10 Things Your 401(k) Provider Won't Tell You

AOL News ^ | 11/29/06

[Clintonfatigued]

1. "We're making a mint on your 401(k) — even if you're not."

The number of 401(k) investors has soared in the past decade, to nearly 50 million from 28 million, according to Cerulli Associates. That torrid growth has created impressive efficiencies for the folks who run your plan. But it doesn't mean those savings show up in your account; in fact, they could be coming straight out of it. In a practice known as revenue sharing, providers get a cut of the expense ratio on the funds in your 401(k) to cover day-to-day "administrative costs." Since the fee is charged as a percentage of assets, that revenue increases as your 401(k) grows, even though those costs stay virtually the same.

[Poundstone]

You could become a federal employee. I did.

I'm eligible to retire now at age 50 on a full pension, which will start out at over $50,000 with max. survivor benefits. The pension is indexed for inflation, too, so as inflation goes up, so does the pension.

I've also got a government 401(k) plan which includes a government match of 5%. And let's not forget the federal government health plan (most of which is paid for by the government), which retirees and their families can remain in for as long as the retiree or spouse are alive.

All in all, not a bad deal!

[perfect stranger]

Find a job in New York that pays $400,000 and pay your taxes

LOL

I have heard that the best way to make a million in the restaurant business is to start with 2 million.

[Reagan80]

Yes, those mean, evil, capitalist 401(k) providers are ripping you off blind; but the kind, compassionate government is assuring that you get everything you've got coming to you with Social Security...

HAHAHAHAHAHA!!!!

Reagan80

/sarcasm finally off/

[SierraWasp]

I wish I could tell you, but the fact that I know absolutely nothing about you, your circumstances, or you finances, precludes me from suggesting or hinting at anything. Regulations also forbid it on either forums, or chat sites, etc. Very sorry, gsg...

[jonesboheim]

Between financial writing like this and the tripe put out by Susie Orman, it's no wonder people are totally confused!!!

You have friends with credit card debt??!! *gasp* - you don't need friends like that!!!

[jonesboheim]

#4 misses the point. Target date funds are misleading to investors because they stack expense ratios. When you look at the prospectus it looks like a low expense ratio but in reality it's an expense ratio on top of those imposed by all the funds being held. You're basically paying a guy to move mutual funds around every few years, something you could easily do yourself. Not to mention the fact that since many of these plans don't have the best investment options to begin with, it's not such a great idea to throw your hat into a scheme that sucks away potential gains.

[Archie Bunker on steroids]

Bingo......assett allocation funds are just a scheme to put more money in the mangers hands. However, ignore expense ratios and front loads and compare the performance of funds over time. Some no load, low expense ratio funds can under perform higher priced ones in the same class. It'll drive you nuts.

[SierraWasp]

I don't care! It's still the best place to put money while you're workin there!! Specially if the boss is plunkin in "free tax free match money!" After one quits, after making the best possible choices while employed there... Roll me over in the clover and do it again in my own personal self directed IRA, right?

[jonesboheim]

Please dont misunderstand me - 401ks are GREAT. And you're a fool not to take at least as much as your employer will match. Its just that some of the investment options suck, quite frankly. The "targeted retirement" funds are very misleading and should be avoided at all costs. Over half of all mutual funds got beat by their respective indices last year so you're set if you can get the lowest expense ratio index fund you can find.

I have an S&P 500 index fund with a .09% expense ratio which is probably the best mutual fund value out there.

[SierraWasp]

Well, there's one thing about low expense ratio index funds... You'll never fall below that market index, but you'll never beat it either, right?