The End is Near… for 401(k)s

It’s common practice for employers – especially in the service industry – to give their hard-working employees a discount.

It’s usually not a whole lot, but at least it’s something. And even the smallest of discounts can be appreciated because something is better than nothing.

So how would you feel if your employer did the opposite? If they charged you more for the service? Not just that, but more than what they charge their customers on the market?

Fidelity Investments – as you are probably aware – is one of the largest providers of retirement plans. It’s the service they are best known as providing.

And what discount do they give their employees? According to a class action lawsuit filed by a group of employees and former employees, the retirement plans Fidelity offered them were mostly expensive mutual funds when the company itself has lower-fee options.

According to the lawsuit, about 150 different Fidelity investment options were made available to employees. That’s a good amount of options, and it makes you think there’s a bargain in there somewhere, right?

Not when nearly 85% of the plan’s assets were held in actively managed Fidelity mutual funds. As you probably know, actively managed plans usually have higher fees as opposed to passively managed funds that aren’t watched so closely by asset managers.

Of course, Fidelity refutes these claims and has filed to dismiss the lawsuit.

What’s even more – dare I use the word – hilarious about this episode is that it’s not the first time 401(k) providers have been in this same tub of hot water.

In fact, it is yet another recent example of a 401(k)-related lawsuits against financial firms and employers that claim funds are being mismanaged and employees are being charged inappropriately high fees.

Two years ago, Wells Fargo coughed up $17.5 million to settle a class-action lawsuit that alleged it had engaged in self-dealing when choosing investment options for its company 401(k) plan.

That same year, Wal-Mart and Merrill Lynch settled a multi-million dollar lawsuit that claimed the retailer subjected its workers to unnecessarily high fees.

Apparently, Wal-Mart believed they paid their employees plenty enough that they could afford high-fee funds.

To me, all this says one thing. The end is near for 401(k) plans.

The reign for Wall Street, mutual funds, and 401(k) plans as the top retirement choices is officially on a steep downslide. But that doesn’t mean investors will arrive in droves to your office for whole life insurance policies.

As we all know, whole life is a better path to retirement – and one that isn’t fraught with the complexities and the possible corruption by a Wall Street feeding 401(k). But the average John Q. Investor does not usually know this.

Supposing average investors do know this, only a minority of them have the ambition to take an active role in seeing a success plan through. In other words, most 401(k) fund owners would rather ride in the car than drive it.

So if 401(k) plans are flawed because of their performance, investors’ lack of education about them, and now the growing mistrust of the 401(k) fund providers themselves… this is a golden opportunity for you.

Use it wisely.

Be valuable.

John McCarthy
Managing Editor,

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