Comments on: 401k Plans Suck And Must Die

By: Sheila

Sheila — Wed, 13 Jan 2010 12:41:52 +0000

Excellent article and I completely agree. Plus we shouldn’t overlook the illusory incentive of an employer match that vests over far too long a period when most employees leave a job in 2 or 3 years. Matching contributions ought to vest immediately. Otherwise it’s just a big shell game.

Why should employees of certain companies receive a more generous tax treatment than the self-employed? It’s all BS and we know it. And if Washington gets its hands on another “reform” they’ll just confiscate more of our money.

By: fred

fred — Tue, 15 Dec 2009 17:07:52 +0000

While there are a few valid points this commentary misses the mark. First off, an administrator is defined as the company providing the 401k plan to its employees. There is not a single administrator/employer that collects fees. The vendor doing the administration does charge a fee, and yes sometimes it is excessive. Not always though. Fees as a percentage of plan assets are almost always higher for smaller plans. There is a fixed cost associated with plan administration.

If the employer has the best interests of their employees in mind it works. When they hire or have a ‘friend’ doing the consulting is when you have problems. Especially if they collect commissions. There are firms that adminster retirement plans that rebate back 12b1′s and sub-ta’s so they have no incentive to put in expensive funds. They charge a fee not commissions.

This is the right way to do it, but most large brand name mutual fund companies still have an outdated revenue model. They collect these fees and may steer assets to proprietary funds. If you have the right firm consulting the process it works. Having a professional perform due diligence on funds is going to be more successful than an indivisual doing through and IRA generally. Most people have a hard time with asset allocation with 12 asset classes. How can they decide from thousands of mutual funds in an IRA?

I also have issues with laws governing retirement plans, and they could be made easier and more cost effective to manage. Getting these laws changed is like pushing a boulder up a hill though.

It sounds like you need un-biased administration, not blowing up your 401k.

By: Curt

Curt — Tue, 12 May 2009 20:31:10 +0000

I agree and have always believed that 401k’s are nothing but a legal scam.

By: Kyle

Kyle — Tue, 12 May 2009 15:55:30 +0000

Steve, I do not advocate expanding social security benefits because it is an extremely inefficient diversifier of risk. That is, while some at the bottom would see a higher income as a result, the majority of Americans would see their incomes significantly reduced in retirement.

By: Steve

Steve — Tue, 12 May 2009 15:36:09 +0000

One solution is to increase IRA limits, although I suspect many people contribute less than $5000 to their 401k each year anyway. But this does not alleviate the problems you mentioned of market timing and investor inexperience.

Why not just expand Social Security benefits? This transfers the risk from the individual to the society. As it stands now, some people run out of money, while others oversave. Social security, or some other type of annuity product, would help ensure we save the right amount and use what is rightfully ours.

By: Four Pillars

Four Pillars — Tue, 12 May 2009 11:41:14 +0000

Thanks a lot for the link.

I agree with this post – it seems that 401k plans are a good idea that in some cases have gone bad.

Rolling them into the IRA plans makes sense – you guys have too many different account types!