Finding, And Battling, Hidden Costs Of 401(k) Plans

Ted

FYI: LIKE millions of retirees who assumed their companies had taken care of them, Ronald Tussey never thought that his retirement plan might be flawed. He trusted his company so much he kept his money in his 401(k) long after he left.

Having worked as an engineer for 37 years, ultimately at ABB Inc., where he retired 11 years ago, Mr. Tussey said he never paid much attention to the fees in his retirement plan and “assumed the company was looking out for my best interests.”

But after seeing a television program on the negative impact that 401(k) expenses can have on retirement savings, he hired a lawyer, who filed a class-action lawsuit in 2006 against ABB and plan administrators.
Regards,
Ted
http://www.nytimes.com/2014/11/08/your-money/hidden-costs-of-401-k-plans.html?ref=your-money&_r=0

MaxBialystock

Gawd. If the 403b plan expenses were known and understood by most of the folks at wifey's employer, there'd be hell to pay, too. We just decided we'd allow that employer to add X amount every year, which they do. We won't be adding anything to it, however. Let it grow using "the house's money." We'll do our SERIOUS investing elsewhere.

catch22

@MaxBialystock

Yup, lots of fee layers in some of these plans. 403b's are likely the worse (an annuity layered inside of a tax deferred plan).

? So, you wife's employer places "x" amount of monies into the account every year whether she has contributed anything? If this is the case, then is there not a matching program based upon contributions?

Not sure what you mean by "We'll do our SERIOUS investing elsewhere."

Does this mean that monies that are not invested in the workplace 403b are instead invested in a trad. or ROTH IRA?

One aspect of workplace retirement accounts is reducing gross taxable income during the tax year, which some folks consider a benefit to saving by this method.

Hoping you and yours are not forgoing the 403b plan because you're pissed about the internal fees that are beyond your control.
Are there not any decent investment choices in this 403b?

Regards,
Catch

JohnChisum

Sometimes you have to work with the hand you're dealt. My first 403b experience was through a life insurance company that took 5% off the top of all contributions. A few years later the employer switched to another life insurer with better fees up front but heavy penalties for withdrawal before the 7 year vesting period was up.

Don't let these bad policies get at you @MaxBialystock. The benefit of the lowered AGI on your income taxes exceeds the fees they throw at you. Also, time is a great compounder. You lose out a lot by skipping years of contributions. The miracle of compounding as it is called.

Of course max out any other plans you have like IRA's.

JohnChisum

I am wondering if the guy in the linked story still works at ABB? I know there are laws but these things have a tendency to bite back. I couldn't read the whole story. Subscribers only.

MaxBialystock

catch22 said:

@MaxBialystock

Yup, lots of fee layers in some of these plans. 403b's are likely the worse (an annuity layered inside of a tax deferred plan).

? So, you wife's employer places "x" amount of monies into the account every year whether she has contributed anything? If this is the case, then is there not a matching program based upon contributions?

Not sure what you mean by "We'll do our SERIOUS investing elsewhere."

Does this mean that monies that are not invested in the workplace 403b are instead invested in a trad. or ROTH IRA?

One aspect of workplace retirement accounts is reducing gross taxable income during the tax year, which some folks consider a benefit to saving by this method.

Hoping you and yours are not forgoing the 403b plan because you're pissed about the internal fees that are beyond your control.
Are there not any decent investment choices in this 403b?

Regards,
Catch

Hey, Catch. It's not a match which the employer kicks-in for employees. It's 3% of earnings through that previous year. That figure is arrived at, and it gets dumped in one sum in the Spring. ....There are some decent funds available. We chose NEASX. Not so bad this year!

msf

This is not one of NYTimes better articles. It strongly implies that this is a vanilla case of excessive fees for 401(k) services. But that's not what's going on here.

Observe that the trial court awarded $37M. The appeals court reversed the $1.7M judgment against Fidelity, and affirmed $13.4M to be paid by ABB. Notice anything missing, like, say, $22M (actually $21.8M)?

That $22M amount was ruled speculative and excessive (ABB, when it swapped in a series of target date funds to the 401(k) plan, swapped out Wellington, for which the trial court penalized ABB). I believe it was sent back down (remanded) to the trial court for a better analysis.

The only award that was affirmed was the $13.4M. This was not the "usual" high-fees issue. What ABB and Fidelity did here went beyond the pale (IMHO). They agreed that Fidelity would charge above market rates (so the issue is not that prevailing market rates were excessive), and in exchange, Fidelity would not charge ABB fees for other services that Fidelity was providing that had nothing to do with the 401(k) plan.

(Specifically, Fidelity was providing some payroll and record keeping services.)

In short, when the numbers don't add up (literally), it's best to do some fact checking. Here's the appellate ruling, for anyone interested.

catch22

@msf

Thank you for your continued fine efforts with everything you provide here.

Take care,
Catch

Charles

Hey, I recently ran across the following in response to a tasker from David...

http://www.brightscope.com/ratings/

FWIW.

catch22

@Charles
Yes, this is an interesting site. I do have a login for this site from many years ago; but have not logged in for some time.
For those reviewing any of the companies; I am not sure how BrightScope updates data, but I know some of the data for who is managing the investments for a particular company are not updated. One company changed vendors 2 years ago and the old vendor is still listed. FWIW
Take care,
Catch

msf

catch22 said:

@msf

Thank you for your continued fine efforts with everything you provide here.

Take care,
Catch

Thanks, but it's really just curiosity on my part. Once I dig up something that I find interesting, I figure I might as well post it - someone else might find it interesting too.

MaxBialystock

Add-on, @catch22:
>>>>>"Not sure what you mean by "We'll do our SERIOUS investing elsewhere."
Does this mean that monies that are not invested in the workplace 403b are instead invested in a trad. or ROTH IRA?
One aspect of workplace retirement accounts is reducing gross taxable income during the tax year, which some folks consider a benefit to saving by this method."
**********
By "serious" investing, I just meant that we won't be putting our OWN money into the 403b. We get the deduction from our IRAs, still. We've not even begun to withdraw from our IRAs, and are still adding to them. Traditional. (Wife still is working, though lately cut to part-time.) There were a couple of years in which I inherited more than the $6,500.00 Trad. IRA maximum and so we bought a couple of funds as taxable investment accounts, but they remain quite small: SFGIX and DLFNX. Whether taxable or not, I think they were solid choices. Thank you for your concern, which I know is genuine. Typo above: we own NAESX Vang. Small-cap, not NEASX.