Let’s declare 2015 the year we officially recognize 401(k) plans as a failed experiment in retirement planning. And let’s give some credit for that to plaintiffs’ attorneys, the Supreme Court and the Department of Labor.
To be fair, lots of credit also goes to the CFOs and HR professionals who cut costs on 401(k) plans to bare bones and failed to educate employees about how to use their investment options. Let’s not forget the fund companies that enjoyed years of large fees without scrutiny, nor third-party administrators who used higher internal expenses to rebate the company’s costs back to the employer. Financial advisors who pocketed 12b-1 fees and other forms of trailing commissions can’t be completely overlooked, either.
While most of us thought that 401k plans were the best thing since the coffee can above the refrigerator for saving, the truth is that many experts tell is that 401k’s dying needs to happen or there should be some
Are 401k’s dying? No, but here are some of the complaints about 401k’s:
FeesCharged – In principle, charging fees for services is just fine, as long as the services are there. Some say they were NOT. It’s not just about the fees but the fact that the plan participants assumed that someone else was steering the ship, there was no guidance on how to use the services and some plan managers abused the fee system.
Not putting enough money into plans because 401k participants just were not advised about losing matching funds. Participants left over 20 billion dollars in matching funds on the table.
Using the 401k plan as collateral. Too many participants borrowed against the plans, effectively erasing the benefits toward retirement savings.
No Knowledge about Fees. 30% of participants think they do not pay fees.
Smaller participants actually get no management advice. Because of minim balance requirement to get advice, participants with small plans don’t get advice, yet they pay the fees.
The problem came about because the companies that offer 401ks have fiduciary responsibility for the plan – but in to order to avid legal problems with that responsibility, they gave to control to the participants – but not enough guidance. 401k plans should not die, but either participants should get more involved in their plans or plan managers need to give the guidance the plan participants are paying for.
Its YOUR retirement plan – YOU should know whats going on with it.