Author Topic: Rant about forced 401k investments  (Read 4418 times)

LurkingMustache

  • 5 O'Clock Shadow
  • *
  • Posts: 79
Rant about forced 401k investments
« on: March 14, 2018, 07:06:32 AM »
Small rant, not sure if others will relate or not.  I'm really annoyed with my company (in the Fortune 500) that REQUIRES company matched funds in a 401k to be directed to company shares.  You have to manually reallocate them into a diversified option (e.g. an index fund).  It means that even if I am going in there and doing it every two weeks (paycheck period), I am constantly buying/selling their damn stock and forced into a timing scenario.

I had looked at it today and forgot I had $1,200 in there.  Annualized returns for those funds is -5%.  Compared with my index fund which for the year was 16%.  People complain about fees, but when you add up those difference in returns it absolutely blows any type of fee out of the water in terms of cost to the employee/investor.

Anyways - extremely annoyed and nobody in "real life" would really care about this type of thing.  It doesn't even seem like it should be legal.  Almost like you are boosting your own stock through investing company money into it in the way of employee retirement.  Guaranteed that a huge portion of the company doesn't even reallocate or realize that a large amount of their default funding goes directly into one company.  And I don't care how much you love your company - not being diversified is a huge risk.

Edit:  PLUS, I had taken out a 401k loan for a home purchase, and the funds were *originally* all in an index fund.  Now as I pay it back, the funds are split - partially into my index fund and now forced into part of the company funds again.  So nice of them. 

Rant off...
« Last Edit: March 14, 2018, 07:44:30 AM by LurkingMustache »

KBecks

  • Handlebar Stache
  • *****
  • Posts: 2350
Re: Rant about forced 401k investments
« Reply #1 on: March 14, 2018, 07:11:08 AM »
Since it's essentially "free money" (I understand it's part of your benefits), it seems like a fairly small thing, to be honest.

LurkingMustache

  • 5 O'Clock Shadow
  • *
  • Posts: 79
Re: Rant about forced 401k investments
« Reply #2 on: March 14, 2018, 07:12:50 AM »
Since it's essentially "free money" (I understand it's part of your benefits), it seems like a fairly small thing, to be honest.

Very true.  May be a "terrible" first world problem and a case of the world's smallest violin.  :)

It also just bothers me that the company places their interests above their employees.  But that isn't unusual for a corporation so no surprise there, really.

KBecks

  • Handlebar Stache
  • *****
  • Posts: 2350
Re: Rant about forced 401k investments
« Reply #3 on: March 14, 2018, 07:33:08 AM »
I think you're focusing on the perfect rather than the good. Company stock should be relatively stable, I'm guessing that it's either dividend paying and slow moving, or you're in tech.  The risk is becoming over invested in your job + your company stock.  Is there a cost to your re-allocating?  If not it's really not that bad. 

Samuel

  • Pencil Stache
  • ****
  • Posts: 771
  • Location: the slippery slope
Re: Rant about forced 401k investments
« Reply #4 on: March 14, 2018, 08:49:03 AM »
My match is also paid in company stock but for the last couple years at least I've had the opposite scenario, where the stock has out performed the index.

I still rebalance regularly. Not a big deal. Free money.

Being prevented from rebalancing? That is worth getting upset about.

NoStacheOhio

  • Handlebar Stache
  • *****
  • Posts: 2136
  • Location: Cleveland
Re: Rant about forced 401k investments
« Reply #5 on: March 14, 2018, 11:10:54 AM »
Depending on the specifics, I don't think I would rebalance every paycheck. Maybe quarterly. It's like being forced into a high-fee plan. You won't be there forever, and it's still worth putting in the money.

Tabaxus

  • Bristles
  • ***
  • Posts: 452
Re: Rant about forced 401k investments
« Reply #6 on: March 14, 2018, 11:18:55 AM »
Yeah.  No.  Not feeling the justified annoyance here.


Million2000

  • Stubble
  • **
  • Posts: 136
Re: Rant about forced 401k investments
« Reply #7 on: March 14, 2018, 11:52:02 AM »
Yeah.  No.  Not feeling the justified annoyance here.

I am. I'd hate to be forced to buy an asset I don't want just to participate in a retirement plan.

I knew in the past buying company stock was the default and sometimes only option, I just didn't realize large companies after the Enron debacle still peddle their stock in 401k plans as the default option. Very crappy of the company. 

Gondolin

  • Pencil Stache
  • ****
  • Posts: 577
  • Location: Northern VA
Re: Rant about forced 401k investments
« Reply #8 on: March 14, 2018, 12:52:16 PM »
Yeah, that's f**ked up. Just another backhanded use of benefits to screw over employees.


Jrr85

  • Handlebar Stache
  • *****
  • Posts: 1200
Re: Rant about forced 401k investments
« Reply #9 on: March 14, 2018, 01:38:21 PM »
Yeah, that's f**ked up. Just another backhanded use of benefits to screw over employees.

It's a match for goodness sake. 

At worst, you just consider that part of your compensation worthless and then make the determination whether your compensation is competitive without it. 

It makes perfect sense to me that a company would try to encourage its workers to be invested.  If I had control over a compensation policy, I'd probably do the same thing, although maybe do the "market" match of 3% in their chosen allocation, and then a safe harbor match in the company stock (if that still allows it to be a safe harbor match), so that workers would be more likely to view it as an above market perq than a limitation on their options. 

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: Rant about forced 401k investments
« Reply #10 on: March 14, 2018, 01:51:19 PM »
You should stop contributing to that 401k altogether.  Stick it to the man!

inline five

  • Pencil Stache
  • ****
  • Posts: 675
Re: Rant about forced 401k investments
« Reply #11 on: March 14, 2018, 02:00:27 PM »
Yeah, that's f**ked up. Just another backhanded use of benefits to screw over employees.

It's a match for goodness sake. 

At worst, you just consider that part of your compensation worthless and then make the determination whether your compensation is competitive without it. 

It makes perfect sense to me that a company would try to encourage its workers to be invested.  If I had control over a compensation policy, I'd probably do the same thing, although maybe do the "market" match of 3% in their chosen allocation, and then a safe harbor match in the company stock (if that still allows it to be a safe harbor match), so that workers would be more likely to view it as an above market perq than a limitation on their options.

They can do that with an ESPP. My wife gets 15% off the lowest price for that six month period.

Forcing people to buy company stock in their 401k sounds like a recipe for a lawsuit IMO.

This is something the federal government should be working on - turn the 401k into what the IRA is now. The company would just deposit their share into the account like they do when you get paid.

Simple easy clean portable.

Oh and let's not even mention how at a lot of smaller companies the fund choices are forced and typically selected because someone in upper management or on the board gets a kickback.

TheWifeHalf

  • Pencil Stache
  • ****
  • Posts: 506
Re: Rant about forced 401k investments
« Reply #12 on: March 14, 2018, 04:41:51 PM »
Is there a plan in place to NOT do this, if for some reason, the company stock takes a nosedive? If not, there should be.
I'm thinking of this   
http://ocean.si.edu/gulf-oil-spill

Things happen

COEE

  • Pencil Stache
  • ****
  • Posts: 611
Re: Rant about forced 401k investments
« Reply #13 on: March 14, 2018, 08:27:18 PM »
When I worked at LMT they did that too.  I worked there between 2007 and 2015 they gave me company stock in a ESOP for my match.  It wasn't technically stock (I don't think)... it was 'traded' at a different value than the stock is as well... I never really did figure it out*...  The ESOP currently is trading at ~$600/share.  LMT is currently trading at ~$330/share.

I could sell the ESOP whenever I wanted, but I usually waited for it to be ~5%-10% of my portfolio.  I only got 12 transactions a year also - so I couldn't move them immediately to index funds every time I got a match either.  I really beat myself up for selling it honestly.  My portfolio would be near 2x what it is today if I had kept it.  http://stockcharts.com/freecharts/perf.php?SWPPX,LMT - move the slider to 2007 to today and know why I feel sick to my stomach every time I look at it!

* - Just realized since I looked it up that in my case the ESOP is a mutual fund of LMT stock.  Why it's traded at a higher value per share - I don't know.  I've probably known this in the past, but since I'm not currently invested in it - I've forgotten.

Nate79

  • Stubble
  • **
  • Posts: 146
Re: Rant about forced 401k investments
« Reply #14 on: March 14, 2018, 10:19:02 PM »
This is horrible. I would recommend your employer stop torturing you and cancel their match.

Sent from my SM-G950U using Tapatalk


SugarMountain

  • Pencil Stache
  • ****
  • Posts: 938
Re: Rant about forced 401k investments
« Reply #15 on: March 15, 2018, 10:42:49 AM »
This used to be really, really common when 401k's first came out.  Worse, a lot of companies encouraged 401k participants to allocate their funds into the company's stock as opposed to mutual funds (and I do wonder if this is also why a lot of 401k's had just shit mutual funds available with extremely high fees.)

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1463
Re: Rant about forced 401k investments
« Reply #16 on: March 16, 2018, 05:10:56 AM »
The scary thing, is that while you get it, most of your co-workers probably don't.

How many are contributing to it and then never reallocating? I thought this practice was gone after Enron. Reminder= many employees were 100% invested in Enron stock in the 401k and lost everything. I don't know how your employer fulfills their fiduciary duty to the participants of the 401k while putting so much into company stock. Considering the people who make these decisions are likely executives paid in stock options this appears to be a massive conflict of interest.

401k plan providers have been sued for much less. I provided a list of all the lawsuits in another similar post months ago, but I'm headed to work so I can't search right now.

boarder42

  • Walrus Stache
  • *******
  • Posts: 9332
Re: Rant about forced 401k investments
« Reply #17 on: March 16, 2018, 06:19:25 AM »
i feel like forcing it into their stock but allowing you to move it is ok not the best but not the worst.

The poster that said you HAD to keep 25-33% of it in their stock- i feel like this should be illegal.

 

Wow, a phone plan for fifteen bucks!