee funds?

Apparently so.

5. Some Funds Don't Even Have Ticker Symbols.

That's right. When a fellow coworker inquired as to the ticker symbols for a batch of the "lifetime" variety of funds we're being offered, the administrator's response was that those funds have no tickers. They're "separate accounts," and thus not registered with the SEC. So no tickers exist.

Sure, I can find tickers that are gosh-darn close to these. (Name and managing company of the fund match, but the fund class is different.) But again, cynic that I am, I just have to wonder who's really benefitting here ...

But I Can Be Realistic, Too

How many folks are going to spend the time that I do, say, tracking our 401ks in Quicken? Not too many.

Or to be more precise: almost none.

In fact, for most of them, it's a victory just to commit to saving any cash inside a retirement account. Asking these guys to take a trip to Morningstar to do a little fund research would be ... well, you know. Fruitless.

But I know what I want to see from my 401k.

And in my ten years of 401k experience, I've still yet to see it.


— Posted by Michael @ 10:06 AM


My main beef with my 401k, is I've found the ticker symbol, and number of shares, but they don't quite add up to the amounts they should if I calculate them based on the daily rates. Apparently there are some fees somewhere that throw off the actual amounts. Not a lot, but a few hundred dollars.

Frustrating to track 'true' amounts.


One of the benefits of working for small company is having the ear of the person who makes the 401k decisions.

When I first joined, the choices were terrible, with many of the exact problems you list here ... but, I did some research on alternatives, presented them to the person in charge, and now we have our 401ks in "self directed" accounts at Schwab, where we can buy pretty much anything we want with the money in our accounts. It's awesome!

Anonymous Anonymous
, at 4:00 PM, October 08, 2007  

I've been successful in moving my association from a SEP IRA where they put in 8% - but we can't put in a dime, and have successfully argued to the BOD to move to a 401K. But despite dozens of articles I've sent them and futile arguments - I'm still stuck with American Funds with not even one index fund. It's painful to be a smart investor and stuck with coworkers who don't understand the impact of fees and the long history of index funds. One even argued with a straight face that he doesn't trust index funds since he lost 1/2 his retirement money in the Nasdaq QQQQ. If they don't understand the risk of non-diversification - it's like arguing with a wall.

Anonymous Anonymous
, at 8:06 AM, October 09, 2007  

I agree with EVERYTHING you have said; I have asked for the last three years for a decent [re: S&P 500] index fund, I have tried with great tribulation to get a ticker symbol so that I could track the 401k in Quicken...we are in the medieval times for 401k...I am still waiting for the Golden Age of retirement savings


I won't do a 401k again. It's not worth it to me to lose that much control over what is YOUR money. Every time I've had one set up, the choices for funds have been awful. When I start saving for retirement again (assuming I can ever get a job that pays enough to cover more than gas and food), I'll set it up in an IRA of some sort or choose my own mutual fund.


Good materials!

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