I want to talk about the recent rash of activity of 401K plans that have been sued by their plan participants.

So as many of you probably know, I’m not actually a big fan of 401plans. In fact, I’ve written several blog posts and have several other videos where I talk about why I think 401plans are not necessarily the best investment for many people. But in this particular video, I want to talk about some of this activity. And it seems like it’s getting more and more prevalent. And what I actually find most interesting with this is that many of these 401plans that are being sued by their employees are actually from the firms of financial institutions.
So I printed out a bunch of articles here and I’m just going to read you some of these headlines and this took me about five minutes to find these. If you just type in to a search engine 401plan sued by their employees, you’ll find all kinds of these things. But Fidelity sued by employees over its own 401plan, so that’s one there. Attorney Jerry Schlichter opens up about 403, 401lawsuits. So, 403plans, for those of you that don’t know, that’s basically the non-profit version of a 401plan. So they’re not immune to this either. There’s another one about Fidelity here in this, and then JP Morgan sued for self-dealing in its 401plan. And a lot of these lawsuits center around the choosing of the investment options for these 401plans, a lot of them center around fees.

Then this article here, that was from Forbes Magazine, employers beware of a tsunami of 401lawsuits, could your be company be next? And this goes on to talk about several of the lawsuits that are out there right now and basically this references also the JP Morgan lawsuit, but it also says that companies such as Boeing, Caterpillar, Kraft Foods, International Paper, Northrop Grumman, United Technologies, ABB, Principal Life Insurance have also been targeted with these lawsuits. Last year Lockheed Martin Corporation agreed to the largest ever retirement plan settlement, 62 million dollars, over claims the company invested more the 180,000 employees’ 401savings in overly costly funds. So this is kind of a big deal.

Why are we talking about this? Well, it’s something that just brings some awareness to this. Fortunately some laws are getting a little bit better. Companies are now required to at least once a year disclose their fees and tell you how much the 401plan is actually costing. But I wanted to also bring this out because the 401plan, again, may not necessarily be the best option.

So here’s how to kind of take advantage of this. Number one is if your company is offering any kind of a match, no matter what is in the 401plan almost, within reason, it’s hard to pass that up. It’s basically free money. We don’t want to leave that on the table. So if your company is matching you on the first 6% of contributions, make sure you’re at least contributing enough to get that full matching contributions, but beyond that, I would consider some other options.

 The option that I tend to like the best is the Roth IRA option because I think that tax rates right now, believe it or not, are actually relatively low and they’re more likely to go up in the future and it gives you some tax diversification. Plus by having your own Roth IRA account, it basically, depending on where you have it, gives you an almost an unlimited option for investments that you can put inside the Roth IRA account. So I like that.

Another option that you may want to consider too, and this is something that doesn’t pertain to all 401plans, but if you’re kinda stuck with that 401, check out and inquire whether or not they have a self-directed investment option. This is something that’s increasingly becoming more and more popular with a lot of 401plans. And what that basically is it’s a separate account you can set up within your 401plan and that can give you many more options that you can choose from outside of the regular basic menu that they offer and allow you some additional access that way.

So anyway, beware on the 401plan. A lot of people I think have assumed that the 401plan is just the default, the best option to be saving their money for retirement. But really do some homework on this and know, especially, that your 401plan is not free.


What I Do

I help individuals make the transition from working to retirement.

As you approach retirement you will be making some of the most important financial decisions of your life. Most of these decisions don’t get a do-over, once you’ve made them your stuck.

My goal is to help you get the most out of your retirement resources. I do this by coordinating and optimizing what I call the 7 Core Elements of Retirement Planning.

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We use advanced financial planning software to help you understand your retirement cash flow so you know where the gaps are.

Understanding your retirement gap is the foundation to getting the most out out of your retirement resources and avoiding costly mistakes.

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