4 ms·

> We let ourselves be charged high fees that we do not understand, we accept poor returns quarter after quarter, we never sue to enforce our rights, we never vo

by ng12 9y ago

> We let ourselves be charged high fees that we do not understand, we accept poor returns quarter after quarter, we never sue to enforce our rights, we never vote as shareholders and we never tell our investment managers how we think they ought to vote. Is this satire? How is a pension better than a 401k in any of these dimensions? If my retirement is invested in overpriced, underperforming funds it's 100% my own fault. If my pension is chronically mismanaged (as they tend to be) there is literally nothing I can do about it.

ydt 9y ago
Although I agree with you that many pension funds have been mismanaged, it's not 100% your fault if your 401k plan only offers poorly-performing, high fee funds as many do. I'm not sure either model is a good solution going forward.
- dragontamer 9y ago
  > it's not 100% your fault if your 401k plan only offers poorly-performing, high fee funds as many do. Well, IRAs and Roth IRAs are the competitor in that realm. I don't trust most people to handle their own funds in an "automatic" 401k plan however. How many "normal" people do you know who has a Roth IRA for example? Not a lot. A ton of people I know even pull money from their 401k early for luxurious reasons. (It makes sense to do so in an emergency. But not for like... a Euro-trip or Cruise Vacation like some people in my circle...) Honestly, each time I hear about stupid personal finance stories like that, I wish that those people were on a pension instead. There's a lot of stupid out there.
  - emodendroket 9y ago
    That's exactly the problem. We've moved to a system where the individual bears all the risks and is supposed to know what he's doing. But what if the individual doesn't? Are we going to just accept an explosion of old-age destitution? Are we going to pay to mitigate it some other way?
- hkmurakami 9y ago
  Are there plans that actually only offer actively managed funds? Even the bare bones bottom tier Fidelity plan I had years ago from a notoriously tight pursed startup gave me a few index tracking funds.
  - sokoloff 9y ago
    Have a look at the total fees for your account/index funds. My experience is that they are not always competitive with the lowest fees in the free financial markets. (3 basis points for Schwab S&P 500 index). If your company is small or your benefits person clueless, you may have worse funds available to you than in the taxable brokerage world.
    - perl4ever 9y ago
      I think there are better things to worry about than a couple basis points. If I'm charged 1% for a basic index fund, sure that's a problem. But given the minute fees for most, the inefficiencies from trading strategies could dwarf the explicit fees - if you really care about every penny, you need to look at the actual tracking error. You may be surprised to find it's substantially larger than the fees.[1] My attitude in practice is that if I'm getting an employer match, then why complain about fees? It's their problem to minimize them - I'm still doing better than I would on my own. The efficiency is their problem, and because they have an incentive to minimize their costs, there shouldn't be a systemic problem. [1] Average ETF tracking error is said to be as high as 50 basis points: http://www.nytimes.com/2013/04/07/business/mutfund/exchange-traded-funds-tracking-error-is-often-overlooked.html http://www.nytimes.com/2013/04/07/business/mutfund/exchange-...
  - Cryptid 9y ago
    Yes, it's happily becoming less common, but it was and is common for all options in a 401k plan to have high fees, and be set up to benefit the company http://time.com/money/3959942/401k-bad-choices/ http://time.com/money/3959942/401k-bad-choices/ http://www.pionline.com/article/20170927/ONLINE/170929858/general-electric-401k-participants-sue-over-poor-performing-ge-asset-management-funds http://www.pionline.com/article/20170927/ONLINE/170929858/ge... http://time.com/money/3991604/401k-funds-bad/ http://time.com/money/3991604/401k-funds-bad/. https://www.bogleheads.org/forum/viewtopic.php?t=188571 https://www.bogleheads.org/forum/viewtopic.php?t=188571
brockers 9y ago
I agree, even with the often quoted "the inventor of 401(k)'s doesn't even like them anymore" it always fails to identify the primary concern as being one of personal mismanagement and not the vehicle itself. There are some decent arguments that need to be made about investment education and regulatory simplification but this article doesn't make them.
biggc 9y ago
> If my retirement is invested in overpriced, underperforming funds it's 100% my own fault Its my understanding that there are a lot of 401(k) plans out there that charge a significant management fee on top of any fees charged by underlying funds. A lot of plans also don't offer much choice in terms of underlying funds.
- woolvalley 9y ago
  That isn't much of an issue unless you have the same employer for decades, which typically means your probably at a large organization with good 401k fund options.' On the other hand, I feel like we should remove the strange limits on IRAs and just merge them together with 401k plans so employers don't have to set up a '401k plan' each.
emodendroket 9y ago
Well, it seems pretty obvious. The pension has people who spend their work days thinking about it and has the resources to read all the documents, understand what's going on, and even sue. Individuals do not.

by ng12 9y ago

ydt 9y ago

Although I agree with you that many pension funds have been mismanaged, it's not 100% your fault if your 401k plan only offers poorly-performing, high fee funds as many do. I'm not sure either model is a good solution going forward.

dragontamer 9y ago
> it's not 100% your fault if your 401k plan only offers poorly-performing, high fee funds as many do. Well, IRAs and Roth IRAs are the competitor in that realm. I don't trust most people to handle their own funds in an "automatic" 401k plan however. How many "normal" people do you know who has a Roth IRA for example? Not a lot. A ton of people I know even pull money from their 401k early for luxurious reasons. (It makes sense to do so in an emergency. But not for like... a Euro-trip or Cruise Vacation like some people in my circle...) Honestly, each time I hear about stupid personal finance stories like that, I wish that those people were on a pension instead. There's a lot of stupid out there.
- emodendroket 9y ago
  That's exactly the problem. We've moved to a system where the individual bears all the risks and is supposed to know what he's doing. But what if the individual doesn't? Are we going to just accept an explosion of old-age destitution? Are we going to pay to mitigate it some other way?
hkmurakami 9y ago
Are there plans that actually only offer actively managed funds? Even the bare bones bottom tier Fidelity plan I had years ago from a notoriously tight pursed startup gave me a few index tracking funds.
- sokoloff 9y ago
  Have a look at the total fees for your account/index funds. My experience is that they are not always competitive with the lowest fees in the free financial markets. (3 basis points for Schwab S&P 500 index). If your company is small or your benefits person clueless, you may have worse funds available to you than in the taxable brokerage world.
  - perl4ever 9y ago
    I think there are better things to worry about than a couple basis points. If I'm charged 1% for a basic index fund, sure that's a problem. But given the minute fees for most, the inefficiencies from trading strategies could dwarf the explicit fees - if you really care about every penny, you need to look at the actual tracking error. You may be surprised to find it's substantially larger than the fees.[1] My attitude in practice is that if I'm getting an employer match, then why complain about fees? It's their problem to minimize them - I'm still doing better than I would on my own. The efficiency is their problem, and because they have an incentive to minimize their costs, there shouldn't be a systemic problem. [1] Average ETF tracking error is said to be as high as 50 basis points: http://www.nytimes.com/2013/04/07/business/mutfund/exchange-traded-funds-tracking-error-is-often-overlooked.html http://www.nytimes.com/2013/04/07/business/mutfund/exchange-...
- Cryptid 9y ago
  Yes, it's happily becoming less common, but it was and is common for all options in a 401k plan to have high fees, and be set up to benefit the company http://time.com/money/3959942/401k-bad-choices/ http://time.com/money/3959942/401k-bad-choices/ http://www.pionline.com/article/20170927/ONLINE/170929858/general-electric-401k-participants-sue-over-poor-performing-ge-asset-management-funds http://www.pionline.com/article/20170927/ONLINE/170929858/ge... http://time.com/money/3991604/401k-funds-bad/ http://time.com/money/3991604/401k-funds-bad/. https://www.bogleheads.org/forum/viewtopic.php?t=188571 https://www.bogleheads.org/forum/viewtopic.php?t=188571

brockers 9y ago

I agree, even with the often quoted "the inventor of 401(k)'s doesn't even like them anymore" it always fails to identify the primary concern as being one of personal mismanagement and not the vehicle itself. There are some decent arguments that need to be made about investment education and regulatory simplification but this article doesn't make them.

biggc 9y ago

> If my retirement is invested in overpriced, underperforming funds it's 100% my own fault Its my understanding that there are a lot of 401(k) plans out there that charge a significant management fee on top of any fees charged by underlying funds. A lot of plans also don't offer much choice in terms of underlying funds.

woolvalley 9y ago
That isn't much of an issue unless you have the same employer for decades, which typically means your probably at a large organization with good 401k fund options.' On the other hand, I feel like we should remove the strange limits on IRAs and just merge them together with 401k plans so employers don't have to set up a '401k plan' each.

emodendroket 9y ago

Well, it seems pretty obvious. The pension has people who spend their work days thinking about it and has the resources to read all the documents, understand what's going on, and even sue. Individuals do not.