4 ms·

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

by 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
  - ng12 9y ago
    But the beautiful thing is if you don't like the plan you can opt out (or only invest up to the match) and invest in an IRA instead. Can't do that with a pension.

by ydt 9y ago

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
- ng12 9y ago
  But the beautiful thing is if you don't like the plan you can opt out (or only invest up to the match) and invest in an IRA instead. Can't do that with a pension.