July 18, 2019

Sketch Guy: Squeezing the Most Out of 401(k)’s, for Now

We hear a lot of discussion around the idea of reform. Reform the government. Reform the banks. Reform education. Reform health care. In fact, it’s hard to think of a system we’re 100 percent happy with.

So it’s no surprise to see many headlines and stories recently about the “failed” 401(k) experiment and how we need a different system to finance and manage retirement. It’s also easy to see why John C. Bogle, founder and retired chief executive of the Vanguard Group, described 401(k)’s as “a thrift plan that we’ve tried to redesign into a retirement plan.” The average amount in 401(k)’s doesn’t bode well for people looking to retire in their 60s and live 20-plus years. There are clearly some issues with the current system.

Let’s say we accept the premise that the system needs to change, that we as a society need to adopt a better way, a different way to help people finance their retirement. Let’s say further that we agree that maybe saving for retirement is better addressed as a collective, societal issue rather than an individual one. If we believe that, then we should pursue reform and advocate change to our elected officials.

But at the same time, we have to accept the reality we live in now. Even if we believe that the retirement system is broken, it is the only system we have, and we all know that it isn’t changing anytime soon.

It’s when we reach this point that I see a potential disconnect, maybe even a moral hazard. If we focus exclusively on the problem, in this instance the 401(k) system, it can be incredibly easy to abdicate personal responsibility. However, no matter how bad the system, we’re only hurting ourselves if we separate personal responsibility from reform.

We need to accept the fact that working for reform and taking personal responsibility are not mutually exclusive.

Even though we may wish it were different, the 401(k) is the option most of us have to plan for retirement. As part of the reform process, you owe it to yourself to get the most you can from the current system. Simply saying the system is broken doesn’t absolve you from making the best possible financial decisions you can.

We have a personal responsibility to understand the current system and make the best of it even as we’re trying to reform it. That means doing things like actually participating in your 401(k), making sure you take advantage of any match your employer might offer, selecting investments inside your plan that match your goals, maxing out contributions and not borrowing money from your 401(k).

Obviously, these five things won’t fix the broader problem we have as a society of being woefully unprepared for retirement. We have a system that needs fixing so it can serve a wider group of people, and we should all be advocating for those changes. But don’t let your frustration blind you to the things you can do right now in the system we have.

It reminds me a bit of this idea that we’re all waiting around for the day when scientists announce that they’ve found a pill that lets us eat anything, never exercise and live forever. What if they made the announcement tomorrow but said the pill wouldn’t be available for five years?

Would you stop eating healthy and exercising? Doubtful, because even though they may not be your favorite things to do, they’re still the only things you have at the moment to keep you healthy between now and five years from now.

That’s how it is with 401(k)’s. Hopefully something better will come along, but in the meantime, work with the tools you have to get you from here to there.

Article source: http://www.nytimes.com/2013/07/15/your-money/squeezing-the-most-out-of-401-k-s-for-now.html?partner=rss&emc=rss

Bucks Blog: Judge Rules for Employees in 401(k) Fee Case

12:16 p.m. Updated / To correct reference to ABB’s fiduciary duty. The company’s fiduciary duty was to act in the best interests of the retirement plan and ABB’s employees–not Fidelity’s employees, as stated in an earlier version of the post.

 

About a year ago, Ron Lieber wrote a Your Money column that described a closely watched case in which employees of a large manufacturing company, ABB Inc., had sued their employer and Fidelity, the manager of its retirement plan, for charging excessive fees.

This spring, a judge for the federal District Court for the Western District of Missouri ruled in the case, finding that ABB had breached its fiduciary duty — meaning that it failed to act in the best interests of the retirement plan and ABB’s employees — in several ways, including a failure to properly track record-keeping fees paid to Fidelity. The court also found that Fidelity breached its fiduciary duty to ABB’s retirement plan by failing to properly allocate interest earned from the overnight investment of plan funds.

The judge, Nanette Laughrey, ordered ABB to pay $35.2 million in damages and Fidelity to pay $1.7 million.

Last week, the judge further ordered ABB and Fidelity to pay $13.4 million in attorney fees and costs. In ordering the payment, Judge Laughrey wrote that “ABB breached its fiduciary duties of both loyalty and prudence to the retirement plans, as a result of which it benefited significantly while plan beneficiaries were deprived of millions of dollars. Fidelity, while less culpable, also took plan assets in violation of its fiduciary duty.”

She said the results of the case “may help benefit other plan beneficiaries, in the event of similar litigation, by further clarifying the duty of loyalty and prudence owed by record keepers and employers.”

In an e-mail, Fidelity said it believed the initial ruling in the case “was in error, and it is being appealed.”

Fidelity also said it disagreed with the court’s finding that Fidelity and ABB should pay attorney’s fees and said it intended to appeal that finding as well, “since the vast majority of the claims against Fidelity were dismissed by the court, as they have been in prior cases.”

Fidelity also said that it provides “valuable services to 401(k) clients for whom Fidelity serves as a record keeper and trustee,” adding, “We believe the fees charged and the compensation collected by Fidelity for those services are reasonable.”

Do you understand the fees your company pays to your retirement plan?

Article source: http://bucks.blogs.nytimes.com/2012/11/07/judge-rules-for-employees-in-401k-fee-case/?partner=rss&emc=rss

Bucks Blog: BrightScope’s Efforts to Rate 401(k) Plans, Investment Advisers

The BrightScope brothers, Ryan and Mike, aim to rate every 401(k) and 403(b) retirement plan and publish a directory of every investment adviser, too.Sandy Huffaker for The New York TimesThe BrightScope brothers, Ryan and Mike, aim to rate every 401(k) and 403(b) retirement plan and publish a directory of every investment adviser, too.

In this week’s Your Money column, I chronicle the adventures of the BrightScope brothers, two young men who aim to rate every 401(k) and 403(b) retirement plan and publish a directory of every investment adviser, too.

Their efforts in just two years have yielded all sorts of complaints about the age and accuracy of the data they are using and their aggressive tactics. I was struck, as I reported in the column this week, by the defensive and exasperated tone of the people I spoke to who find Mike and Ryan Alfred threatening.

If you’re among those who have studied their work and found it wanting (or inspiring), please tell us in the comments below. But even if you have no idea who these guys are, check out your workplace retirement plan rating or your local investment adviser and let us know what you find.

Article source: http://feeds.nytimes.com/click.phdo?i=e641471b0e98a8c0f57f57c9c6e5230b

Bucks: Lincoln Trust’s Enhanced View of Retirement Plan Costs

In recent weeks, the Your Money columnist Ron Lieber has written often about the impact of mutual fund expenses and other fees on the performance of 401(k) plans and the difficulty of determining just how much one is paying in expenses.

Now, the Lincoln Trust Company, a Denver-based provider of retirement and profit-sharing plans, is offering a way for companies who offer its 401(k) plans, their advisers and their employees — the plan participants — to get a better idea of just how much they are paying in fees and expenses and how their plan compares with similar offerings.

Lincoln is offering companies detailed quarterly statements (pdf) of expenses along with an “all-in” fee calculation that it calls a “personalized expense ratio.” The aim is to provide a snapshot of a plan’s total cost, without hiding fees or forcing participants to crunch numbers themselves.

It’s true that starting next year, the federal Labor Department will require retirement plans to disclose more information about costs to participants. But Tom Gonnella, senior vice president of corporate development with Lincoln Trust, says Lincoln’s offering provides detail beyond what the new rules demand, in that Lincoln calculates and displays the total cost incurred by a plan or a participants. “We didn’t think the regulations went far enough,” he said.

Lincoln will provide plan “sponsors,” as employers are called in 401(k) industry lingo, with quarterly summary sheets itemizing expenses for each plan member, as well as the overall cost for the plan. The resulting expense ratio is then compared with industry benchmarks, so companies can see if their plan is significantly more expensive than others. (Companies offering plans through Lincoln will begin receiving the new summaries after the end of the current financial quarter).

A sample itemized report shows costs including investment expense, or, what it costs to run the funds included in the plan; fee offsets, or “revenue sharing,” which are payments the funds pay back to Lincoln Trust for administrative costs as the plan’s “recordkeeper;” the cost of any third-party administrators; and any individual expenses attributable to a specific member’s account, like fees for borrowing against their 401(k) balance. “Every dollar that goes out for the servicing of the plan is in that calculation,” said Mr. Gonnella.

The disclosure represents an improvement over what employers traditionally have access to, but there are still a few costs that aren’t included.

The fine print of the sample reports notes, for instance, that the investment expense estimate doesn’t include some mutual fund transaction costs, like brokerage commissions, due to the buying and selling of fund shares; those costs, rather, are reflected in a fund’s total return. Mr. Gonnella said in a follow up e-mail that fund companies typically don’t disclose that information. But he added that commissions should be a relatively small cost, unless a fund manager has high portfolio turnover. Lincoln typically doesn’t see many such portfolios in the plans it administers, he said.

Individual participants can get a version of the chart reflecting their specific investments and related expenses too, if the company chooses that option. It is up to the company to decide how much detail it wants to provide to its members, Mr. Gonnella said, but he saw a trend toward greater explanation of fees and expenses. “People are clamoring for more transparency,” he says.

Lincoln offers “open architecture” 401(k) plans, with access to funds from various fund families, to smaller and midsize companies.

Take a look at Lincoln’s itemized sheets and compare them with your own 401(k) plan’s disclosure, and let us know what you think.

Article source: http://feeds.nytimes.com/click.phdo?i=cbbb143d40ba6c0866a0a3f68926dcd9

Bucks: Shining a Light on Your 401(k) Costs

In this weekend’s Your Money column, I’m back on the topic of 401(k) plans and how to bolster returns by making them less costly.

This week, I look at the continuing regulatory and legal discussions about how to disclose workplace retirement plan fees and under what circumstances they are simply too high.

I’m still in the market for war stories from people who have tried to decipher the data from their own plan and persuade the powers that be to make changes. If you have a tale to tell, please post it in the comments below.

Article source: http://feeds.nytimes.com/click.phdo?i=f87e99f9a4515c81f2604d1864d030be