Class Action Lawsuit over Excessive Hidden 401K Fees

September 22nd, 2008  |  Published in 401K  |  1 Comment

Laura Rowley wrote an article two weeks ago discussing a pending lawsuit in which employers allowed 401k plan admins and third party providers to charge “excessive, hidden fees” in their 401k offerings. Specifically, this was was a breach of their fiduciary duty under ERISA, the Employee REtirement Income Security Act. For some cases, the admins and providers were just ignorant while in other cases they were complicit and used those as leverage for other things.

“The duty of the plan fiduciary is to look out for interest of employees and operate the plan for their exclusive benefit,” says Schlichter. “The cases that we have filed allege a pattern of ignoring fiduciary responsibility, and also in some instances, putting the interest of the fiduciary ahead of that of employees and retirees.

“If the employer uses the company’s investment managers in the plan with whom it has other relationships — investment banking, lines of credit — you can’t have the 401(k) plan participants subsidize those other services,” Schlichter continues. “You can’t have them pay a higher fee so their employer can get lesser fees on corporate services. That’s not putting plan participants ahead of plan sponsors.”

Get Ready for the 401(k) Wars [Yahoo! Finance]

Four Reasons Couples Should Stagger Retirement

September 2nd, 2008  |  Published in Retirement  |  Comments Off on Four Reasons Couples Should Stagger Retirement

An important question you should ask yourself, as a couple nears retirement, is whether they should stagger retirement. It’s a topic that is worth exploring with your loved ones because there are many financial and relationship issues that accompany retirement and those can be, in part, alleviated if you opt to stagger your retirements. An article on outlines some of the financial considerations but there are also relationship ones to consider as well.

Retirement Contributions

By keeping one spouse at work, he or she can continue to contribute towards IRA and 401(k) programs. Every extra year of contributions will help ensure a solvent and fruitful retirement because it’s adding more into the retirement nest egg. Plus, the one income acts as a source of money so that the retired spouse can turn to that, rather than his or her accounts, for funding – thus increasing the longevity of their retirement nest eggs as well.


One of the biggest costs of retirement is medical and health insurance. With one spouse working, you can have a company help alleviate that cost (or more depending on the generosity of the company), which can help the bottom line. By waiting, you can have one spouse retire before 65, when Medicare kicks in, and then have both retire once they reach that age limit.

Social Security

You can begin taking Social Security as early as 62 but to maximize your total gain from the program, you have to wait until “full retirement age,” which can be four years later. By keeping one income, you can put off taking SS payments and maximize your total payout.


One of the biggest complaints about both couples retiring is that they now find themselves spending nearly every waking moment together. It can be difficult on a relationship to spend that much time together. By staggering, one spouse gets to try out retirement, find a rhythm and some hobbies, such that both aren’t sitting there watching TV and not knowing what to do. When one discovers a routine, the other can join or discover their own routine. There isn’t a case of two people not knowing what to do other than they have to do it together. 🙂

Find the Cheapest Effective Funds

August 11th, 2008  |  Published in 401K  |  1 Comment

Not all 401(k) programs are created equal, that’s a fact I’ve known for quite some time and one cemented after reviewing The Smartest 401(k) Book You?ll Ever Read by Daniel Solin this past weekend. While the idea that 401(k) plan administrators may pay kickbacks to companies turns your stomach, the reality is that it occurs and we must adjust to the world we live in.

So, what can you do? Review your company’s 401(k) plan options and find the cheapest funds that satisfy your needs. The best options are those that most closely mimic index funds, such as the S&P 500 Index or a Total Market Index fund. It’s best to avoid the actively managed funds as the vast majority of those can’t even beat their benchmarks, let alone earn enough to beat it after the fees.

You can’t control the fund options but you can control how much you pay in fees with your fund selection.

Proposed Improved 401(k) Disclosure Laws

July 29th, 2008  |  Published in 401K  |  1 Comment

Every quarter, I receive disclosure forms from my employer’s 401(k) plans. They discuss my current account balance, my gains and my losses, the fees I’m paying, and a broad look across all the funds available to me. It’s a good quarterly snapshot and one that I felt was adequate. I had online access to my account, so I could review my holdings whenever I wanted to, but for the less technology savvy the once a quarter look was probably adequate.

Looks like the Department of Labor said it wasn’t enough. The Department of Labor recently recommended improved 401(k) disclosure regulations that would require 401(k) plan administrators to provide more information about funds starting in January 1, 2009. This includes 1-, 5- and 10- annualized performance tables for every fund along with their benchmark. It would include annual expense ratio figures and other cost figures. It’s information that my plan administrator always provided so it’s surprising it would have to be mandated. Actually, it’s sad that it had to be mandated.

This simply means that there are workers out there who didn’t have access to this information. While you probably could’ve dug deeper for it, all funds will give you expense ratio figures, making it easier helps everyone.

There are some things missing from the regulations but it’s not a horrible start.

The High Cost of Poor Disclosure [Yahoo! Finance]

New 401K Debit Card Legislation

July 24th, 2008  |  Published in 401K  |  Comments Off on New 401K Debit Card Legislation

I’m not a big fan of 401(k) debit or credit cards because I’m not a fan of raiding your retirement accounts to pay for non-retirement expenses. I think that the retirement bucket should essentially be a lockbox (*gasp* the dreaded lockbox phrase) that you don’t touch unless you’re actually retiring.

However, the cat’s been let out of the bag with 401(k) debit cards and they do improve 401(k) loans as a whole. Before debit cards, you would have to take out a lump sum loan rather than borrow only as much as you needed. With debit cards, you draw down the funds as you need it and it reduces the interest you do pay. While I don’t like the idea of borrowing from your 401(k), at least this minimizes the damage.

Senator Charles E. Schumer of New York, recently in the news a lot for his letter that the Office of Thrift Supervision said caused IndyMac’s collapse, and Senator Herb Kohl of Wisconsin introduced new legislation that would outlaw credit or debit cards associated with 401(k)’s and retirement plans.

Don’t Gamble Your Safety Net

July 3rd, 2008  |  Published in Retirement  |  4 Comments

If you’re like me, you recently saw your retirement accounts take a pretty sizable hit. In fact, since October of last year, the markets have been down 20%. 20% puts it into bear market territory and something that probably makes you shudder to think about it (I know I do). You might be tempted to change directions, pull out of what you’ve invested in so far and going with something riskier to make up the losses. Please don’t.

Your retirement nest egg is your retirement safety net. You can gamble away your taxable investments, you can put your emergency fund into a hot new tech startup (I wouldn’t), and you can take your Latte Factor and blow it on the ponies – just don’t mess with your retirement accounts. Let them stay the course and you’ll be rewarded in the long run.

To put our current difficulties in perspective, consider that since the 1920s, the S&P 500 has returned a historic 11% year over year. That’s through numerous bear markets, including the recession in the 1980s and the tech bust the few years after 2001.

If you can’t stomach it and want to pull out, pull out. Just don’t gamble it on a potential shooting star.


My Retirement Blog was included in this week’s Carnival of Personal Finance at Greener Pastures.

Five 401(k) Mistakes

July 1st, 2008  |  Published in 401K  |  Comments Off on Five 401(k) Mistakes

No matter who takes a crack at 401(k) mistakes, they invariably come up with the same advice over and over again. That’s not to say it’s not worth reading, it definitely is, but it shows that the basics of how to take advantage of a 401(k) are easy and simply bear repeating.

The latest 401(k) mistake post is by Lauren Tara LaCapra at Main Street, a personal finance blog by This post is slightly different from your standard 401(k) mistake post because it actually points out a few mistakes that, while aren’t absolutely drop dead critical, are certainly important and not echoed elsewhere (at least not often).

Going beyond the standard don’t withdraw early, don’t pay penalties, and contribute more, Lauren adds that you need to keep your paperwork in order. “Participants who don’t inform former employers about their relocation could lose out if the company is unable to locate them when it comes time to distribute benefits. Van Fleet says this happens to a “surprising” number of people, when a simple change-of-address card could have kept thousands in their retirement coffers.”

Roth IRA: No Required Minimum Distribution

June 19th, 2008  |  Published in Roth IRA  |  Comments Off on Roth IRA: No Required Minimum Distribution

If you have a Traditional IRA or 401(k), you are required by tax rule to start taking required minimum distributions (most of the major brokerages have tools to help you manage this) by April 1st of the year after you turn 70 1/2. One of lesser known benefits of a Roth IRA is that there is so such similar requirement to take required minimum distributions. You are in total control when it comes to RMDs and Roth IRAs.

Granted, you can begin taking distributions at 59 1/2 on 401(k)s, so by the time you reach 70 1/2 you may need those distributions. However, it’s always nice to know that you can take out your funds on your terms, especially since the government won’t have let you touch it without penalty (outside some generally negative situations, first home excluded).


My post on Naming Beneficiaries on Retirement Plans was selected as an Editor’s Choice at the Money Hacks Carnival #17 – Music of the ’80s hosted at Mrs. Nespy’s World. Thanks!

Automatic 401(k) Participation

June 17th, 2008  |  Published in 401K, Retirement  |  Comments Off on Automatic 401(k) Participation

I have no idea why 401(k) participation wasn’t automatic in the first place and why it took the Pension Protection Act of 2006 to make it possible. The benefits of the law are already being seen as Nationwide Financial Services reported that 96% of employees are now saving for their retirement versus 74% in 2006. While the cynics will say that defined contribution plans like the 401(k) take the burden of retirement off employers, I saw we need to face the realities of the day. The reality is that defined benefit plans like pensions carry their own set of risks, ask anyone who had a Delta pension. I’d rather we face reality rather than fight it for the sake of pointing fingers.

The findings come as Americans face a shortfall in funding their retirements. The average balance in a 401(k) account was $61,346 at the end of 2006, according to the Washington-based Employee Benefit Research Institute. The savings will matter more in the future, as the number of companies offering traditional pension plans has declined by two-thirds over the past 20 years, according to the Retirement Security Project, a Washington-based group that advocates policies to help Americans become financially secure.

[Washington Post]