Sunday, April 15, 2007

Take control of your employer retirement plan!

This post is inspired by Broke Now, Rich Later's post on getting a Roth 401k offered at his company.

I love to hear about people like BNRL who are taking control of their retirement options at work. There are too many people who are stuck with horrible investment options at their jobs but prefer to complain about it than to do anything. They just assume that since it's what's in place, it's what the company thinks is best.

In reality, what probably happened is that a representative of your company who knows nothing about benefits was sold a policy that sounded good at the time. They may not have known about things like sales loads, expense ratios or asset allocation options so they trusted the sales person to set them up with a good plan. Unfortunately, what likely happened is that the company got stuck with an expensive plan with bad investment options (like the one I saw recently with no international but 5 bond funds) and, that's what will reamain until someone who knows better comes along and makes an issue out of it.

You should be that someone. For your benefit and the benefit of others in the company.

Will it be easy? Nope. It will take time, effort and persistence. And, it may never happen. But you don't know if you don't try.

If you are going to go down this path, there are things you should be prepared for.

  1. Whoever chose the plan, if they're still there, probably won't like that you're trying to change it because it will make them look bad. So, be *very* delicate in how you approach this. Don't make them wrong, just point out alternatives.
  2. You should be willing to do this on your own time unless your company assigns this to you as a project.
  3. You'll get much further if you have people standing behind you so rally the co-workers but don't be obnoxious by complaining about how horrible the benefits plan is. This will not make you any friends in management and those are the people you need to convince.
  4. People like numbers but they like charts and graphs too. This is a sales pitch and you should treat it as such. Offer concrete examples and run the numbers of how this will impact the company and each investor bottom line. For example, if the cheapest fund in your selection is a S&P fund with a 1.15% ER (don't laugh, this is a real example) then run the numbers. Show the difference that a 1.15% ER will have on $10k invested over 30 years. Compare that to $10k invested in VFINX (Vanguard's S&P fund) with an expense ratio of .18% and you will have a nice fat number to show them.
  5. Follow the chain of command. Nothing will tick people off more than if you skip them and they hear about it from someone else.
  6. Provide expert commentary. If your company is ok with it, find a consultant to hire to set up the new plan. If you're flying solo and have to convince them, do your homework and bring in supporting documentation from known sources.
  7. If at first you don't succeed try, try again. If you're automatically shot down, then you need to really rally the troops. Start a grass roots campaign for financial education and get a petition going. Make your point clearly and without emotion. Whatever you do, don't lose your cool.
There are other things, but that should get you started. I'm hoping that BNRL will post about how things are going for him so others can get ideas to use.

If you do decide to go down this path and they agree to change the plan/policy/whatever, see if you can shoot for the stars and get them to implement an auto-enrollment policy. I am a huge supporter of these for two main reasons (the first one is most important to me).
  1. It will get the people who otherwise wouldn't enroll on their own to start investing. People don't enroll for lots of reasons, most of which are excuses so if you make it opt-out instead of opt-in, most people won't complain. True story: Recently I was presenting a basic financial education seminar at a local small business. At the end of the seminar I did a little poll to see how many people in that office were enrolled in the 403b plan which had just started a matching program. I was not surprised to learn that a full 2/3 of the people attending the seminar were not enrolled in the plan. ALL of them intended to enroll but just hadn't gotten around to it or didn't understand the process. The solution: everyone got their forms, sat around the table and we got them all enrolled right then. If that company had an auto-enrollment program, all of those people would have been participating the whole time (some had been there for 3 or more years) and they would be much further along the road to retirement.
  2. It will benefit the company by getting more money into the plan. This will do a few things: 1 - they will probably get better deals on plan fees. 2 - it will help with non-discrimination testing. 3 - it will allow highly compensated employees to contribute more if they've been phased out.
If you decide to take this all on, then good luck! If you have any questions, just ask I'll be happy to help in any way that I can.