If you think going to your employer when you have questions about your 401(k) or about decisions you need to make concerning it, listen first to what Gary Gensler, the former undersecretary of the Treasury, had to say about that course of action – “Your 401(k) is usually organized by people [in your company] who generally lack financial experience.”
Still want to ask the people where you work what you should do with your 401(k)?
The fact is, the majority of individuals who actually have 401(k) retirement plans don’t have any idea about how to make decisions about those plans, mostly due to the fact that their employers, who are overseeing the plans, have no idea how to make them either.
Indeed, while your employer might manufacture the best products or offer the best services in their particular industry, most don’t have the time and, more importantly, the resources to hire the type of people who are educated enough to give good advice when it comes to 401(k)s.
Even worse is that, when they don’t, many of these companies hire consultants and/or asset management firms to help them. What happens next is usually that the owner of the company is “wined and dined” by the fund firm that wants to be the one to run their plan, and that’s never good.
Is it education or marketing?
These outside firms then provide a bit of education and, more importantly for the owner, relieve him or her of the burden of administering the plan. What usually happens is that the new firm then offers their products to employees and those products end up dominating the company’s 401(k) plans.
Many times what substitutes for actual education is something more akin to a glossy brochure for the new firm’s assortment of mutual fund offerings. If that doesn’t happen, much of the advice that people get about their 401(k) comes from the Internet and, indeed, many 401(k) plans advise them to get it there.
Unfortunately only about 60% of 401(k) plans offered in the United States come with over the phone or in person advice. Even worse is that studies of shown that most participants rarely use the tools being offered by companies like Vanguard, Fidelity and T. Rowe Price, which is unfortunate as these companies have exceptionally good websites with excellent information.
Who picks up the cost?
Another problem when your employer hires an outside firm to manage your 401(k) plan is that those firms charge money to do what
they do and, guess what, you get to pick up the tab for their services. The fact is, these administrative and service costs are usually bundled together as fees in your 401(k) literature, hiding the fact that you’re paying for them.
According to Ward Harris, the founder of McHenry Consulting Group out of Berkeley, California, and also the author of Revenue Sharing in the 401(k) Marketplace: Whose Money Is It?, “The employer is offloading expenses to [the employees].
Some companies, like IBM, make sure to rein in those extra fees and costs, keeping them at around 10 basis points or 0.1%. This is in comparison to some companies with fees and costs as high as 300 basis points, or 3%.
In other words, asking your employer for help with your 401(k), or expecting them to run it correctly and keep your fees and administrative costs down, is unfortunately a pipe dream. Your best bet; ask the help of an unbiased financial advisor.