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

[David Loeper]

Originally Posted by idorunyc357

I'm a young'un (26 yo) and I have been making contributions to my 401(k) for about 18 months now at 4% of my salary (my company matches 2%)... and I have it all in one of those Freedom Fund things because - well - I'm too nervous to do anything on my own about it. I'm really paranoid when it comes to money, and I'm afriad I'll be second geussing any other choises I'd make on my own. Are they really all that bad?

Also - and this is going to sound bad - where and how can I tell what fees I'm paying? *(if this is already answered, just point me to where it is ) I honestly don't know

Target date funds can be very bad, but they can be better than chasing past performance and constantly fiddling with your investment options. Part V of my latest white paper "Measuring Temperature with a Ruler- Is Your Wealth Manager Really a Return Manager in Disquise" actually goes through an 80 year case study for someone in a similar situation as you are in and shows how bad a target date fund approach can be. (The paper is available on my whitepaper website along with all of my other whitepapers at:
http://www.financeware.com/f_frame.asp?load=advisors/whitepapers.asp)

The problem with target date funds is that other than the calendar, they ignore all of the other variables that are equally important (like savings rate, planned spending need, funded status, estate goals, etc.) so invariably they will be "automatically" shifting your allocation the wrong way for your personal situation.

Target date funds are an easy way to feel good that "something" is being done (managing your allocation based only the calendar) but it is a false promise because there is a lot more that should go into the allocation decision other than your age.

As for fees, don't feel bad about asking the question because both the AARP and Government Accountability Office have shown that 80% or more of all 401k participants do not know what they are paying. It is why I wrote the book, because it isn't as easy as looking at your statement...in fact, many statements don't give you any information about your fees.

If you really want to know how to calculate your 401k expenses, you can pick up a copy of my book (the first couple of chapters walk you through the steps to calculate your expenses and what documents you will need) or you can get some basic information about it from the "Learn More" link on my book website (www.401kripoff.com).

There is a short article there the outlines the types of fees you need to dig up:

http://www.401kripoff.com/fees.htm

Also, we have a free mutual fund and ETF grading website that unlike others, actually includes an expense grade for your fund. You can look up a report card on any of 22,000 mutual funds and ETFs free at www.fundgrades.com.

[vanetwerk]

David,

Thanks so much for writing this book! I just finished it and found out I was paying SEVEN times as much for my S&P500 index fund than was needed.

I'm going straight to my HR dept with this. I really liked your example in the book that said, "For index funds, we are not talking about the difference between a Lexus and a Camry, we are talking about paying Lexus prices for a Camry!"

[David Loeper]

Originally Posted by vanetwerk

David,

Thanks so much for writing this book! I just finished it and found out I was paying SEVEN times as much for my S&P500 index fund than was needed.

I'm going straight to my HR dept with this. I really liked your example in the book that said, "For index funds, we are not talking about the difference between a Lexus and a Camry, we are talking about paying Lexus prices for a Camry!"

Well, unfortunately that is a common problem. Good luck with your HR dept. and don't forget to get some of your associates to help. The road to fixing your retirement plan is probably just beginning.

[Will]

Hi everyone! This week, the lucky winners of David's book are Night Runner and kav122.

[davoscat]

Hi Dave... I started reading your book over the weekend. Aren't you proud of me?

I borrowed the book from a friend though, I hope you don't mind that I didn't buy it. But hey I'm cheap!

You mentioned in the beginning of the book that 401ks have replaced pensions as the standard retirement safety net of corporate America. Do you think we'll ever get back to a pension system? With social security in such a wretched state, do you think more people will demand a less speculative form of retirement plans from their employers?

By the way, the book is immensely readable. It didn't read like it was written by an accountant or anything. I have a very basic understanding of financial terms and so far everything makes sense.

[David Loeper]

Originally Posted by davoscat

Hi Dave... I started reading your book over the weekend. Aren't you proud of me?

I borrowed the book from a friend though, I hope you don't mind that I didn't buy it. But hey I'm cheap!

You mentioned in the beginning of the book that 401ks have replaced pensions as the standard retirement safety net of corporate America. Do you think we'll ever get back to a pension system? With social security in such a wretched state, do you think more people will demand a less speculative form of retirement plans from their employers?

By the way, the book is immensely readable. It didn't read like it was written by an accountant or anything. I have a very basic understanding of financial terms and so far everything makes sense.

I don't care whether you bought it or borrowed it. As long as you are not getting ripped off in your 401k and you learn how to fix it.

I think it is unlikely that corporations will revert to Defined Benefit plans for the foreseeable future. The cost and risk is too great and the rip off in 401k plans is too easy to hide so employees are unlikely to demand alternatives.

[DCer]

Mr. Loeper do you have any general advice to financial analysts looking to write a new book? As far as I can tell, this is your first book and it is already a pretty big success. How did you get the book deal? What's a good way to approach a publisher in a market that is already saturated with so many self-help finance books? Thank you.

[bluedevils89]

Hey Dave thanks for answering our questions.

My question is about the latest Supreme Court ruling about employer's fiduciary duty in 401(k) plans. The Supreme Court said the fees have to be "reasonable" but I couldn't find a clear definition of what that means. Are there any guidelines from the Supreme Court or lower courts on that definition?

[Brahms]

This thread has been very helpful....even though some of this stuff is way over my head. It sounds like the book is pretty accessible based on the feedback here. I'm definitely picking up a copy.

I have a question that might not be covered in the book. David do you discuss hardship withdraws? I remember hearing that you can withdraw from your 401(k) plan if you need repairs for your primary residence. Does it have to be necessary repairs? What if you just wanted to remodel your kitchen?

[David Loeper]

Originally Posted by bluedevils89

Hey Dave thanks for answering our questions.

My question is about the latest Supreme Court ruling about employer's fiduciary duty in 401(k) plans. The Supreme Court said the fees have to be "reasonable" but I couldn't find a clear definition of what that means. Are there any guidelines from the Supreme Court or lower courts on that definition?

The ruling wasn't actually about fees, the specific case involved fiduciaries that did not execute instructions to change investments of a participant on a timely basis. However, the ruling does potentially open the door for suits about fees because the court's ruling stated suits could be brought for: "fiduciary breaches that impair the value of plan assets in a participant's individual account."

Excessive fees would certainly seem to fit that category, until you read the rules in ERISA.

You are correct that ERISA does not really put much meat on the bone in terms of its language about fees, as you said they just must be "reasonable in consideration of the services being provided."

THIS is a problem in winning a case because the product vendor industry has been in essence colluding through their trade organizations to justify excessive fees. They have already established case law comparisons to "averages" and have won. So, if the average plan is a rip-off, well, so far the courts have determined that to meet the definition of "reasonable."

There is a section of my book that addresses this in lay terms and also the book website has an article about regulations at: www.401kripoff.com/full_regulations.htm