Ask an author: David Loeper here to answer your retirement planning questions!

[davoscat]

Originally Posted by David Loeper

As you can tell by my picture...I am a geek.

Then you'll fit in perfectly around here.

[David Loeper]

Originally Posted by davoscat

Then you'll fit in perfectly around here.

One of the few places I'm not a misfit!

[Julie Rains]

I read in today's paper that employees can sue their 401(k) administrators for mismanagement of funds/plans. The case was brought before the Supreme Court b/c an employer didn't follow an employee's trading instructions. So that raises a couple of questions, 1) do most plans allow for frequent changes in investment mix, and 2) are there typically rules associated with trading/settlement time periods (can you place limit orders and/or do trades need to happen within x hours and settled within 3 days?)

[David Loeper]

Originally Posted by Julie Rains

I read in today's paper that employees can sue their 401(k) administrators for mismanagement of funds/plans. The case was brought before the Supreme Court b/c an employer didn't follow an employee's trading instructions. So that raises a couple of questions, 1) do most plans allow for frequent changes in investment mix, and 2) are there typically rules associated with trading/settlement time periods (can you place limit orders and/or do trades need to happen within x hours and settled within 3 days?)

Yes...this is an interesting case. I'm frankly surprised the it made it to the Supreme Court since there should have been plenty to go on in lower courts.

As to your specific questions:

1) Most plans do allow for frequent (up to daily) trading activity, however, not permitting it is not necessarily a reason for a case against the sponsor or provider. Some do not allow more than one investment change a year, and this is permissable under the law as well.

2) Regarding trading/settlement rules, as I state in my book, the ERISA rules are written in a VERY weak structure, basically saying "as soon as it is administratively practical."

This means there are a lot of vendors that are not finding it very practical to be timely on these matters. A day or two is reasonable. Beyond that, they are probably earning float on your contributions. Proving it is "administratively practical" to execute faster than them dragging their feet is the tough part of the case.

Limit orders and such are permitted in self directed brokerage accounts, if your plan has one as an option. Even though it cost nothing to offer one, they are not very common. Our employees have that option though.

[redstone]

Thanks for providing this service.

David what are some of the biggest obstacles employees will face when trying to get their employers to change their plans? I know changing the plan is a win-win situation, but I can think of several problems, like bureaucratic inertia, the financial firms confusing the issue with complicated plans and coming up with excuses, the employer's plan administrator unwilling to admit she made a mistake, etc.

Am I being paranoid?

By the way I found this through Lifehacker.

[David Loeper]

Originally Posted by redstone

Thanks for providing this service.

David what are some of the biggest obstacles employees will face when trying to get their employers to change their plans? I know changing the plan is a win-win situation, but I can think of several problems, like bureaucratic inertia, the financial firms confusing the issue with complicated plans and coming up with excuses, the employer's plan administrator unwilling to admit she made a mistake, etc.

Am I being paranoid?

By the way I found this through Lifehacker.

Nope, not at all. In fact, your question is almost the same as the answer I gave to Davoscat in post#24 when she asked if having happier employees was enough of an incentive for the employer to change and I said:

They (employees) will be happier and more productive, but only if they know their plan is better. Unfortunately, the way fees are hidden, people are naively happy with their 401k, which is why I'm trying to get the word out.

The first issue is really a mindset issue. You need to put yourself in your HR Dept, Controller's, etc. shoes. Understand when approaching your employer that:

1) They probably weren't aware of all of these fees within the plan either

2) They probably have some "pride of authorship" in selecting the plan

3) You are probably the going to be the first person that even mentions it, so their assumption is you probably calculated something wrong since no one else has mentioned it (that's why you need to get some associates to help.)

4) Their own 401k money is being skimmed by these excess fees too, so they do have an incentive to learn about this and get the problem fixed.

5) The first person your plan authority will contact is likely going to be the sales person for the plan who is skilled at protecting his or her fees.

Understanding these things helps. I use an example memo in the book that is a thank you note for you to send to your plan authority for helping you assemble the documents you needed to do your retirement planning (and calculate your fees.) Sending a thank you note for their help and the gift of the book is pretty hard to perceive as confrontational...don't you think?

The key is to not make it confrontational, and to get a few of your coworkers to help. In the end, your employer doesn't want you to be ripped off. They want the plan to be viewed in a positive light so it is up to you to get them to perceive that positive light has a shadow in the way. My book outlines the easiest approach to tackling this issue while avoiding confrontation.

If all else fails, call the DOL and ask for whistle blower protection.

[redstone]

Thank you so much David.

4) Their own 401k money is being skimmed by these excess fees too, so they do have an incentive to learn about this and get the problem fixed.

At my company many decision makers get "wined and dined" by outside vendors. For example, our IT guys who are responsible for making server purchasing decisions are often invited to go to luncheons and conferences at expensive, exotic locations. Theoretically they are there to learn about the latest industry offerings. But unofficially, they get free comps at golf courses, restaurants, resorts, etc just for watching slides from companies trying to sell us equpiment.

Do plan administrators go through the same thing? I'm not saying they directly take kickbacks, but do they get influenced by the prospect of free meals and gifts?

[prosper2]

I just made a sale for you David. My aunt is the personal assistant of a small biotech company's HR director. We had dinner last night and I mentioned this forum. She called me this morning to tell me that she was so impressed with your answers that she is going to recommend the book to her boss!

Thanks again for your answers!

I do want to follow up on something:

1) Saving too much money- Yup...that's right...there are a lot of people that have been guilted/coerced into saving too much money. If it is possible to save too little (a common theme with the product vendors that get fees on your assets) it is also possible to save too much. You need to know the right amount for your personal goals and situation.

Do you have any good rules of thumb for figuring out whether you have invested too much or too little money in your 401K plan?

[mama4jc]

Hi David: Thanks for coming on to answer our questions! My quick question is as follows - I'm still just learning about managing my finances and realized that I don't even know enough about 401Ks to ask a good question. Where can I get a good intro into 401Ks, whether online or offline? There are so many guides out there and I would love some reputable 401K 101 resources. Thanks a bunch!

[Desdemona]

Hi David, thanks for answering questions here. I've read through the thread and I have a question I don't think has been asked yet:

My husband is about to quit his full-time job in order to become a full-time student. If we can afford to pay the taxes in order to put his 401(k) money into a Roth IRA, would you recommend doing so?