Last week, I shared the first part of my 'adventure' with G.K. (G.K. is for Gate Keeper, a junior officer I encountered during a recent 401(k) review for a local business.) There is certainly a lot of danger in sponsoring a 401(k) plan for your employees when you don't give a s*** about it.
Danger to employees - They aren't getting the most from this company benefit - which affects their future
and their abilty to retire later.
Danger to employer - By not taking their fiduciary responsibiltity seriously, the company may be open
to potential legal action.
The problem is that there are too many "wimpy" G.K.s out there. I am purposely leaving the name generic, so you may ask yourself "Is this MY company?" People like G.K. are one of the main reasons I wrote the book, "Help! My 401(k) Has Fallen - And Must Get Up!" You need to know what to do if you are stuck in a bad 401(k) plan. You also need to know what to do if your employer is "wimpy".
Anyway, as I mentioned in my post last week, I had asked G.K. my usual review questions and was suprised at her careless attitude towards their plan. She had provided me with a 2008 version of their enrollment kit. This was for me to prepare a report on their mutual funds in terms of performance and expenses.
After seeing this, I was pretty sure what to expect. I knew that I could help this company, but only if I was able to talk to the right people. I asked G.K. to please have the President and Vice President available for our next meeting. She said she would 'try' to do this. I told her how urgent this was. The others MUST be present. At the very least, have ONE of them. She needed to understand that being negligent about the plan was costing them money. Surely the other guys would get that.
We scheduled a follow-up appointment on a time when the Pres. & V.P. were scheduled to be in the office.
How did the funds look? Hmmm......imagine letting your lawn grow for several months without mowing or watering. That should give you a pretty good idea.
There were 59 funds in all! That is already a problem, even if they were all great. Imagine going to a restaurant and being handed a menu with that many entree choices (which happens). What do you do?
How long does it take to decide? If it is that hard in a restaurant, imagine poring over mutual funds.
People want SIMPLE! A good selection for a 401(k) is 15-20 funds which include the best possible ones in each asset class.
One of my resources allows me to measure funds and compare them to their peer group. A Large Company fund is compared to other Large Company funds. Internationals are compared to other internationals. In other words - apples to apples. Funds are measured in terms of performance, management fees, risk, and Morningstar ratings.
The finished report tells us very simply whether the fund passes or fails. Passing funds are printed in GREEN on the report. Failing funds are printed in RED. How is that for SIMPLE?
Guess what? Would you believe that 51 out of 59 funds were in RED?
Well, I burned up my toner cartridge and printed out 3 copies of this "tree-killer" report. That showed the problem clearly enough. Now I needed a solution for the company. We needed to address the glaring issues of monitoring mutual funds regularly and keeping fees low. As an advisor, I would also need to be pro-active in showing employees how to use the plan. As long as the "powers that be" were there, I felt pretty good about being able to serve them.
Another great benefit for the company was that because the plan held more than $1 Million in assets, there is no cost for them to change!
Ask Yourself This: If you could trade in your broken down, smelly, rusted out 1980's gas guzzler for a shiny new car - and the cost to you was ZERO - how long would it take to decide?
Wouldn't you know it though? Even though I had called G.K. the day before to confirm that everyone would be there......when I showed up, they were missing. No President. No Vice President. Only G.K.
She mumbled an "apology" without looking me in the eye, saying that "something had suddenly come up" for the guys and I could just show her my report.
"Something suddenly came up"? What is this - a 'Brady Bunch' episode?
I showed her my report and pointed out my concerns. When I showed her the mutual funds and that 51 out of 59 were in RED, she started looking for which funds were most common to the plan. Then she looked up HER OWN PLAN to see if HER funds were Green or Red. For a few seconds, I could only stare in disbelief - What kind of MORON is this??
I interrupted the insanity. "Ummm....Aren't we missing the big picture here? Rather than try to pick out individual funds, wouldn't you be concerned that 51 out of 59 are failing? You have a real need for a system to monitor the funds in your plan on a regular basis - which lowers your company liability. Think of it this way - if you have a bunch of bananas in the house, and they've gone brown and soft, what would you do? Would you try to pick out a few good parts? Or would it really be better to replace the bananas?"
G.K. thought for a bit, and admitted that I may have a point.
Amazing! Was I actually getting through?
Not really. G.K. sat there as I pointed out a few other red flags, then said goodbye. "I'll share this with the others. We'll call you if we're interested."
Let me make this clear. I'm not mocking G.K. and the company because they have a bad 401(k) plan. Also, I know not everyone will work with me as their 401(k) advisor. However, the reason for my anger is that the plan stinks - AND they aren't willing to do anything about it!
Again - If you could trade in your broken down, smelly, rusted out 1980's gas guzzler for a shiny new car - and the cost to you was ZERO - how long would it take to decide?
There are too many G.K.s out there - Lazy, narrow-minded people who oversee the 401(k) at your company. That's why I wrote this book, "Help! My 401(k) Has Fallen - And Must Get Up!" due out soon. This is to help YOU fight back - AND get more from your 401(k).
You can contact me at http://www.helpmy401k.us/. I am also at Linked In. You can pick up your free report on my website – "The 5 Biggest Problems With 401(k) Plans – And How to Fix Them".
My weekly financial advice program, Improving Your Financial Health is on Blog Talk Radio and Saturday mornings at WHME-FM.