Author Topic: Terrible 401(k) Options  (Read 3723 times)

onecoolcat

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Terrible 401(k) Options
« on: January 07, 2015, 10:02:30 PM »
My employer uses Mass Mutual funds and the options they provide are terrible.  The lowest expense ration is 1.98% (.98% er + 1% administrative charge for MIRTX).  They add a 1% administrative charge to every fund on top of the er.  The average ER taking into consideration to admin charge comes out to 2.4-2.5%.  GSQRX even has 2.67% ER! 

Not a single index fund.

What do?

MDM

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Re: Terrible 401(k) Options
« Reply #1 on: January 07, 2015, 10:19:16 PM »
How large a company?

Have you talked with HR?  Have a group of you talked with HR?

onecoolcat

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Re: Terrible 401(k) Options
« Reply #2 on: January 07, 2015, 10:50:02 PM »
About 60-70 people.

Why do we get crappy funds?  Is it that the company just doesnt care, doesnt know, or gets kickbacks?  These ER's just benefit Mass Mutual...

minority_finance_mo

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Re: Terrible 401(k) Options
« Reply #3 on: January 07, 2015, 10:57:43 PM »
About 60-70 people.

Why do we get crappy funds?  Is it that the company just doesnt care, doesnt know, or gets kickbacks?  These ER's just benefit Mass Mutual...

From what I've read on this forum, often it's because the employer just signed up with a salesperson without looking into alternatives with better options. Especially with a small company, the owner might not be aware of how offer their 401k is (and no one - until you showed up - cared/knew enough to ask them to correct it.)

Approach your HR dept and see if you can suggest alternatives. Make your case for why the current plan stinks.

dividendman

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Re: Terrible 401(k) Options
« Reply #4 on: January 07, 2015, 11:08:28 PM »
In the mean time I would:

1) max out IRAs first
2) put in only up to the employer match (if there is any)
3) if you're in a high tax bracket see if there is a fund that is low fee that's essentially money market and max out the 17500 there. Then when you quit the job or change jobs or they get better options  you'll be ready. This kinda sucks but that's all i can see to do.

GGNoob

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Re: Terrible 401(k) Options
« Reply #5 on: January 08, 2015, 06:51:10 AM »
In the mean time I would:

1) max out IRAs first
2) put in only up to the employer match (if there is any)
3) if you're in a high tax bracket see if there is a fund that is low fee that's essentially money market and max out the 17500 there. Then when you quit the job or change jobs or they get better options  you'll be ready. This kinda sucks but that's all i can see to do.

I would still get employer match first, then max IRAs. It's free money.

Zaga

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Re: Terrible 401(k) Options
« Reply #6 on: January 08, 2015, 07:30:14 AM »
DH's best choice is a 1.41% ER fund, and I hate it!  But we invest anyways for the 25% tax break.  Plus we don't think he'll be there more than a few years, so the high ER won't be paid by us for too long.

Indexer

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Re: Terrible 401(k) Options
« Reply #7 on: January 08, 2015, 08:06:37 AM »
I would just mention your concern to HR.  They are paying these insane fees as well.  I would also point out your concern that the company might be putting itself into a legal liability situation.  Don't sound threatening of course, act like you are concerned about it because you really like your job and you don't want to see the company in a legal battle.

"ERISA Section 404(a)(1) requires that fiduciaries act prudently and solely in the best interest of the plan’s participants and beneficiaries when selecting or monitoring plan service providers.
a. This was not a specific requirement previously and greatly increases the liability of all
individuals functioning as fiduciaries on behalf of the 401(k) plan.
b. This means the Chief Finance Officer and all other individuals at the company who “play a
role” with the 401(k) plan now have increased liability for lawsuit risk."
http://www.wadefinancialgroup.com/files/Final-401k-Position-Paper.pdf

Fidelity, the nation's largest 401k provider, got sued by their own employees over this kind of crap.
http://money.cnn.com/2014/08/18/retirement/fidelity-lawsuits/

Wells Fargo and Wal Mart have also been hit, but Fidelity's got more attention since its what they do. 

Now since its a smaller company you aren't going to get the same plan as Google or Apple, but they should be able to do better than 2.5%.  Even if they kept the admin fee of 1% and used Vanguard funds that would bring the costs down into the 1.1-1.5% range. 

NNate

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Re: Terrible 401(k) Options
« Reply #8 on: January 08, 2015, 08:12:36 AM »
The Boglehead's Wiki has a page on How to campaign for a better 401k plan.  I don't know that anyone would actually listen, but it's worth a shot