Are you among the 56.8 million Americans with a 401(k) plan from a small or midsize company?
If so, did you know many of them aren’t so hot, with subpar, nosebleed-level fees and lousy investment options? And scant retirement advice?
Here are my five simple steps to see if your 401(k) plan needs a wake-up call — and what you can do about it.
Step 1
Start with low-hanging fruit: fees. According to TD Ameritrade, nearly 75% of Americans don’t know their 401(k) fees. More than one-third wrongly think they pay nothing. Do you?
Grab your year-end statement. Then request a prospectus for each investment fund in your plan. Find each fund’s “management fee” in its prospectus. Usually, they’re shown as a percentage. Multiply this by the money in the fund to figure your annual fund fee in dollars.
Depending on how your plan is structured, there may be more charges for administrative, fiduciary and consulting fees. Sometimes these are bundled inside your fund fee, an all-in-one charge. Sometimes they’re separate. The person at your company overseeing the plan should know. But he or she usually has very little time for the 401(k) and is way overworked. So ask about monitoring these extra charges as factors in your final fee: www.fisher401k.com/news/blog/monitor-401k-fees.
How high a fee is too high? Employee Fiduciary, an advisory firm, recently showed that plans with less than $2 million in 401(k) assets pay 2.2%, on average, exceeding industry norms. Use Brightscope, at www.brightscope.com/ratings, to compare your plan’s fees and rating with others.
Step 2
What do you get for those fees? It matters. So ask.
A 401(k) should provide a wide array of options for all normal workers. Folks who like control should be able to choose their stock and bond mix — and individual funds (with adequate returns and low enough fees). You may need and should also have available tools to guide you to the best options. Some prefer a generic asset allocation mix. It should be there, too.
Does your employer’s plan miss all these options or some of them? Even with good funds, you may be frustrated by a lack of support. My firm’s 401(k) poll found about 70% of workers feel overwhelmed, disappointed and skeptical about retirement planning. Scary. Sad. Is that you?
Step 3
Take my 401(k) quiz at: www.fisher401k.com/offers/quiz to get the information you need to start toward better education, counseling and planning support for your retirement plan.
Step 4
With your information and fix-it list, take action! Ask your employer about forming a task force. Set a meeting with the person who runs your plan — likely the CFO or HR manager. Include several others like you, but keep it small. Get together. Share your concerns.
Ask your plan’s “provider” (an outside administrative vendor) to help you compare your plan to similarly sized businesses’ 401(k)s. This helps you see relative value and options.
After you get that comparison, step back. Think about what changes, if any, would benefit everyone. If your plan compares favorably to others, you may not need to change much. Consider trade-offs. If increasing investment options requires higher fees, which is more important? Ask your co-workers. See what matters to them. You’re in this together.
Step 5
If you and the task force agree changes are beneficial, lead the charge. Ask your employer about making some changes. Volunteer to help. You won’t just get a better retirement plan, your employer will too. Both sides win. And you’ll stand out as a go-getter, team player and innovative contributor.
With just a little time and a will-do attitude, you can help your colleagues realize a 401(k)’s true purpose: setting up everyone for their most successful financial future possible.