The Epic Battle Against The Ball Gag 401k

One of the first things that I do when I start a new job, like any rationally-minded person is check out the company’s package.  My past job had a 401k plan that looked reasonable enough.  They matched up to a certain percent (I believe it was 4%) after you had spent a year there and that was 100% vested.  So, really not a bad deal, everyone should be participating, especially seeing how it was a financial advice company.

On my first day, I’m scanning all my paper work, and attempting to figure out all the medical insurance garbage, fsa, and all the rest of it.  But then, like a glimmering beacon in the night, I see it.  The 401k plan documentation!

HOORAY 401k Documentation!!

I open straight to the prospectus of the available funds and zeroed in on that magical number, Expense Ratio, to find my index fund of choice.  Alas, all of these funds have a greater than 1.5% ER!! (1.5% for an S&P 500 index fund, are you kidding??)  Then I read further, there’s a 1% charge on top of that applied by the management firm to simply hold the money.  And there’s a $75 trading fee.  There were even funds with front-end loads.  BLASPHEMY!!!!

What is a boy to do?

The very first thing was to start grumbling in the meeting.  Mumbling under my breath about how much we are getting ripped off.  I mean what exactly am I supposed to do? I need to contribute the max, but they are going to charge me 2.5% plus transaction costs.  It’s kind of like the financial version of that scene from Pulp Fiction, I call feel the ball gag being forced into my mouth while they are just ripping dollars out of my pockets.

I’m going to fight this, and I’m going to win.

Down with the Ball Gag 401k!!!

Here’s my plan of attack:

  1. Find out who’s responsible for the selection of this plan.  If it’s someone in HR, it’s possible that they were just sold some snake oil, and it will be easy to change.
  2. Discuss with this person, what exactly is going on, and how we are ALL getting ripped off by it.
  3. Show them some alternative plans that might be a better option. Hello, Vanguard/Fidelity.
  4. Help them with the paperwork, so that the transition should be as easy as possible.

How does this go?

Well, I go and talk to my boss, who’s the COO:

MrWOW – “Hey, do you know who’s selected the 401k plan?  Just curious”
Boss – “Yeah I think it was the president of the company.  I think it was his frat brother or something that set it up”
MW – “Oh, ok just wondering.  Thanks” – Damn it!  There goes the easy way!!
Boss – “Why are you asking?”
MW – “Well, now that you ask, this plan is ridiculously expensive, have you seen the ratios on the funds? I was just wondering if we could change it.”

Hmmm, so I’m going to have to rethink my strategy here a little bit. What now?

I started mentioning to some other people about the 401k.  I found one partner in crime that had a pretty direct connection to the top, and apparently had already been mentioning that it needs to be changed, but one voice does not make a movement.

Next, I went into the HR office for my 1 month review.  I started talking to them about this issue, and asking how it was chosen.  Again, the response was:

“Well, it’s his friend.”

To which I replied:

“Yeah, but his friend is ripping us ALL off.”

I guess I talked to enough people that word started to spread, it made it to the head office.  I got a meeting invite to talk about how things are going with the head of the company.

Mind you, this is a financial services marketing company.  I took the job because I was really interested in furthering my knowledge of the industry. Plus, I’m just generally interested in this stuff (*AHEM* see here).

I had done my research*, I had some knowledge.  I think Warren G put it best:

We regulate the stealing of this property,
And we damn good too.
Can’t be any geek of the street.
Gotta be handy with the steel, if you know what I mean.
Earn your keep.
REGULATORS!!! Mount up

On that fateful day, I walked into the big corner office and sat across the vast mahogany desk from the CEO of the company.  We exchanged pleasantries and discussed how I was assimilating to the company.  What my goals were at the company and where I saw my department going, how I planned to manage my team, etc, etc.

Then, I brought it up.

I’m just curious, where did our 401k plan come from?

I got this long story about how his friend helped them out long ago, and he was a good guy.  And he’s a close family friend. That went in one ear and out the other.

So, I asked about the fund allocation, and if there was a way for us to get some low cost index funds in there.  Because there was an S&P 500 fund, but it had an ER of over 1.5% plus the management fees.  His response was:

Well, we’re a smaller plan and therefore we have to pay more in fees.

I kind of scoffed and replied:

I run a plan for just my wife, and our fees are WAAAAY lower than this, and I’m hoping this company of 75 people has more money in the plan than she does, other wise there’s a different problem.

To which I get the response:

Well, you know he’s a good guy, and I have all my money with him.  We might give up a little of the upside, but he avoids the downside pretty well.  He’s beaten the market for years.

To which I replied:

Are you sure about that?  Even Warren Buffett says don’t invest in active funds, I think I’ll take his advice over your frat brother.  Here’s the fact of the matter.  We’re both trying to by coffee.  I buy my $3 Starbucks coffee, you are buying $200 coffee from your store down the street.  You can argue that your coffee is better, and maybe it is, there’s no real way to tell.  But, really, I don’t care, I just want the option to buy $3 coffee. Quite frankly, if you want to keep your money with him and pay these high fees, that’s your prerogative.  As for my money, I don’t like getting ripped off.

So uhhh… the conversation just kind of ended there.  We exchanged pleasantries, I mentioned that I would send him the article about Buffett’s directives in his will and any other articles I come across that mention 401k’s etc.  Just so happens that I found an article on OUR site about 5 signs of a bad 401k plan, of which 4 were checked off by our plan (ahhh delicious irony) .  I made sure to forward that over as well, but never heard anything more about it.

Oddly, about a month later, the HR director comes over to me asks to talk to me in her office.  Hmmm… well it turns out, we’re getting a new 401k plan.  When the CEO asked his buddy, he volunteered to magically cut his fees in half!  Now, I’m not that smart, but if you’re willing to cut your fees in half with no negotiation, that means there’s quite a bit of fluff in there.

So, we ended up getting a plan with some low(er) cost funds, there was VTSAX, but somehow it had a 0.5% ER (more mark ups!! GRRRR).  But hey, it’s better than it was.  I even started talking to everyone getting them investing in the 401k, because shockingly few actually did.

You’re welcome good people of my previous company!!

I’ve since left the company and moved on to other things.  As I walked out the door, I was on the phone with the management company moving my money into the i401k I manage at Fidelity, just checked…. FSTVX – 0.05% ER.   I guess the moral of the story is to do your research, and ask the right questions… It can save you a lot of money in the long run!!!!

* A Little Background: MrsWoW started a company a little over 2 years ago at this point.  It’s going great!  It’s fantastic, she loves her job, loves her work, all the good stuff.  I’m hoping she’ll post about all she’s learned running a small business here shortly.

While she is doing all the stuff that she loves, I’ve been in the background setting up the finances, filing the tax paperwork, churning managing all the corporate credit cards, building documentation software and (most importantly for this story) setting up an i401k.*

20 Comments

  • Mrs. Picky Pincher May 8, 2017 at 7:52 am

    Boo with those fees! It’s crazy that your company chose this retirement plan. I’m guessing they went with a more affordable option or they didn’t fully understand how the package would work. Those fees are nuts! But good for you for challenging the status quo and fighting for those benefits. 🙂
    Mrs. Picky Pincher recently posted…What a Frugal Weekend! May 7My Profile

    Reply
    • Mr WoW May 8, 2017 at 11:38 am

      Yeah, it was pretty nutty. I couldn’t believe it when I saw it. I mean they were obviously trying to do the right thing with matching, etc. But, I was a little in shock looking at the fees. I guess this is pretty standard for most companies, since most people have no idea how any of this works.

      I guess it pays to look at the documents!!

      Reply
  • J. Money May 9, 2017 at 4:23 am

    You had me at Warren G.

    “Regulatersssss – mount up!”

    Reply
    • Mr WoW May 9, 2017 at 8:31 am

      For some reason that song just felt appropriate, because well. It’s always appropriate. Thanks for stopping by!!!

      Reply
  • Mr. Need2save May 10, 2017 at 4:30 pm

    Warren G was just icing on the cake. Any reference to Pulp Fiction is good in my book and extra credit for bringing out the Gimp.

    Talk about a “good ol’ boys” network. Those were some crazy fees. I’m all for helping a friend out, but not at the expense of others. I’m impressed that you took it all the way to the top.
    Mr. Need2save recently posted…The Raging Mortgage DebateMy Profile

    Reply
    • Mr WoW May 10, 2017 at 5:18 pm

      Well, what was really sad to me is that I don’t think they fully understood it. I think they (meaning the heads of my old company) were getting taken to the cleaners as well. Again, that’s up to them, they can do what they want. But I want to have my options.

      Best I can tell he asked the guy, if I was right and the guy came back with a plan that had half the fees, hmmm interesting.

      Reply
      • Mrs. Need2save May 12, 2017 at 5:34 pm

        Prob thought he may lose the account all together if he didn’t, but it does seem very odd and dubious.
        Mrs. Need2save recently posted…The Raging Mortgage DebateMy Profile

        Reply
        • Mr WoW May 12, 2017 at 5:40 pm

          Well, I’m guessing if he asked, the guy thought to himself, ‘Ok, someone over there is pissed and sees what’s going, so I’ll make it really nice’. I wasn’t completely happy with the results, but it was certainly a step in the right direction, but now I don’t have to worry about it.

          Reply
  • Mrs.Need2Save May 12, 2017 at 2:09 pm

    Oh my goodness. I caught Mr.Need2Save reading your post a couple days ago and I just didn’t have a chance to read it until now. Pulp Fiction references aside, had we been better acquainted back when you still worked for these clowns, I could have armed you with some technical mumb-jumbo from the view of another plan sponsor to arm you! The CEO of that company is taking serious risk of lawsuit by not performing his fiduciary duties. Uh ‘he’s a really good guy’ is not a defensible position! Holy cow. Good ‘ole boys network it sounds like to me.

    It is true that smaller plans do pay higher fees because they don’t have the same buying power to get into institutional shares of some fund classes (with such low asset levels). But all you were asking was for them to add a couple of index funds. Or really ONE index fund at least which should be a minimum option for every 401(k).

    Good job fighting the good fight! Glad you moved your money out of that plan now.
    Mrs.Need2Save recently posted…The Raging Mortgage DebateMy Profile

    Reply
    • Mr WoW May 12, 2017 at 5:37 pm

      I really could have used your expertise, and might have to make use of it after we hire some folks and start setting up a real plan for more than just the Mrs. and I.

      Well they were frat brothers, and quite frankly I don’t think he knew that he was getting ripped off. I think he just went with it, figuring that his buddy would take care of him. I did mention that we shouldn’t be using a company that was sued by their own employees for charging excessive rates. Needless to say, my point was made.

      Reply
  • steveark May 21, 2017 at 1:15 pm

    I took a different tack. We had a similar situation but I lived with it while I moved up in the company. It wasn’t long before I was running the company and the plan and by then we offered an awesome plan with tiny fees and great options, coincidence? I think not. Also when a fortune 500 company bought us they looked at our plan and determined it was so much better than theirs they adopted ours! I’m afraid if I’d taken the more confrontational approach you did I would have damaged my career and never got to make as much impact as I eventually did for over six thousand employees! Not to mention that by succeeding at business I also was able to retire early with that fat 401k.

    Reply
    • Mr WoW May 22, 2017 at 9:22 am

      That’s awesome. Unfortunately, I think this was more of a good old boy network play than an logical business play. So I don’t know that we would have gotten anywhere had we played it tactfully. I’m glad you made the changes you did. Whether or not folks appreciate it now, I’m sure they will down the road. I’m glad there are other people out there putting up the good fight!!! Keep it up!

      Reply
  • Mrs. Adventure Rich June 22, 2017 at 3:35 am

    What a ridiculous situation! I would have probably done the same thing. 1.5%?!?

    Its amazing how much can come from “trust” or “he’s a good guy”. Your coffee example was a perfect analogy. Good for you for having the guts to get up there and push back!

    Reply
    • Mr WoW June 24, 2017 at 6:08 pm

      Well, It’s probably good that people in this community speak up, as a lot of people either aren’t interested or don’t understand that they are being taken advantage of.

      It’s kind of a shame that people give people a pass to do things just because they’re friends or what not. I mean this is how Bernie Madoff gets started, right?

      Reply
  • Natphoru June 22, 2017 at 7:47 am

    Three comments:

    – It was Casey Siemaszko who spoke those lines in the movie Young Guns (and, technically, Above the Rim, not Warren G in the song Regulate.

    – I posit that a rationally-minded person should investigate the benefits package before accepting an offer, not after starting a job. These fees should not have been a surprise on day 1 at the new job.

    – That said, great work running down the issue, standing up regardless of it being the boss’s friend, and helping many people beyond yourself save money. It shows a lot of character.

    Reply
    • Mr WoW June 24, 2017 at 5:46 pm

      1) Good to know… but then I wouldn’t have been able to watch that fantastic video several times while I was writing the post.

      2) I had investigated the benefits package, but never asked to look at the prospectus of the 401k and looking at the detail of the plan. They mentioned the match, and that was kind of it. And really, 1-2% of the course of two-ish years that a typical job lasts isn’t going to kill you. It’s awful, yeah, but turning down a lucrative job for 1-2% fee on the 401k seems a little like cutting off your nose to spite your face.

      3) Thanks, I figured it was the least I could do for everyone, since most people just don’t know enough to ask, or where to look in that huge complicated book of crap they hand you. Hopefully, this will inspire others that are more knowledgeable in this realm to stand up and say something when they see it.

      Reply
  • Budget On a Stick June 22, 2017 at 8:50 am

    Holy craziness!

    I guess i’d consider myself lucky to have landed at a plan with a 401k with vanguard funds without extra fees on it.
    Now i will double check 401k plans before accepting a job :O
    good thing i’m not in the market

    Reply
    • Mr WoW June 24, 2017 at 5:40 pm

      Yeah, I’d at least ask. But you know, who would think about it, they mention that they have a match and that’s really it. I don’t know that I’d turn down a fairly lucrative job for a 1-2% fee on their 401k. With the current job market, especially for tech, you trade jobs every couple of year, so it’s not the end of the world. Sucks, but it doesn’t have a chance to multiply too many times before I can roll into my more reasonable accounts.

      Reply
  • Steveark August 5, 2017 at 4:22 pm

    It’s a judgement call. If you are on the fast track to running the company like I was then rocking the boat over what in the end is a relatively minor financial hit isn’t wise. I kept my mouth shut until I ran the committee and then I fixed it. But if you aren’t planning on that then it’s probably worth the risk to politely complain. If it goes badly you’ve got Erisa at your back and a potentially awesome lawsuit. I like the way you handled it, maybe I should have done that too.

    Reply
    • Mr WoW August 5, 2017 at 5:06 pm

      Well, I wasn’t on my way to running the company. But yeah I can see, if you have the power to make it happen, then it’s easy. As for the company we run, we’re setting it up with all the bells and whistles that we want. And it’s super cheap. But we care about it, I’m guessing these guys just took what their buddy gave them at face value and went with it.

      Thanks for stopping by!!!

      Reply

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