Requesting Changes to your 401(k) Plan
Or How a Routine is Helpful
As a part of my continual effort to educate myself more and more on all things finance-related, I do a daily read of certain sites: Yahoo Finance, MSN Money, USA Today Money and some other random ones. Sometimes I’ll go to a company’s Yahoo! stock ticker and see what stories they have listed. Sometimes they’re related specifically to the company and sometimes they aren’t. I think I was looking at Bank of America’s (BAC) news feed when I saw a story link titled “The Worst Investment I’ve Ever Seen” by the bombastic folks over at The Motley Fool. The article is about an index fund that tracks the S&P 500 but charges a ridiculous amount for it compared to what Vanguard (or any other index fund) would charge.
It is the rare case where the title of the article isn’t exaggerating. It got me thinking about the battle with my old 401(k) provider. So I decided to check up on my current 401(k) account just to see how it was doing (I do this way too much as it is). I was very careful when I picked my investments but I wanted to see if there was anything else I should be doing and to see if I was doing well or not.
What I Found
My 401(k) portfolio is made up of three parts: an international index fund, a large-cap index fund, and what I thought was a mid-cap index fund. But when I logged on I noticed that my mid-cap fund wasn’t really an index fund and the expenses I was paying on it were horrific. How did this happen? I did a little research and it turns out that we just don’t have any other options in our plan if I want to have a mid-cap or small cap fund in my portfolio. Which sucks. I didn’t have a good feeling about it but decided to email the finance department either way.
Here’s What Happened
After going back and forth two or three times and doing a little more research, I got an email back saying that I was right: there weren’t adequate mid/small cap options in our plan and that the whole menu of options was going to be reevaluated (and the fund I recommended (Spartan Extended Index Fund (FSEVX))) would probably be included after the overhaul. They even apologized for it taking so long!
I had to walk over there to thank them and tell them the story of how the Principal yelled at me at my old job.
Anyway, in the near future I hope to be paying a 0.07% ratio instead of the outrageous 1.44% I’m paying right now. I know some people will scoff and tell me to get out of that investment now, but it gives me the exposure I want and now I know it’ll be replaced soon so I’m OK with it. Over 30 years, however, that would seriously eat at my investment.
While it isn’t the best idea to be obsessive about your investments, it certainly pays off to double check on the decisions you’ve made in the past and to ask questions when you find something is off. I very easily could’ve just assumed no changes could be made to our plan but then I would’ve been stuff paying awful expense ratios. Instead I took action and it paid off (or will pay off). Be proactive!
I’m curious what other people’s experiences have been with their 401(k) provider…