Wednesday, July 25, 2007

Improving Your Company's 401K

Recently a reader from Tacoma, Washington wrote to me and asked for advice about how to get his company to offer index funds in the company 401K. The sad truth is that many of the 401K plans out there simply suck. I have worked for my share of companies that had miserable fund options, or whose 401K plan had some other major failing. Truth be told, my current company was one of those "401K challenged" corporations.

Shortly after I joined my company (about two and a half years ago) I realized that our 401K plan was not adequate. The first thing I did to address the problem was... nothing. There is nothing worse than joining a new company and immediately creating a name for yourself as a complainer and a trouble maker. Instead, I quietly waited several months for the right opportunity to present itself. In my company, as in many other companies, the group that was responsible for managing the 401K plan was HR. Yes, that makes very little sense. Welcome to corporate America. After a few months of patiently gritting my teeth, I was put in a position to do a favor to our HR director. I took that opportunity to also raise the issue of our 401K plan, and suggest that a few improvements could be made.

To my surprise, our HR Director was enthusiastic that an employee would want to contribute to the running of the plan, and shortly thereafter I found myself on the 401K plan's management team, where I was able to influence the decision making process. As luck would have it, a few months ago my company underwent a restructuring. As part of this restructuring our HR Director left the company and I was asked by our VP of Finance to take a more central role in the management of the plan. That's when I made my move and decided to push for our plan to be completely overhauled. We are now in the process of restructuring our plan401K and are switching plan providers from ING to ADP. This has been a long and laborious process, and it is still going on. In fact, I think that the full process will take another several months to complete.

The point of my story is that if you want your company to make changes to its 401K plan and you have some concrete and constructive advice for making those changes, speak up. I am guessing that much like our own HR group, many human resources folks would be delighted or at least willing to listen to your input.

Regardless, you should also be aware that plan managers are always concerned about being sued by employees unhappy about the company's management of the retirement plan. If for no other reason, plan managers may be willing to listen and act on your advice just to remove you as one potential source of trouble. In short, my advice is to speak up. Do it professionally, do it courteously, but be direct about it, and if necessary, repeat your requests and do so in writing. Eventually, you will probably be heard.


Joe said...

Myself and several others are engaged in a campaign to get the company to "allow" the self-directed brokerage window in our 401k.

Our Global HR guy said in effect: yeah, we considered it but...

it's too costly
it's too scary
what if the employee loses money, we could get sued?

You know what? We need to become allies with our companies and push for reform of the whole retirement system. Maybe then we could get those clowns in Washington to give us what we deserve.

Companies wanted to get out from under defined benefit plans (pensions) and now they don't want the cost, legal liabilities and administrative headaches of defined contribution plans (401k's).

If I could roll my 401k dollars into an eTrade IRA tomorrow, I would. Save the company money, make me money, everybody wins.

Maybe if we partner with them, we can finally control OUR money, cut out all the expensive middle men, and get a fighting chance to amass the wealth we all need to live comfortably in retirement.

Anonymous said...

I work for a major farming equipment manufacturer, and the company matches 2:1 on your first 2% of contribution; the next 4% of your contribution is matched 1:1