401(k) - Things You Should Never Say to Your employer.

[fcirullo]

Please continue to post your comments on the Things you should NEVER say to your employer because you never know who will use your ideas and have success with them. Most employees who lobby for a low cost plan are not successful, so a few guidelines on What NOT to say and What to say may improve your odds of success as you lobby for a low cost 401(k) or 403(b) plan at your organization. Note: I have included a link to this thread directly below the following two articles in "Forum discussions."
- http://www.bogleheads.org/wiki/Setting_up_a_401k_plan
- http://www.bogleheads.org/wiki/How_to_C ... tter_401(k)_Plan
Also, the following thread has Five Simple Steps for setting up, managing, and monitoring a 401(k) plan that is optimal:
viewtopic.php?p=808263#808263


The two lists (shown below) contain the comments that you have made, so far:

List 1 - Things you should never say to your employer:

1. Our plan's menu of investments is awful! (Don't let that statement slip out in a meeting!)
2. Our plan's recordkeeper and administrator is way too expensive!
3. Why are we paying a wrap fee? Dumb!
4. Do you think you can make our plan more complicated...how about including even more managed funds in the menu?
5. Did you pick this lousy plan because you're getting a kickback from the advisor?
6. Have you heard of the concept of the Fiduciary duty and that it can be the basis for litigation?
7. You saw my spreadsheet! Do you understand numbers? Is there a better way I can explain this to you so that you will understand it?

List 2 - Rules to keep you focused on what matters most:

3CT_Paddler said, "Usually they are defensive about their 401k choices and don't want to be told they have made a mistake."

- Rule: Always show your ideas on how to improve the plan to the named fiduciary, but remember that pointing fingers won't serve you well.

natureexplorer said, "Show the 401k of your largest competitor (many large employers actually have pretty decent 401ks), then show that even your employer could get a very similar deal by going with Vanguard or Employee Fiduciary."

- Rule: Always ask if the named fiduciary will allow a low cost service provider (that you know of) to show him or her a cost comparison.

redbeard123 said, "The decision is ultimately made by the board."

- Rule: Always make your case to the real decision makers.

MP173 said, "I prepared a spreadsheet with my current balance, projected contributions, returns, fees, etc with an end result in 10 years...at my anticipated retirement age. Quite an impressive $$$number. Then I did the same with a much more reasonable fee structure and the end result. Meeting with the CEO and CFO I explained the numbers and calmly told them it looked like they would have to keep me on the payroll a couple extra years. We have switched the new contributions to a Fidelity plan with the movement of existing balances planned later this year. It has taken quite awhile to make the transfer, but at least it is moving forward."

- Rule: Always show the CEO and CFO how much more money you and they could have by switching to a new plan that has a menu of low cost index funds and low cost recordkeeping and administration.

Christine_NM said, "Before saying anything about changes, make sure you understand the requirements/limitations affecting your particular plan."

- Rule: Always ask if there are legal issues that would prevent your ideas on improving the plan from being implemented this year--plan your presentation accordingly.

nisiprius said, "I phrased it simply as a personal request. The next year FBIDX was made available in the plan. So, I think the take-home message is don't go in thinking it's necessarily going to be a) a fight, or b) difficult. Step 1 in getting anything is to ask."

- Rule: Always be clear about what you want, and ask the right people for it.

Leonard said, "People seem to think it is high cost plans that are the only ones that charge the employees. But, you can construct any plan - high cost or low cost - where the company pays 100%, employees pay near 100%, or a combo."

- Rule: Always remember that employees are allowed to pay 100% of the cost of the plan. That means it may be in the employees' best interests to switch to a truly low cost plan even if it means that they will pay 100% of its cost. Always do the math before you make your presentation to the company.


The following is my original post:
I need your help. Most employees who lobby for a low cost plan are not successful. Perhaps it would be helpful if we could put together a list of things you should never say to your employer if you plan to lobby for a low cost 401(k) or 403(b) plan. Also, it may be helpful to put together a list of things you should say that may catch the employer's ear so that he or she will will hear you out on how to improve the plan and save the company money, too. Is this a good idea, or not? If you think so, please show us your ideas on what employees should not say. Also, it would be great if you would show us what employees could say so that the employer will take their ideas seriously and want to know more.

Edited twice on 10/14/2011 to include the updated information. Edited on 10/15/2011 to include the comments shown in the two lists, to rephrase the two sentences that follow the word "Update," to include links to two articles that are on the wiki site, to include a comment by 3CT_Paddler in list #2, and to rephrase two sentences. Edited twice on 10/19/2011 to fix a link and include a new link. Edited on 10/21/2011 to try to fix a link, and to rephrase and provide additional information in the very first paragraphs.

[3CT_Paddler]

This isn't so much about what you shouldn't say, but don't take it up with HR. Usually they are defensive about their 401k choices and don't want to be told they have made a mistake.

[redbeard123]

The decision is ultimately made by the board.

Usually it's done because asset managers influence the board.

Your only option to make any change is to convince your CFO and then your CEO. The CEO then can push for this for the board and make a case.

HR has very little to do with the actual decision.

[3CT_Paddler]

The decision is ultimately made by the board.

Usually it's done because asset managers influence the board.

Your only option to make any change is to convince your CFO and then your CEO. The CEO then can push for this for the board and make a case.

HR has very little to do with the actual decision.

It depends on the size of the company. Many times HR has decision making power or has a hand in the process for smaller companies.

[natureexplorer]

I wonder whether anyone tried this approach. Show the 401k of your largest competitor (many large employers actually have pretty decent 401ks), then show that even your employer could get a very similar deal by going with Vanguard or Employee Fiduciary.

I also think that rather than randomly complaining about that the 401ks is bad and/or expensive, it might be a good idea to bring in specific quotes from better 401k providers such as Vanguard or Employee Fiduciary. Possibly a quote for a 401k plan that would offer all the same asset classes the current one does, just much cheaper.

And maybe mentioning things like employee retention (i.e. lower salaries) and actual savings for the employer might be more convincing than anything benefits to the employee.

[natureexplorer]

I wonder whether anyone tried this approach. Show the 401k of your largest competitor (many large employers actually have pretty decent 401ks), then show that even your employer could get a very similar deal by going with Vanguard or Employee Fiduciary.

I also think that rather than randomly complaining about that the 401ks is bad and/or expensive, it might be a good idea to bring in specific quotes from better 401k providers such as Vanguard or Employee Fiduciary. Possibly a quote for a 401k plan that would offer all the same asset classes the current one does, just much cheaper.

And maybe mentioning things like employee retention (i.e. lower salaries) and actual savings for the employer might be more convincing than anything benefits to the employee.

[Bungo]

I think at minimum, employees who quit the company for whatever reason should at least mention the lousy 401(k) during their exit interviews.

Something as simple as "with $200k in this 401(k) that is costing me 1.5% per year, I'm effectively agreeing to almost a $3k/year pay cut to continue working here. And that pay cut grows every year I stay."

[fcirullo]

Update: The two lists that were in this post were moved to very first post, which is at the top of this page.

3CT_Paddler said, "Usually they are defensive about their 401k choices and don't want to be told they have made a mistake." So, I used his tip to create list #1, and to start list #2.

lawman3966 helped me with the foundation for list #1 by coming up with items 5, 6, and 7 on Things you should never say to your employer.

Again, I have included a link to this thread under the following articles under "Forum discussions."

-- Setting up a 401k plan

-- How to Campaign for a Better 401(k) Plan

Edited on 10/14/2011 to fix the links to the tow articles, organize the information, rephrase a few sentences, and include new comments in list #1 or #2, above.
Edited on 10/15/2011 to move lists #1 and #2 to the the very first post that I made, which is at the top of this page, and to include a comment about 3CT_Paddler's contribution to lists #1 and #2, and lawman3966's contribution to list #1.

[MP173]

About a year ago I was fighting the one man crusade against our high fee 401k plan which featured "wrap fee" and very expensive funds.

After a few conversations with HR and glazed over eyes, I decided to take a different approach.

The company has about 100 employees and has an open door policy with the CEO. I prepared a spreadsheet with my current balance, projected contributions, returns, fees, etc with an end result in 10 years...at my anticipated retirement age. Quite an impressive $$$number.

Then I did the same with a much more reasonable fee structure and the end result. Meeting with the CEO and CFO I explained the numbers and calmly told them it looked like they would have to keep me on the payroll a couple extra years.

We have switched the new contributions to a Fidelity plan with the movement of existing balances planned later this year. It has taken quite awhile to make the transfer, but at least it is moving forward.

For me, the key was the spreadsheet with projections.

Ed

[lawman3966]

Some things not to say:

(1) Did you pick this lousy plan because you're getting a kickback from the advisor?

(2) Have you heard of the concept of the Fiduciary duty and that it can be the basis for litigation?

(3) You saw my spreadsheet! Do you understand numbers ?? Is there a better way I can explain this to you so that you will understand it?

I'm sure more will come to mind. But the above should be suitable as a foundation to which others can add their own examples.

[Bungo]

Some things not to say:

(1) Did you pick this lousy plan because you're getting a kickback from the advisor?

I agree that this would be an imprudent thing to say. However, I wonder if it's true. What exactly is the motivation for selecting a lousy, high-fee 401(k) instead of a good one? There must be some payoff, or no one would do it.

[Christine_NM]

Before saying anything about changes, make sure you understand the requirements/limitations affecting your particular plan.

When we went through the 1998 changes that allowed catchup contributions to 401(k)s, our HR people said everyone (several labs) was ready to go except the corporation that managed us, and we all had to have identical policies, so we had to wait till 1999 for any changes.

This is an unusual example, but the larger the corporation and the closer to federal funding, the more glitches there will be. On the bright side, once a policy is in place it is enforced rigorously. There's no cash-strapped small employer holding back making the contributions till the last legal minute.

[HornedToad]

Some things not to say:

(1) Did you pick this lousy plan because you're getting a kickback from the advisor?

I agree that this would be an imprudent thing to say. However, I wonder if it's true. What exactly is the motivation for selecting a lousy, high-fee 401(k) instead of a good one? There must be some payoff, or no one would do it.

The expensive plans typically cost the company less and the employees more. And were more in-your-face marketing. It's not necessarily due to corruption.

[nisiprius]

(Shrug) I don't have any rules, just a single data point. My employer's plan was managed by Fidelity, and I didn't think it was awful. I was mostly in Asset Manager and Freedom (target date) funds. The choices include a money market fund, a short-term government bond fund, Spartan 500 Index. Maybe fifteen of your average actively-managed equity funds, with expense ratios high by Vanguard standards but < 1%.

I got ticked off because Fidelity wanted to up the junk bond allocation in the Freedom funds, and decided it made more sense to do it myself with individual funds. But there was no bond fund except for the short-term government fund.

I wrote a letter. I did send it to HR. In it I stated simply that I personally would like to see the plan include either FBIDX (counterpart to Vanguard Total Bond) or, I forget what the other choice was but it Fidelity's biggest intermediate-term investment-grade bond fund. I figured by suggesting Fidelity funds I'd be making it palatable to the plan manager, and by giving a choice wouldn't be being too pushy about indexing. I said that my preference was for the index fund, and I gave a simple reason: I wanted to mix my own allocation and I didn't have anything to use for the bond allocation.

I phrased it simply as a personal request.

The next year FBIDX was made available in the plan.

So, I think the take-home message is don't go in thinking it's necessarily going to be a) a fight, or b) difficult.

Step 1 in getting anything is to ask.

[HardKnocker]

The expensive plans typically cost the company less and the employees more. And were more in-your-face marketing. It's not necessarily due to corruption.

This.

[leonard]

Some things not to say:

(1) Did you pick this lousy plan because you're getting a kickback from the advisor?

I agree that this would be an imprudent thing to say. However, I wonder if it's true. What exactly is the motivation for selecting a lousy, high-fee 401(k) instead of a good one? There must be some payoff, or no one would do it.

The expensive plans typically cost the company less and the employees more. And were more in-your-face marketing. It's not necessarily due to corruption.

Based on how inexpensive low cost 401k's are from companies like Employee fiduciary, web401k, and JF actuarial - I don't think this is true - even if the company picks 100% of the low cost plans administrative cost. A low cost plan is simply not that expensive.

then, when you take a look at ROI back to owners that are participants, there is simply no comparison betwen high and low cost plans. The realized ROI to owner/participants is much higher in a low cost plan.

BTW - whether employees pay or companies pay the cost for the plan is independent of whether the plan is low cost or high cost. People seem to think it is high cost plans that are the only ones that charge the employees. But, you can construct any plan - high cost or low cost - where the company pays 100%, employees pay near 100%, or a combo. There is no necessary correlation between who pays and high/low cost. Any combo is possible depending on the plan (and salary) design.

[fcirullo]

HardKnocker, the quote you used in your post nailed it when it comes to investing, IRA accounts, 401(k) plans, and 403(b) plans.

"A fisherman can see another fisherman from far away." -- Gordon Gecko (Wall Street)

When you learn the stuff that people teach on this Web site you can spot an expensive plan at a glance! That's why it behooves employees to learn this stuff.

Remember, it's in your own best interests to show this Web site to associates. It's like this. When you get enough employees on board with these ideas and they can clearly verbalize how they want the 401(k) plan to look, the change that will benefit YOU and them will come easier and faster.

P.S. More information on how to set up, manage, and monitor an optimal 401(k) or 403(b) plan in Five Simple Steps is at this thread: viewtopic.php?p=808263#808263 Note: The word "optimal" as it is applies to 401(k) and 403(b) plans is defined in a post in that thread.
P.S.S. If you invest a few minutes each day and start at the beginning of the thread (read every post), you will learn everything you need to know in a short period of time.

Edited on 10/15/2011 to include the P.S. and P.S.S.

[lawman3966]

The expensive plans typically cost the company less and the employees more. And were more in-your-face marketing. It's not necessarily due to corruption.

This.

Outright corruption may be somewhat rare. But, mutual backscratching is common, at least where I've been. Two advisor firms in a row had principals who were college buddies of partners in our firm. Assuming they're intelligent people, no quid pro quo will ever be explicitly discussed or be proveable later. In any case, no agency has so far been moved to investigate these things.

Nevertheless, it calls into question whether the advisory firm is being selected to benefit the employees (which the fiduciary obligation theoretically requires) or to benefit the advisor. Where clearly less expensive options are available, it's hard to contend that the choice is in the best interest of the employees.

[fcirullo]

Please read your original post to see if the quotation marks that were in the post still line up properly. If not, you may want to edit your original post.

Edited on 10/20/2011 to replace the word "update" with "edit."