We Got What We Asked For - Now Let’s Ask for Low Cost 401k Plans
I’m reading a great book called “Salt Sugar Fat: How the Food Giants Hooked Us,” by Michael Moss.
You’re probably wondering how a book like this relates to low cost 401k plans. I think you’ll see the parallels shortly.
Moss’ basic premise rests on the idea that large corporate interests use high amounts of fat, sugar and salt to sell us large quantities of nutritionally unsound food (think: delicious, cheesy pizza and double bacon cheeseburgers chased down by sweet juices and sodas.) The result? We have eaten ourselves into an epidemic of obesity. Thus, the natural question becomes, who should we blame? Are we consumers the victims of corporate greed? Or is an efficient market simply providing us with exactly what we want?
While there may be cause for debate in the world of “Big Food,” I think there should be no debate in the world of 401ks, IRAs and retirement plans. The cost of investments, the quality of investments, the additional (and potentially unnecessary) fees we may pay – heck, even employee participation rates to some extent – are demand driven. We went to the retirement plan supermarket, put the plan in our carts and made our purchase.
This all implies that the retirement plan market is NOT broken. We may be unhappy when we examine our plans more closely and we may have legit gripes, but we are NOT victims. We chose to participate in the market and it delivered a variety of market-driven solutions. Was there fine print that we failed to read? Yup. Are some practices a bit deceptive? Absolutely. Are there providers with conflicts of interests? I’m shocked – SHOCKED!
Now before you think I’ve had a market-driven conversion experience, let me give you the good news:
The retirement plan process is demand-driven.
As consumers, we have the power to change the retirement plan marketplace by changing what we put in our shopping carts. Put down that delicious (but expensive) annuity and go get a low cost index fund from the produce section. Look at the label on that juice box of administrative fees – it is loaded with carbs – you get the picture. When we make changes in what we consume, the market will react. Stop buying junk and the supply of junk will dry up.
I have even more good news. There are lots of “secret shoppers” who will be pleased to help us navigate the various retirement plan “aisles.”
For business owners – go to bogleheads.com – it is the ground zero of frugality, and is a great place to start a search for a “low-fat,” low cost 401(k). There are also thousands of hard-working financial advisors who will provide excellent, no-conflict advice – start with some of the fee-only advisor associations:
- The National Association of Personal Financial Advisors
- Garrett Planning Network
- Global Fiduciary Insights (fi360)
For your employees, consider giving them a gift along with their retirement plan paperwork. I highly recommend “Saving for Retirement (Without Living Like a Pauper or Winning the Lottery)” by the financial columnist Gail MarksJarvis. It is an easy, de-mystifying read that anyone can use to improve their financial IQ. Be sure to check out Chapter 11 (my personal favorite), titled “Do This.” Great, straightforward and actionable information - I couldn’t write it better myself!
Stay frugal, go lean and join me in the quest for low cost 401k plans. Drop a note in the comment box below and let me know how you shopped out your retirement plan!
About Greg Carpenter
Greg Carpenter founded Employee Fiduciary in 2004. With 29 years of experience in accounting and finance, Greg has brought his expertise to a variety of advisory, senior and executive management roles. Greg has worked for a national accounting firm, a Fortune 500 plan sponsor, a major brokerage firm, and he served as the CEO of a major 401k TPA firm. He is a CPA and earned his BA from Yale and his MBA from The University of Chicago Booth School of Business.