Monday, November 03, 2008
One of the tasks that goes with my job description is looking over clients' 401k plans and offering suggestions based on the choices available.
I had the occasion to do this yesterday and was dismayed at the lack of choices in terms of quantity and that almost all of the choices were from the firm administering the plan.
This is something that comes up a lot. Most of the plans I have ever looked at are extremely limited. The one yesterday had one foreign fund and one small cap fund. There were however eleven target date funds which in this case means fund of funds.
I find this to be despicable. I don't have statistics on this (this post is a rant after all) but many Americans work for big-ish companies and so their primary savings vehicle is a 401k. A crappy selection is usually the employer's fault. The plan in particular was with one of the two biggies and I have seen better plans for other employers at this same financial firm--I've also seen worse BTW.
Both Schwab and Fidelity have programs that allow access to the market via an account that quacks like a brokerage account so you can by anything you could through your brokerage account (stocks, ETFs and however many thousand mutual funds). Of course some people would blow themselves up but that can happen in any 401k plan.
I don't know if activism (IE complaining to the benefits department) can work but it is worth a try. Anyone having a 401k plan they believe to be unfriendly might want to only contribute enough to get the full benefit of any employer match and put the rest of their annual savings into an IRA of some sort (I'm not a planner, you need to figure what, if any, IRA could work for your situation). Obviously this would require a lot of discipline and if you can get a match on the entire $15,500 limit (I did not look up the catch up numbers) you need to stick to the 401k.
Now if you get a $0.25 on the dollar match for all $15,500 I think an argument for zero stock market exposure and zero bond market exposure could be made. You're already getting 25%. Not saying that's right but it is something to think about.
I'm self employed so I put money into a SEP (and also an HSA) which depending on how much you make can allow for much larger contributions than a 401k.
The bigger macro is of course saving money. As a matter of philosophy I think the amount you save should be a number that is a little difficult to get to. I also think there needs to be an element of resourcefulness and discipline. Resourcefulness to seek out other ways to save (HSAs, nondeductible IRAs and the like) and discipline to stick to it.