It’s one of those chores we should get out of the way, but never seem to accomplish. But experts warn that it’s probably worth your time and energy to perform regular maintenance on your 401(k) but answering such questions as: Is your plan wisely managed?
Even if 401(k) plans are the way a majority of Americans pay for retirement now, most people still don't know how to evaluate whether or not they have a good plan, CNBC has reported.
“A bad plan, with exorbitant fees and poor fund choices, can mean surrendering hundreds of thousands of dollars in retirement savings during the years of investing,” CNBC warned.
offered three areas to spot check:
- How risky are the funds in your 401(k)? Plan sponsors are now required, per the Labor Department, to offer plan participants a core set of “plain-vanilla” funds, Jason Roberts, the chief executive officer of Pension Resource Institute in Prairie Village, Kansas, told USA Today. “With a core set of funds, investors can create a well-diversified portfolio that also minimizes the risk of large losses,” the report said. “If you feel like you don’t have a sufficiently diverse menu of plain-vanilla asset classes, then I would be concerned,” Roberts told the newspaper. “One, I’m concerned about avoiding large losses in my account, and two, (not having a diverse menu) may be a signal that the plan sponsor is running the plan in a way that suits the business owner and not necessarily the rank and file.”
- Does your plan sponsor monitor fees periodically? “To be fair, odds are better these days that your plan sponsor will disclose and monitor fees. The Labor Department now requires them to do so. And, it’s possible that your 401(k) fees won’t be excessive,” USA Today reported. Roberts advises that you still should ask your employer how often they are reviewing the 401(k) plan’s investment and administrative fees.
- Does your plan engage in revenue sharing? “Ask if your plan sponsor engages in something called revenue sharing, a practice that has advocates on both sides of the debate,” USA Today advised. “Revenue sharing is so ubiquitous that a participant should not view that in and of itself as a red flag,” says Roberts.
So what if you determine you are in a bad plan? Well, it's always best to pay to consult with a trained, expert professional, but in the meantime: Talk to the boss.
In small companies, the company owner is likely to be the plan's largest participant and is shouldering the bulk of the fees.
"Don't accuse them of anything," says Yoav Zurel, CEO of FeeX. "Assume your employer did the best they could. They have the exact same interest in getting lower fees that you have."
To be sure, Bloomberg reports that the nation’s 401(k) crisis is only getting worse.
Half of U.S. workers lack company-sponsored retirement plans while 45% of businesses with fewer than 100 employees offer 401(k)s, Bloomberg reported.
“The current 401(k) system was designed for a workplace that doesn’t exist for most people: lifetime careers at big corporations that offer benefits,” says Teresa Ghilarducci, an economist at the New School who researches retirement policies.
“Saving consistently — which you need to do for just a modest retirement income — isn’t remotely likely.”
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