08/16/04 - Negotiating For a Better Retirement Plan
By: Investor Solutions, Inc.
Few investments are more important than your retirement plan. Unfortunately, many Americans are regrettably "stuck" in outdated, high cost plans that offer little if any diversification opportunities to grow their account successfully. Here's a little secret & you don't have to take it! Federal law grants retirement plan participants certain rights with regard to their plan assets. If you're not happy with the quality of your plan choices or the level of fund costs, you can do something about it. Here's how.
Your employer has a legal obligation to "do the right thing". The Employee Retirement Income Security Act of 1974 (ERISA) is a Federal law that sets minimum standards for retirement plans in private industry. A fiduciary is anyone who exercises discretionary authority over a plan's assets, including anyone who provides investment advice. Fiduciaries (including the employer) that do not follow the principles of conduct may be held responsible for restoring losses to the plan or plan participants. Plan sponsors retain a fiduciary responsibility to act with loyalty and prudence, to diversify plan assets, and act in accordance with plan documents.
Get Involved
Campaigning for a better retirement plan begins with you, so get involved. Despite what it may seem, your plan (whether a 401k, 403b or other profit sharing plan) is never set in stone. Employers change plan providers (companies that design and manage the plan assets for a fee) fairly frequently. In fact, the Investment Company Institute claims that one in 10 companies with a 401(k) reported that it was likely to switch investment managers the following year and almost one in every five companies expected to add new investment options.
Know What to Ask
Getting involved requires some knowledge on your part, so do your homework. Find out how much your mutual funds cost you, how many asset classes are represented in the plan, what if any commissions you're paying, etc. The Department of Labor (DOL), the governing body overseeing retirement plan compliance, offers convenient 401k checklists. Here's our (more comprehensive) version:
401(k) Checklist (from Investor Solutions)
- What asset class representation is offered under your company's 401(k) plan? Are the choices sufficient to construct a globally diversified portfolio?
- Do you have a process in place that regularly monitors mutual fund expenses, performance and turnover?
- Who pays the administration and management of the plan, the employer or the participants?
- Are the participants paying their own investment fees? How much are they? What is a reasonable fee? What if any commissions, separate account fees or M&E fees are there?
- What is the weighted average expense of my account? What are the transaction fees? What is the total cost of the plan that the participant pays?
- How closely has the 401k investment choices tracked to their relative index?
- Is there a higher level of investment management services being provided for participants? ie. via lifecycle funds
- Do any of the investment options under your plan include any fees related to specific investments, such as 12b-1 fees, insurance charges or surrender fees, and what do they cover?
- Is institutional pricing available for the mutual funds? Do we have access to them or do we pay retail pricing?
Gather Allies and Find the Right Audience
Now that you-re armed with the right questions, it's time to make your voice heard. If you're not happy with your plan, chances are your coworkers aren't either. But, many are too intimidated or confused to do anything about it. Many voices are louder than one, make them allies and find the right audience to make your case heard.
Approach your Benefits Coordinator with a rational explanation of your complaint--remember they too are plan participants; it's in their best interest to maximize plan efficiency. If you succeed in making them recognize the holes in your plan, they can be highly supportive in your efforts to convince management that there's a problem. Remember, decisions like this are usually made at the top, but enlisting an HR ally can help you win the battle.
No luck with your benefits department? Then solicit help from your companysponsored employee group or union representative (if one exists). Don't have an employee group or union? Then start a grassroots movement by organizing your peers to write to the benefits department with copies sent to management. While this requires time and patience, remember that there is strength in numbers. As a last resort, go directly to the company president or HR Director. I'm sure the last thing they want is a legitimately disgruntled employee that knows his rights under ERISA and has the DOL backing him up.
The bottom line is that nobody cares more about your money than you do. The burden of securing a retirement has shifted away from employers (ie. company pensions) and to the employees (ie. salary deferral programs like a 401k). Every penny that you waste on unnecessary fees or underperformance due to poor investment choices is money straight out of your retirement pocket. At the very least, your employer should provide you with a retirement platform that will help you best succeed. If the current plan is not making the cut, it's time to take some action.
For more information on what to look for when evaluating your plan, check out the Dept. of Labor's website:
http://www.dol.gov/ebsa/publications/401k_employee.html#section7
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