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Friday, March 20, 2015

Three Steps to a Profoundly Better 401k Plan

It’s hard to fathom why plan sponsors continue to condone actively-managed 3Stepsfunds in their plans.  We’ve heard all the arguments, but they all fall flat in the face of mounds of research and evidence showing that index funds are infinitely more valuable.  Yes, there’s now an undeniable trend of investors moving away from actively-managed funds and into index funds.  But while we’re giving props to employers who are making this important switch, we’re also fanatics about ensuring the other components of a successful 401k plan are not ignored.  If you take the three steps below, you’ll find yourself with a profoundly better 401k plan.

Step One:  You guessed it….dump your actively-managed funds for low-cost index funds.  Why?  Lower cost and more persistent, higher returns for all your plan participants.  The aforementioned mounds of evidence show that index funds beat their actively-managed counterparts at least 80% of the time. 

Step Two:  Organize your low-cost index funds into pre-built portfolios that reflect employees’ risk tolerance and years to retirement.  Why?  It eliminates most of the need for investment education, which we now know kills participation.  And it eliminates “bad” investor decision-making that's found in virtually every plan.

Step Three: Educate your employees on how to save (not how to invest).  Why?  Because that's the trigger for great participation.  Step two is the key to being able to utilize a savings education strategy.

If you take these steps, you will have a low cost 401k plan that is successful in every sense of the word.  And, if you’ve been keeping up with all the participant-brought 401k lawsuits in the news lately, you might also note that you have completely eliminated every major complaint in every participant-brought suit!

Need some help getting this done?  We’ve got a complete solution that’s available to you right now.  If you’re ready to move to a fully successful plan NOW, click below to request a proposal.  If you’re just starting to think about step one, click below to get a free cost chart that will highlight how far your plan costs have to fall.



Posted by 401K Revolt at 3:27 PM
Monday, February 23, 2015

The Surefire Way to Avoid Cost-Related 401k Lawsuits AND Have a Successful Plan

If you have actively managed funds in your 401k plan today, it's a safe bet your advisor is not providingAvoid_401k_Lawsuits any real guidance on plan cost.  But even without his help, you can easily Google the topic of actively-managed fund cost and performance vs. index (passively-managed) fund cost and performance.  What you'll find is clear proof that index funds, at a fraction of the cost, outperform active funds 80+% of the time.  Any layman can read and comprehend this research without any "expert" assistance.  Talk about transparency!

As we look at the common factors in nearly all 401k lawsuits, no plan sponsor would have lost his case, or been forced to settle, if his plan contained all, or mostly index funds!   Such a plan would have acted upon the overwhelming evidence mentioned above.  It would have minimized the cost to participants while giving them the greatest odds for making a solid return on their savings.  It would have established the plan sponsor as not only a responsible fiduciary but a champion of his participants as well.  Case dismissed?  Way better than that: the two most prevalent bases for every suit we've reviewed are eliminated entirely!

If you happen to be a plan sponsor who has loftier goals for your plan than avoiding penalties and staying out of court—like having every employee participating, earning the maximum match, savings as much as he can, investing in a way that fits his risk tolerance and gaining as much retirement security as possible, you can take an index fund strategy to a whole new level.  If your company had a 401k plan with pre-built portfolios made up entirely of low-cost index funds, your participants would have no reason to sue you at all.  If you can do that, AND help your participants truly maximize their retirement savings, why would you, as a fiduciary, not pursue that course?  The only reason not to is if you have no interest in a plan that is truly successful for your company and your participants.  In that case, the best course may be to resign your fiduciary role!

What happens when all the elements of a truly successful 401k plan are implemented?  Check out our case study and see for yourself!


Posted by 401K Revolt at 11:11 AM
Thursday, February 05, 2015

401k Lawsuits on the Rise: The Harbinger of Successful 401k Plans?

401k-related lawsuits are everywhere lately, and the number is trending up!  What’s the near omnipresent401k_Lawsuits_on_the_Rise issue in all these suits?  High cost.  Most have been settled out of court to avoid the bad publicity because the stakes are so high.  The Merrill's, Morgan's, Fidelity's and John Hancock's of the world are siphoning  millions and millions of fee dollars from participant accounts—all at risk if the general public should finally learn the truth about the magnitude of these largely hidden costs.  For plan sponsors, the financial hit may be proportionately less; but for them, the complete loss of employee credibility may be an even greater cost. 

The reason ERISA exists is to protect investors from abuse, and it clearly lays out the responsibility of a plan fiduciary.  Many plan sponsors have been led to believe their responsibility can be delegated or transferred to outside entities.  If you take the time to read over the body of cases, you might be surprised to see how quickly and effectively all the so-called co-fiduciaries shirk any responsibility!

 More recent regulations on fee disclosure (408b primarily) take more precise aim on the fees in 401k plans (some hidden, some in plain sight).  Consumer advocates hoped these required disclosures would result in the sudden recognition that plan participants are being over-charged.  No such recognition has occurred.  Not because plan sponsors and participants are oblivious, but because the "providers" continue to obfuscate cost to preserve their own existence.  And their existence is truly at stake, so their effort is understandably obsessive. 

The 401k-plan world is dominated by actively-managed fund families and the commissioned salesmen who sell them.  They defend their service in spite of average participation levels of about 60% and persistently poor (if not disastrous) investment decisions by participants.  They produce "benchmark" studies that compare every over-priced plan to a universe of over-priced plans, and then declare your costs to be reasonable!  So far, it seems to be working well for them.  The movement away from actively managed funds and high add-on fees is barely noticeable.

Amazingly, the very plan aspects being challenged, litigated and settled in favor of participants in these lawsuits are present in virtually every plan we see!  Many plans are much worse—they’re just lucky enough to remain unchallenged.

Stay tuned for our next blog about the surefire way to AVOID cost-related 401k lawsuits!

And in the meantime, check out our "Essential 401k Whitepaper" to get the scoop on why most 401k plans are not successful 401k plans!


Posted by 401K Revolt at 11:44 AM
Thursday, December 11, 2014

4 Ways to Play 401k Plan Santa for Your Employees this Holiday Season


1. Cut the costs. We can pretty much guarantee you that the plan costs you and your participants pay is way too much. Your advisor might tell you that he has reviewed it and it's "in line" with the industry. But he’s playing Scrooge in the Christmas play! He might quote the Department of Labor's contention that "401K costs are trending down." But even if that’s accurate, they have A LOT farther to fall; "reasonableness" shouldn’t be based on the collective failure of the industry. A typical 401K plan, comprised of actively managed funds, costs about 150 basis points on average. It can and should cost closer to 40. So is your cost really “reasonable” at 145?!

2. Dump the Actively-Managed Funds. Index funds outperform actively managed funds 80% of the time. Don't believe it? There are endless studies that prove it. Check out the latest Dalbar Study for a great set of numbers and charts. Why on earth would you subject your employees’ money to higher, non-productive cost? Actively managed funds outperform the index so infrequently (and the rare winners never repeat), the event could only be characterized as a Christmas miracle. Wouldn’t you rather tell employees that your plan helps them succeed by not subjecting them to false premises and excessive cost?

3. Use Pre-Built Portfolios. If you ask most employees how they feel about the choices they’ve made in their 401k plan, and how confident they are that they will have what they need to retire, you will find a lot of people who are lost with no hope. The Holidays and the New Year are the time for hope! But the startlingly simple answer to these woes begins with a plan of all model portfolios. This gets all your participants professional management of a portfolio that matches their goals. The initial education task is then a simple one: how to pick the portfolio that makes sense for me. This is a simple function of a risk questionnaire and years to retirement.

4. Invest in Savings Education. Investment education gives way to savings education—something everyone can understand. This is a gift worth giving!  The themes are simple:
• Everyone should be in the plan
• Start saving early
• At all times of your life, save as much as you can
• Pick a portfolio that fits your risk tolerance and years to retirement
• Stay the course

Whether you’re 20 or 60, these basic goals are just as appropriate. Written materials, presentations and web-based education tools can now be greatly simplified and the vocabulary of investing largely abandoned. The participant is not confronted with investments, buying, selling, re-balancing and investment toolboxes. How could that ever work?! The basic message is “set it and forget it”—until your time horizon changes.

It’s highly likely that you can lower the cost of your plan by 50% or more and make it more successful for both your company and your employees. Do you still have actively-managed funds in your plan? Are you still hoping to turn employees/participants into investment pros? Do you have poor participation? Are your participants failing to save enough?  Are participants exhibiting bad investment behavior with their accumulated savings? Only you know the answers to these questions. But if you answer “yes” to all (or most!) of them, it’s time to shop for a new plan for the New Year!

The questions we pose in this blog are designed to get you thinking about where your plan is today, and where it might fall short of your own definition of success.

Click the button below to read our case study and see what a successful 401k plan can do for your employees!


Posted by 401K Revolt at 3:32 PM
Friday, September 12, 2014

Friday 401k Fix: Dump Your Actively Managed Funds

How much do you really care about giving your employees the BEST shot for a secure retirement?  How expensive2much do you really care about your fiduciary duty under the law?  These are really the same question.  Legally, you don't have a choice but to care.

 Each week, we read dozens of 401k-related articles.  There is clearly a rising tide of experts evaluating the industry in a way that truly reflects reality.  They acknowledge all the shortcomings in the 401k industry.  They rightly suggest investing in index funds.  But then there is never a real solution.  Even in these similar-themed articles, with which we agree, we find an inconclusiveness that irks us—possibly the most irritating one is this one:

“Still, Actively-Managed Funds have their place in 401k plans.”

Why?  There is literally NOTHING to back this up.  Are some of these funds outperforming their index?  Occasionally.  But they don’t remain winners in the long term, there is no longevity to their outperformance and there is no way to pick which ones will outperform in the future!  You might think you’re paying some big shot from Merrill Lynch to do that for you, but multiple studies have proven that any “winners” an advisor picks are almost entirely the result of luck and not skill.

So we declare (again), it’s time to DUMP actively managed funds in your 401k plan!  They cost much more and, over time, they leave your employees with less.  If you take your fiduciary responsibility seriously (not just in a way to defend yourself in court), you have to care about the success of your participants.  They have to choose from the investments you offer in your plan.  It doesn't help to stack the odds against them.

Don’t believe us?  Start reading the evidence for yourself.  It’s all there.  As a plan sponsor, you have all the power to change your 401k plan so it truly helps the people it SHOULD help: your employees.



Posted by 401K Revolt at 10:00 AM
Thursday, August 28, 2014

What Fidelity's 401k Lawsuit Teaches The Rest Of Us

If you’re in tune with what’s going on in 401k lawsuit land, you may have heard about the recent $12 millionLaw settlement reached by Fidelity and its plan participants.  For those of you not in the know, Fidelity was recently sued by its own plan participants.  They claimed that Fidelity violated ERISA because they were only offered Fidelity funds, that those funds had high costs and that there were not enough index funds offered in the plan.

A recent commentary observed "the settlement could enhance Fidelity’s image as an employer.”  How could anyone come to that conclusion?!  Fidelity's plan rakes in huge fees for the company—because they are not just a plan sponsor, but the actual recipient of all the excess fees being siphoned off their employees' retirement accounts.   Fidelity was well aware of that, as they are aware today that the actively-managed funds they offer cost many times what index funds cost and yet underperform them more than 80% of the time. 

Fidelity did nothing it wasn't forced to do and despite this settlement, gave up almost nothing to get off the hook, admit no wrongdoing and minimize bad publicity. They certainly deserve no pats on the back.  A $12 Million settlement on a $10 Billion plan is a drop in the bucket and most of the real problems in the plan remain—and allow Fidelity to go on over-charging—but now with an aura of propriety that belies the facts.

The reality is that every employer with mostly actively-managed funds in their plan—Fidelity’s or anyone else's—is causing at least as much harm to his participants as Fidelity was to theirs.  This is due to both the high cost of the funds (and add-on fees) and their persistent underperformance against index funds.  Rest assured that the average employer/participant is paying much higher fees than the Fidelity mega-plan participant is paying.

In a twisted sort of way, Fidelity has something of an excuse for their bad behavior toward employees.  They are in the business of creating and selling actively-managed funds.  What else would they offer their employees?  If they didn't, how would they ever sell them to anyone else?  This lawsuit put Fidelity in tremendous jeopardy.  If it ever got to the real heart of the matter—that there is no empirical evidence or justification for high-cost, actively managed funds in a 401k plan—Fidelity would be out of business.  Instead, they "settle" for $12 Million and rock on.  A huge win for Fidelity.

There are more than 30 similar suits underway right now—at their core, cost is nearly always the issue.  Most suits pit the participants against the plan sponsor (employer) or the plan sponsor against the provider (like Fidelity, Merrill Lynch or John Hancock).  Few are like Fidelity, where the plan sponsor and provider are one in the same. 

Fidelity is thus defending its very existence—they have no choice.  If the court declares actively-managed mutual funds to be abusive, they are out of business.

Providers are defending big profits and quite possibly a portion of their business, but not their very existence.  Merrill Lynch and Morgan Stanley have been financially impacted by the many suits they have been forced to defend—win, lose or settle—but their survival is never really threatened. The profits continue to outweigh the legal fees—so they carry on making tiny, incremental tweaks to reduce future jeopardy.

But what of the Plan Sponsor?  These are the folks (along with their employees) that we care about.  They are not mutual fund companies or investment sellers.  They are engineers, car dealers, shipping companies, office furniture companies, sporting goods companies, etc.  You're trying to succeed in your business and attract, retain and reward the people you need to make it happen.  You have every reason to help your employees minimize their cost of saving for retirement and maximize their savings.  There's nothing about your business that's enhanced by offering the stuff pedaled by the likes of Fidelity, Merrill Lynch or Mass Mutual.  They have a major business reason to keep putting themselves in harm's way.  You have every business reason not to.

The suits against investment sellers will continue and accelerate because all the evidence, over decades of data, says that actively-managed funds are a bad deal.  Participants pay most of the cost and suffer the poor results and they are beginning to realize it.   It helps you and your employees tremendously to quickly walk away from anyone who offers actively-managed funds or advises you to put them in your plan or invest in them personally.

If you're dealing any of the big name 401k companies (or the advisors who recommend them), don’t think for a second they have more of an incentive to look out for you and your employees than they do for their own profits or business.  Or, in the case of Fidelity, the motivation to look out more for your employees than they do for their own.



Posted by 401K Revolt at 1:51 PM
Tuesday, August 26, 2014

Are 401k Fund Expenses Destroying Your Employees’ Savings?

There’s no shortage of writing (and debating) going on about 401k costs.  They’re too high, they’re on a 401k_fund_expensedownward trend, they’re justifiable because of service offered….we’ve heard it all, and maybe you have too.  If you’ve read any of our blogs on the matter, you know where we stand.  Fund costs ARE ridiculously high, they are not declining to any meaningful degree and nothing justifies them. 

Maybe you aren’t sure where you stand.  Maybe you don’t write any checks (or at least you’re not writing a big check) to anyone.  So you may think, “what’s all the fuss about 401k costs?  We’re good!”

But the costs are there, quite well-hidden, and being absorbed by the very participants you’re aiming to help.  How much are they paying?  That’s a little tricky to decipher, even with the legally-required disclosures you should now receive annually.

But if you examine your participant fee disclosure (not the 30-page plan sponsor monstrosity) you might see "expense ratios" to the tune of 1.33, 1.60, 1.72. Or, you'll see investment expenses expressed as cost per $1,000 invested. What does that cost Joe Participant with a $30,000 account balance today by the time he retires 20 years from now?  What is Joe contributing each month?  How are expenses affecting that amount over time?

The numbers are scary, and with the vast majority of plan expenses tied to assets, the cost compounds in lock step with investment returns and contributions.

We’ve done the math on some actual examples of what fund expenses do to long-term savings.  It’s crucial for plan sponsors (as fiduciaries) to both uncover, and to attack these costs.  Would you ever want your employees to learn that they could have $100,000 MORE in their retirement accounts if only you’d taken the time to address this basic issue?



Posted by 401K Revolt at 7:30 AM