If you are among those who thought only multibillion-dollar plans (Cigna, Edison International, ABB, International Paper, Boeing, Lockheed Martin) were at risk because small- and mid-sized plans won't get sued, think again. A new class-action lawsuit was filed in the Minnesota federal court targeting excessive 401(k) fees in a $9.2 million plan with 114 active participants. Damberg v. LaMettry’s Collision Inc., claims that plan fiduciaries breached their duties under ERISA for allowing excessive fees to be charged for plan investments, record keeping, and administration.
18-years ago, I worked for a company whose 401k offering had high fees, poor investment choices, and poor service. Employees felt powerless with exception to trying to ask good questions at the meeting once a year when the 401k provider came in. Unfortunately, our questions were never well answered and our employer did not hear our desire for improvements to the plan. The good news is that those days are fading quickly and employees are increasingly empowered.
Employees Advocating For Fiduciary Duty
Defined contribution plans like 401k's transferred a lot of responsibility for managing one's retirement investments from the employer to the employee. In an effort to best achieve retirement goals, it makes sense for employees to also be involved in fighting back against high 401k fees and for better investment options. After all, you've got to fight for your own self-interests.
Thanks to the Fed's zero interest rate policy (ZIRP), baby boomers are facing a much tougher road to retirement than those in the past. While it may seem like an eternity, it was only 10 years ago when you could park your money in a savings account and earn interest of 5%. Retirees who worked hard and saved their money could safely invest their assets in retirement and not have to worry about suffering any losses.Today is an especially challenging environment for investors who are looking to generate a safe income stream. No Treasury bond will pay a safe 5% return as a 30-year Treasury Bond yields just 2.69%. This is causing a massive gap between what boomers say they want in retirement and what they're doing to make it happen.
The good news is that plan sponsors have many choices when selecting a recordkeeper for their defined contribution plans. The challenge for many businesses, especially for small businesses, is that day-to-day running of their businesses leaves little time to review, monitor, and optimize their DC plan. The result is that many plan sponsors lack a comprehensive understanding of who the top 401k providers are. PLANSPONSOR magazine conducts an annual recordkeeping survey profiling top providers. Here is their list of the 2015 top 401k providers and a few of my thoughts.
"An investment in knowledge pays the best interest."- Benjamin Franklin
Your 401K plan can be a beautiful thing. With the benefits of favorable tax treatment, employer match programs, investment customization, portability, and loan and hardship withdrawals, the 401K empowers employees with a vehicle to grow their nest eggs for retirement. Trouble is you never learned about how to manage a 401K account in school. It's like your parent tossing you the car keys on your seventeenth birthday, telling you to drive cross country, and walking away. You're in charge of your financial destiny but you don't have the training or time to properly care for it.
When we started the Runnymede blog a couple of years ago, our number one priority was to educate investors about investments and finance. Since then, we have received hundreds of questions. We take pride in answering each and every one of them.
Last week, I reviewed a woman's investment portfolio who asked, "Are my fees huge for the investments that I have?" After a bit of quick research, I was shocked by the results. In fact, it nearly made me sick to my stomach. Her retirement accounts held five mutual funds and all of them had outrageous front-end load fees. Here is the shocking truth:
It is not uncommon to have multiple 401(k) accounts after switching jobs several times over a career. According to a Fidelity survey, almost a third of people who transitioned jobs were not sure what to do with their old 401(k) or 403(b).1 Changing jobs is a busy time so thinking about what to do with your old 401(k) is often not a priority. If you are among the many busy people who have multiple retirement accounts at different firms, this post is for you.
For many banks and insurance companies, wealth management means selling products loaded with fees, especially mutual funds. According to ICI, 82% of investors own fund shares through financial professionals such as a broker, investment advisor, or financial planner. Just because you pay your advisor 1% each year, do not think that your mutual funds do not cost you anything.
In a recent AARP survey, a shocking 71% responded that they didn’t pay any fees for their 401(k) mutual fund investments. I didn’t realize that Wall Street had suddenly earned a reputation for working pro bono. Well this simply isn’t the case, and investors need to better educate themselves on the cost of owning mutual funds which can be very reasonable (index funds) to exorbitant (load funds.)
If you are a 401(k) participant, it is very likely that you are invested in a target date fund. Vanguard expects that by 2016, 80% of new participants will invest solely in target date funds up from 64% in 2011.
If you aren’t familiar, target date funds combine several mutual funds into one easy to digest fund and are managed to become more conservative as participants move closer to retirement age.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Runnymede Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.