I’m not a fan of most 401(k) plans. These retirement plans aimed at corporate employees are characterized by a limited array of high-cost mutual funds that enrich the firms that administer such plans, as well as our nation’s highly-profitable mutual fund companies. We can at least take comfort in the fact that 401(k) plans are carefully scrutinized by regulators.
Teachers, however, have no such luck. They are typically enrolled in 403(b) plans, which are not covered by federal law. As you might guess, the firms that run such plans structure them to charge excessive fees, whenever they can.
Take the case of Horace Mann Educators Corp. The retirement plan administrator recently paid a $500,000 fine after it became apparent that Horace Mann was taking advantage of teachers to sell them potentially high-cost or inappropriate investments.
Horace Mann has plenty of company though. For most its peers, its business as usual.
And it’s about to get worse. Operators of 403(b) plans, as well as 401(k) plans, will soon start offering annuities as an investment option in retirement plans. Annuities are larded up with all kinds of stated and hidden sales fees and are a great source of wealth for annuity salespeople.
There are a few steps you can take. First, request a meeting with your plan administrator and get a full explanation of all the costs that are discreetly siphoned from your account each quarter. At a minimum, steer your investments towards the lowest cost funds available in the plan. If you find that your retirement plan costs still seem to be excessive, reach out to your local state senator or assemblyperson. They can notify state regulators to come calling.
Second, as soon you leave your job, take your retirement account with you by rolling it over into a self-directed IRA. Doing so will get you out from under these obnoxious hidden fees and will also enable you sell those high-cost mutual funds and buy low-cost exchange-traded funds.
One day, hopefully soon, Washington will once again take up the mantle of consumer protections, and retirement plans will be held up to far higher standards of care for the plan participants.