Retirement, 401(k)s, and How You’re Probably Getting Ripped Off
If you have a 401(k) plan, there’s a pretty good chance that you’re getting ripped off. At least, this is the opinion of Dan Solin, director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham Asset Management. He argues that between high costs, poor investment choices, and bad behavior on the part of plan managers, investors are better off taking the advice of Warren Buffett and simply investing in a low-cost index fund.
Solin’s argument is built on an alchemical cocktail of experience and research, which has proven to be an exceptionally strong foundation. He has called attention to a paper called “Beyond Diversification: The Pervasive Problem of Excessive Fees and Dominated Funds in 401(k) Plans,” written by Ian Ayres and Quinn Curtis, which “provided sobering advice for plan participants.” The advice is basically this: If you’re one of the 51 million Americans invested in a 401(k), you’re probably getting the short end of the stick.
Here’s why — many plan managers are either bad investors or bad actors (meaning they are not necessarily committing fraud but sometimes act in their own personal interest instead of in the interest of their clients). According to the study, 16 percent of 401(k) plans charged fees so high that they actually negated the entire tax advantage of the 401(k) plan for young investors. Moreover, the study found that 52 percent of plans were invested in “dominated funds,” which Solin defines “either as funds that were more expensive than comparable funds in the plan, or funds that were unattractive options in which no prudent participant should invest.”