The 401k Conspiracy
The 401k Conspiracy
Wall Street is Fleecing Small
Business Owners & Their
Workers with 401(k) Plans
" When buying and selling are controlled by legislation,
the first thing bought and sold are legislators."
You're Being Nickel-and-Dimed to Death with Hidden Fees-costing you tens of thousands of dollars over time
DILBERT © 2002 Scott Adams. Used by permission of Universal Uclick. All rights reserved.
Employee retention, especially of your best, most desirable employees, is a critical factor directly tied to the long-term financial success of your business. According to studies conducted by the American Management Association, staff turnover can cost a business up to 250% of the employee's annual salary. One of the top ways to retain key employees is by offering a quality retirement savings plan; but you're already doing this, right? Maybe not.
Unfortunately, the truth is that countless small business owners are offering 401(k) plans that are actually robbing them of a large portion of their retirement. The insurance and mutual fund companies, stock brokerage firms and others that offer 401(k) plans are nickel-and-diming small businesses and their employees to death with fees that are often hidden, buried, or undisclosed to fiduciaries. If you're in charge of your company's 401(k) plan, this book will save you and your employees thousands of dollars in the company plan-and put tens of thousands of dollars, perhaps even hundreds of thousands of dollars-in your and your co-workers' pockets at retirement. It will also explore some of the long held notions and ideas that have come to populate the marketing materials and sales presentations presented to plan sponsors. In fact, throughout this book you'll be amazed to learn that many of your long held beliefs-fed to you by the financial industry-are categorically wrong . You'll also discover that many of the ideas presented to you currently are not only wrong from investment theory but also wrong from a legal view of your responsibilities as the fiduciary of the plan.
Here's an example of just how costly these fees and mistakes can be, over time. Take a hypothetical 40-year-old employee that has $50,000 in the 401(k) you are offering, which is probably typical of many of the people that your plan covers. Let's pretend that they never put another dollar into the plan, and it sits for 25 years. If that dormant plan earned a 9% rate of return, after fees and expenses, that money would grow to $470,000.
Not bad-but let's look at what would happen if the plan had just a 1% higher-than-normal fee. We're seeing more and more plans with 1%-2%-and sometimes even 3%-excess fees that they're paying. But, for the sake of our example, let's say this one just has a 1% excess fee. Instead of earning 9%, your employee is only earning 8%. Instead of earning $470,000, that worker would only have $367,000 after 25 years-over $100,000 less!
With this example you can plainly see how even a 1% excessive fee drags the overall return down over time. When you consider the typical 401(k) plan has double or triple that fee, you can see how excessive fees can cost you tens of thousands-even hundreds of thousands-of dollars by the time you and your coworkers reach retirement. Couple the excess fees with participant behavior of chasing returns and results end up being 75% less than they should. We will be discussing participant behavior in-depth in chapters 7 & 8, but suffice to say the research has shown that investor behavior of buying and selling at the wrong times decreases investment success substantially. Before we get into that, let's examine the outrageous fees in 401(k) plans.
The problem is that most of these fees are buried in the fine print, not disclosed at all, or they're not all listed in the same place, making it difficult, if not impossible, to accuratel