Speak Up If Your 401(k) Lags

Frightfully few employer-sponsored retirement plans have socially responsible investment choices available to their employees. It does not have to be this way. Insofar as adding a mutual fund to a plan, it is extremely easy from an HR perspective. It just means placing a phone call to your 401(k) administrator. Almost all employers, even the very large ones, have contracted this duty out to Third Party Administrators (TPA's). More than likely, the TPA is a well-known financial institution where mutual funds is their business: your Vanguards, your Fidelities, your Scudders of the world. Even the 401(k) plans that are offered by Professional Employment Organizations like Administaff or ADP have the ability to add almost any fund out there with a simple web interface that is available to your HR department.

HR Administrators want their employees to be engaged in their retirement, so if enough hay is made, they will listen. But, even if they are not receptive initially, be persistent. The only cost that MIGHT be shouldered by the employer is the cost of communicating the change in options. More often than not, even this is not required, because the TPA makes the necessary changes on a hosted web site for the employees.

While you're at it, take a look at ALL the investment options. Are they made up exclusively of high cost, actively managed funds? There may be a reason for this. In exchange for waiving set up and administration fees, these TPA's often only offer the high cost alternatives which pad their own pockets. Employers are all too happy to accommodate them because it means no out-of-pocket expenses for set up and administration. Unfortunately, when it comes to actively managed funds, you most often get what you DON'T PAY FOR. Actively managed funds consistently lag the indexes, mostly because of the high fees they pass on to shareholders. It may not sound like much, but over 40 years, the extra fees can add up to well over six figures. For example, if your 401(k) balance is $50,000, the extra 1 percent or so amounts to $500 PER YEAR. This extra 1 percent might be worth it if it was accompanied by sound advice that took into account the employee's entire financial picture, but statistics show that advice is rarely asked for or given.

Employers who offer 401(k) options have a fiduciary obligation to look after their employees' funds, so make them live up to it. I think they would all too happy to accommodate, seeing as a healthy 401(k) is one of the most important employee retention tools available.

Now, if you are a small business owner, First Sustainable can offer 401(k) administration and we make certain that the low-cost options AND the socially responsible options are available. Furthermore, it comes with free consultations for every employees and their spouses. I would be happy to chat with you about it.