Buy Low Sell High
Worcester, MA
Female, 49
I converted an existing 401k for a small tech company about a year ago. I moved us from an insurance company to a brokerage platform. We are saving a ton on fees.
I have also a background in financial planning, so I know how the 401k can fit into your daily budget. The biggest problem I see is that people do not know how to take advantage of this awesome tax gift from Uncle Sam. I think the reason if that most people do not know how to approach their HR department and ask questions.
I am a huge fan of dying broke ; )
Of course, it is a lot like Pascal's Wager - you can either die with extra money or live past your resources. You decide which problem you would rather have.
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One of the better moves I see people make is opting for the ROTH option in their 401k instead of the pre-tax option. This works best for young people as usual. If you have some reason to keep your income down then the pre-tax is better, but for most people the ROTH is a pretty good move.
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Hey! Don't clue the boss in! I'm getting really good at Flappy Birds and the gig is up if he realizes I'm just a 401k meme.
Actually, the 401k is only part of my job, I also run the other benefits. But, an in-house admin has a lot to do besides look good. I help participants navigate their investment choices (remember, once you give them an open platform then the world is their oyster - and, new money is coming in each pay period.); I make sure we fulfill all the ERISA requirements (like fee disclosure and getting people to designate a beneficiary); and this time of year I have to fill out all the paperwork for our TPA to be able to file the mandatory 5500 filing with the government.
TPA's (third party administrators) probably also call themselves 401k administrators and they keep busy because they have so many clients. My work is more diverse but I know enough about it that I thought I could share the inside scoop.
If someone found this work interesting they would probably gravitate to the CFP program and work as a financial advisor.
Thanks for asking.
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LOL, that's a good question! Since we use a brokerage platform, and therefore they can buy anything they want from cash to gold, it would be hard for them not to take personal responsibilty for their choices. Most of them are just happy when the balance goes up.
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Absolutely not. I compare it to driving a manual transmission. Most Americans think that it is too hard to drive a "stick" because they have not real incentive (as they can just drive an automatic).
It is not easy for young people to take the time to plan ahead, especially when they feel like there are so many unknowns. I have heard that one firm is using age-progression to help young people think of themselves as old.
I have the same chat with people in their 40's all the time: "If ONLY I had started younger!". Oh well, the wisdom of age ; )
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The short answer is “yes” but as a more expensive “class” of shares. But I’m not known for my short answers, so: mutual fund companies see 401k plans as a constant stream of new money that trickles in over the year. It is handy for them to have that flow go into their mutual fund products because it provides liquidity for redemptions (so they do not have to sell an asset).
It is cost effective for a fund company to use the existing line-up of mutual funds already in existence because most 401k plans are too small to justify investing the money separately. This does not mean that there is anything wrong with the investment choices, but it can be very difficult to figure out what fund you are in and check out the holdings (and turnover!)
For example, someone may have a fund named The Bradford H. Puffinhouse III Fund that owns all the S&P 500 stocks. It is possible that they have it listed in a 401k as The Large Cap Diversified Fund because it helps participants understand what it is.
On the other hand, I have also seen funds with a very close name but with a different class. Since it is so hard to find a TICKER on a 401k, all you can really do is type most of the name into a search engine and see what comes up. Once you have a ticker you can find all the other “classes”.
Many mutual funds come in various classes. Even if is the same “pool” of money the cash flows are broken into classes so that fees can come out according to the class. So, the “A class” might be for people who call the 800 number and buy shares over the phone (not 401k) or through an online account and do not pay any other fee than the expense ratio. The “B Class” might be for a people who buy through a salesman and he gets a 5.75% commission that comes right out of your balance (which means you have to be up 6% just to get back to your initial investment!) and the “C class” might be a fund that charges you to get out. Different products for different markets. They are usually named with the class in the ticker, so you might see NAMAX, NAMBX, and NAMCX as names for the same mutual fund. All mutual funds end in the letter X.
A 401k will generally be a class that is a more expensive than the simple fund. I encourage people to stick with index funds in a 401k because it is harder to make those very expensive. Use money outside your 401k to augment a “core” holding – for example, buy an emerging market fund outside your 401k if the one in your 401k is more expensive than normal.
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I will have to come back later to give a better answer, but basically you are removing several layers of "middle men" (high margin middle men) and you are essentially deregulating what people can invest in, more choice means the consumer can buy cheaper product.
There are exceptions - I have seen some large, union-organized firms with fabulous plans. Maybe they are so big or prestigious that they good a good deal or maybe someone negotiated a great deal for the employees.
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