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Retirely in The things you own end up owning you,

Wall Street is destroying your 401(k)

Eric Lipke, president of MITGI, says “he hired a financial adviser to set up a 401(k) plan for his 55 workers because he wanted to provide good benefits.” The small Minnesota firm offers to match contributions, which behavioral economists say is a great way to encourage employees to save. But Lipke says he’s not sure if the plan’s investment options and the fees are good or bad.

The fees in this retirement plan make it “extremely competitive,” says the financial adviser, who is with EFS Advisors in Cambridge, Minn. That sounds good, but it doesn’t appear to be true. Federal disclosure documents show the fees are more than three times higher than other plans available to employees at companies like this one, according to Ian Ayres, a law professor at Yale Law School.

“He misrepresented the truth,” says Ayres, who studies 401(k) plans. We asked Ayres if making such a claim is even legal. “No,” he says, “to misrepresent the truth in that way is almost certainly not legal.”

“To come and work here for 20 years, 30 years, whatever their working career is, and when they’re done be able to say, ‘You know, I had really good health care, I have a great retirement plan,’ ” Lipke says. “We chose him and he did set up the plan, and all but one employee participated right away from the beginning,” “So it was something people liked.”

Vanguard index: Some of the lowest fees in the business. If your 401k matches, find the lowest fee index fund. If your 401k doesn’t allow a low percentage fund and your 401k isn’t matching up to a certain percentage, don’t even bother with a 401k. Instead get into an IRA account.

Your 401(k) is likely spread across several mutual funds, which makes you a chump right from the start.  Unless you’re in ETFs, which reduces your gains even further. That was the whole point of 401(k) plans – to give you the illusion of control while releasing your employer from having to deal with the management of pensions. Employers contribute less, you get less, and the stock market vampires get another vehicle by which to make money at your expense instead of the employer’s expense. Biatched about this years ago, gave up on it when it was clear that most folks haven’t a goddamned clue.

But Sarah Holden, a research director with the trade group the Investment Company Institute, says studies finding that many 401(k) plans are overpriced have focused primarily on fees. But, she says, “what none of the studies have done is look to see what was the range of services that were being included.”
Seriously, the idea that “services” justify a plan that’s three times more expensive is ludicrous, especially as (and they know this) the vast majority of employees never take advantage of those vague “services” – and, what’s worse, your employer will most likely change plans long before the fees you’re paying justify access to those “services.” The very fact that it’s hard to compare fee schedules across plans, because such folks do their level best to make it difficult to comparison-shop, is part of the problem.

Picking and buying individual stocks is a generally a fool’s game, unless you are really good at value investment or you specialize in HTF front running. Hedge funds and other investment funds rarely do better than index funds.

Speaking of fools, I have a small portion of my money in a broker account, which I call my ‘high risk portfolio’, even though I haven’t really changed it much.

For people who think your RIA is capped… You can always put more into your IRA, it is just taxed differently. Ever since they did away with the single premium immediate annuity as the retirement plan, every change or innovation has been a game to transfer your money to whoever is watching your money. And in the case of 401(k)s you get your information from HR, and HR knows only what the salesman tells them. I offer a 401(k) match to my employees but I am honest with them about the situation. Most group benefits administrators are going to talk up the options that either give them the highest percent or will help them best meet their quotas to stay with their company, if they are not independent.

The big problem is actually where the market will be when you need the money. If it’s down and you need to sell assets to live on, you are screwed.

If you are an employee, defined benefits is much better when it works. And unlike with 401(k)s they have a backstop– the federal pension guaranty fund. All private pensions must contribute to it. If the fund determines that your company has violated its agreement with you the guaranty fund assumes responsibility for basic benefits. It’s similar to the health and life guaranty association every state has in case an insurer can’t meet their obligations. Currently we offer 401(k) because we can’t yet justify a defined benefits program and we should offer something. But we will be making the transition as soon as we hit certain numbers. It’s the best way to protect employees from going broke in retirement as long as it is properly funded.