About two months ago I moved to a new company, but until last week I haven't signed-up to my new 401K (don't worry, I will still maximize my contributions this year). Our plan is managed by Fidelity - which is one of the firms that I was considering when I was evaluating new 401K providers for my last company. Here are some of the dismal facts:
No Company Match - yup. There you have it. My company does not match any employee contributions. This is a bummer, but please understand that my company is a venture backed start-up. We have about 40 employees and no revenue yet. If the money runs out, the company will be shut down, so you can understand that we are watching our budget very carefully. Still in the mean time, this means that I will be stashing away less money for retirement.
Awful, Awful Fund Choices - Let's put it this way: I don't think that plan administrators could select worse funds if they tried! Pretty much all of the funds are actively managed and are pretty expensive. On top of that, many of the funds selected are simply horrible performers. For example, one of our funds is the Fidelity Aggressive International Fund, with a one year Lipper Ranking of 664 out of 682 funds.... and a 1 (!!) star Morning Star rating. What kind of plan administrator in his right mind would choose this fund?
As if this weren't enough, the funds are all Fidelity funds. Not a single non-Fidelity choice is available. Can you see the finger prints of an unscrupulous sales person and a totally clueless fund administrator? Looks pretty obvious to me.
Very Weak Participation - after inquiring with the current administrator, it appears that only 12 of the company's employees are actually contributing to the company's 401K. with this kind of plan, can you blame them?
Advanced Options - forget about it. No ROTH 401K, no self directed 401K, no opt-out 401K. Nothing. Well, actually, there are a few exceptions: we do have target date funds as well as a "balanced fund" mixing stocks and bonds into a reasonable allocation, and the fund selection does cover all traditional asset classes - except for commodities.
A Shining Ray of Light - the plan includes 2 index funds: the Spartan Total Market Index Fund, tracking the Wilshire 5000 with an expense ratio of 0.1% and a 4 Star Morning Star rating; and an Extended Market Index fund, tracking the Wilshire 4500 with an expense ratio of 0.1% and a 3 Star Morning Star rating.
How I am Allocating My Funds - 70% of the money goes into the Total Market Index Fund. The remaining 30% is evenly split between Fidelity Export and Multinational - the closest I could come to a reasonable international fund (5 Star Rating and a 0.75% expense ratio); Fidelity Real Estate Investment Portfolio (3 Stars & 0.75% expense ratio); and Fidelity Total Bond Fund (4 stars, 0.45%). This asset allocation pains me - since normally I invest at least 30% internationally, but there is simply no viable international option here.
What I am Going to Do About It - I am not one to sit around and do nothing when faced with a crappy, crappy 401K plan. I have every intention to fix this plan. Over the coming weeks and months I will try to insert myself into the plan management team and then will move to implement changes. I will keep you posted.
It just goes to show you how few 401K plans out there are well run, especially at small and medium businesses. The people typically running these plans are administrators or HR persons with little knowledge and even less interest in getting this thing right. At the end of the day, a motivated and well informed employee can do a great deal to improve the situation and to help out his fellow savers. Stay tuned...