I stopped contributing to my 401K, tell me I am wrong...

[mikieb]

So after working for years I have built up 100K in my 401K at work. Not a lot, compared to a lot of other folks. But I bought some land to boost my net worth for my retirement... so I will be good.

The company match that I am working with is 1% of gross. So If I make 40k/year the largest match I will get is $400 no mater how much I put in the 401k.

After looking over all the numbers, and looking at things closely, it is obvious that most of the money in the account doesn't come from the company match or gains at all. Most of the money in the account comes from my contributions. In fact.. almost all of it is from my contributions. Goodness I must be a poor investor...

My company has roughly 370 employees, and the total amount of the company match for the entire company per year has been roughly 82k to 88k per year. After every thing is in place, the company (the employer) would turn around and invoice the 401K plan, $8200 to $8800 for the expenses the employer claimed to have managing the plan for the employee... they didn't have no where near those kind of expenses, in a seance, they are taking a 10% discount via the fine print in the plan.

The investment parts of the plan is managed by and insurance company (Nationwide). Each year at the beginning of the the year they charge your account $50 bucks for the account. Ok,what ever... but then, in the fine print, depending on what account options you have your money in, they charge 0.26% for mutual funds from Vanguard and Nationwide, then 0.06% for all other mutual funds. Also, the plan is loaded up with mutual funds operated by Nationwide themselves... get this.... Nationwide has mutual funds that own a group of Nationwide mutual funds.... so, you have a mutual fund, that has an operating expense of .85% to .95% that owns mutual funds, that have expense of 1.25% to 1.35%... plus they charge the hidden fee of the 0.26% on top of that... none of these numbers are included in the expense reporting you can actually see, that they admit to. Ya... talk about a CASH COW.... holy cow man !

Oh... and to keep the numbers all straight, They have a 3rd party do accounting... they charge me 20 bucks a year for that also.

So, looking at the fine print, the total 401k plan has just over 10.8 million for the whole company, the insurance co rakes out $193k off the top each year and the employer takes roughly $8.5k and that is just for the expenses that they admit to in the report...

So, If I work my tail off and get a match of $450 for the year... the fine print in the plan takes out roughly $600.00.

The way I see it, the 401K plan is a benefit for EVERYONE involved.... except the employee... the employee would be better off in an IRA.

Am I wrong ?

 

[Shangobango]

Wow those are some pretty bad terms for a 401k plan.

Just for reference my employer matches 50% of my contributions I make for the first 6% of my income I contribute.

Also the only fees that come out of my account are the fees the various funds charge. My employer takes nothing out.

I am no expert but it seems to me you would be better of investing in mutual funds through an online broker. I use TD Ameritrade for my stock market, mutual funds, and commodities trading but there are several good choices out there.

 

[homers]

Your company has a poor 401K management company. I'd ask HR to move the 401k management to Fidelity or Vanguard. If those fees, limited choices and low match are true, I would invest in my own IRA at Fidelity or Vanguard first. And given your age, I'd look at a Roth instead of traditional.

 

[SD_Prairie_Goat]

Those are pretty rough numbers to swallow.

I my self woulda walked away when they said they only match one percent, that's terrible, but maybe in your industry it's more normal?


Either way, at one percent match it doesn't make sense to contribute, go with a low fee broker, I use vanguard, and you will only pay like 0.01% on some of their funds.

 

[fmnjr]

For reference, the last employer I worked for, which is actually and ESOP outfit, offered the following incentives:

* Annual bonus - lowest I ever got was 7% of my annual earnings, highest was 14%
* 401K - 3% match
* Stock - every year stock was added to one's account, it averaged 30% increase year over year

On the downside, there were only 7 paid holidays per year and your leave counted for sick and vacay so if you burned your leave from being sick, no vacay that year.

Left with a pretty hefty investment account to work in the public sector where I could then add on to my previous PERS for retirement.

I would have done the same as you, ie, cashed out the 401K and then would have carried it a step further by voting with my feet to another gig ASAP.

 

[44hunter45]

Wow.

If you are doing this kind of analysis, I would not call you a poor investor. You are figuring out where your money is best invested for YOUR benefit. That is important.
Your story seems to say a lot more about your company than 401k plans in general.

My company uses Fidelity and has good matching. We get 100% match up to 6%.
Even then, you must research the volatility, historical performance, and expense loads of the funds you choose.

Do the math, invest early, invest consistently. There is a tipping point where your nest egg gets legs of its own.

 

[wyoelkfan15]

Wow, I would look at a private Roth IRA through vanguard instead

 

[Ben Sellers]

That seems like the worst terms on a 401k I’ve ever heard of. I’d be tempted to agree with you that investing through other means would be better. Just look at and understand the rules of IRA’s (Or whatever your preferred alternative is) and the investment caps on them before you jump ship.

 

[NYSKIER]

Good research on your end. Like others have said if you were smart enough to run the numbers yourself like that go an invest it on your own somewhere or possible talk to an advisor. A lot of people don't know about those hidden fees that you unearthed so good on your end I think your move is smart

 

[mikieb]

I can't tell you how much I get laughed at from the people I work with when I explain this to them... they laugh and shrug their shoulders and don't really care... I have talked with other managers... especially the ones that are younger than me... I tell them... "fixing this is not going to help me as much as it is going to help you" I have tried to build a coalition to get the decision makers to fix this thing. To no effect.

I have a IRA with vanguard and one with e-trade.

I'm getting close to 59 1/2 y/o. and I think at that point I should be able to roll this money out of the 401K into my IRA accounts ? Is that the rule ?

 

[buckbull]

Good grief that is horrible. I think I'd look elsewhere to invest my money. An index fund that you get on your own would have lower fees than what you are paying.

 

[SD_Prairie_Goat]

I can't tell you how much I get laughed at from the people I work with when I explain this to them... they laugh and shrug their shoulders and don't really care... I have talked with other managers... especially the ones that are younger than me... I tell them... "fixing this is not going to help me as much as it is going to help you" I have tried to build a coalition to get the decision makers to fix this thing. To no effect.

I have a IRA with vanguard and one with e-trade.

I'm getting close to 59 1/2 y/o. and I think at that point I should be able to roll this money out of the 401K into my IRA accounts ? Is that the rule ?

lots of tax planning in that question. I would highly highly recommend going to see a retirement planner with that question. Way too many variables for us to really help you

 

[Dave N]

Yup, you're getting hosed!

 

[Cheesehead]

That’s a bad setup and I would put it towards a Roth

 

[rwc101]

Yeesh. I contribute 5% and my employer 10%.

 

[Shangobango]

Yeesh. I contribute 5% and my employer 10%.

That's awesome! One of the best I have heard of. A friend's employer matches 100% of the first 6% he puts in and then gives them a certain amount of company stock every year to boot. That was the best I had heard of prior to yours.

 

[Mosquito]

Ya mine is 8 by me and 8 by my employer. Thats terrible

 

[rwc101]

That's awesome! One of the best I have heard of. A friend's employer matches 100% of the first 6% he puts in and then gives them a certain amount of company stock every year to boot. That was the best I had heard of prior to yours.

Yeah, I'm not going to complain about mine.

 

[SAJ-99]

There is another lengthy thread about 401k vs Ira. The reason I would say continue to contribute is because you can put more money in the 401k that Ira and it goes in tax free. But it is a complicated decision.

The match is horrible, but there is nothing you can do about that. Regarding the rest of the stuff, you and the other employees might be well served to talk to company management and tell them they need another provider. Both the employer and Nationwide have a fiduciary duty to manage the plan appropriately. There are a lot of plan providers out there that won’t charge you the fees it sounds like you are getting hit with. You may have to threaten a class action suit. Sort of the nuclear option though. In the case where the Nationwide plan holds Nationwide funds, you should not be double charged. I would think that not even Nationwide is dumb enough to do that. But Nationwide is currently being sued for mismanagement of its own plan so you never know.
https://www.plansponsor.com/lawsuit-accuses-nationwide-trying-profit-401k-investment/

 

[longbow51]

Be careful with financial planners too; they will often guide you toward funds from which they extract nice commissions. Nothing wrong with that, just be aware. A good tax accountant, who has no skin in the game, might be a good bet on how to transfer funds to minimize tax burden.

My Finance professors (University of Tennessee) argued that over the long term, if you count loads and buying and selling costs, no mutual fund has beat an index fund, i.e. you just invest in the S&P. Don't know if they are/were right or not (their argument, not mine, so please don't pounce on me), but retirement is no time to be trading in individual stocks unless you are an expert and can tolerate the losses.

Good luck, and yeah, your 401K split sucks. I was self-employed and gave my employees 20% with no contribution from them. Encouraged them to start their own IRAs.