It used to be pretty simple:  Graduate college, get a good job, work at the same company until age 65.  Then came the retirement party:  A gold-plated wristwatch – and banishing off to a condominium in the sun for a handful of years of shuffleboard and bingo.  Like the movie On Golden Pond.

But as the boomer generation continues its migration to and through retirement, the whole “concept” of retirement seems to be changing – at least for some.  Many of today’s retirees want to stay more engaged than those of previous generations:  working full or part-time, volunteering, travelling, learning, et cetera.  This is a good thing… I have noticed my own parents change for the worse… not long after they stopped working to enjoy full “retirement”.  Staying engaged after retirement is a good thing… as long as we have enough financial resources to last our lifetime!

In fact recent research from AIG and Sun America revealed that today’s retirees are dividing into about 4 (four) categories:

19% of retirees:  “Comfortably content”

These are the “Golden Years” folks.  Many in age segregated communities in warm weather climates.  Free from most responsibilities, looking to enjoy the fruits of their labor and they are financially secure.

22% of retirees:  “Live for today”

More active than Comfortably content; interested in more travel, new hobbies and “adventure” in retirement BUT modest net worth hence very worried and anxious about finances.

33% of retirees:  “Sick and tired”

Living a retirement “nightmare”.  Low net worth, poor health and pessimistic about the future.

27% of retirees:  “Ageless explorer”

Youthful, optimistic and adventurous.  Say they will never “feel” old.  High net worth as a result of making smart financial decisions.  They are sort of like the “live for today” group but with greater financial security.

Most people probably want to be in the “Ageless explorer” category.  And along with some good luck and a little health - sufficient financial resources will pave the way for this new kind of retirement.

And in the  25 years I’ve been rendering financial advice, I have yet to find anything more effective than dollar cost averaging –  over a very long period of time – into a 401K or Retirement portfolio comprised mostly of equities and a little fixed income.  It’s a boring and simple approach but it works better than anything I have seen.  The “get rich slowly” approach.  

Please share any other ideas you may have about how to financially prepare for a longer retirement!







In the first part of this post we shared two things smart employers know about their 401k: 1) Lower fees = better results and 2) auto enrollment (and auto escalation) works.

Now let’s review two more things they know.

Most Providers Are Not Fiduciaries To Your 401k Plan:

Previously I shared a story about when I was fooled by an insurance company.  Being a bit Naïve by nature, when I saw a document titled “Fiduciary Warranty” that was created by a big powerful company, I thought it meant they were a legal fiduciary to the 401k plan.  I later learned that while many providers offer lots of investment suggestions and other support, most will not take on any fiduciary risk with you.  Unless you have leveraged an ERISA 3(38) defined manager – by contractually delegating the fiduciary duty of selecting and monitoring investments to - you and your support staff are on your own.

Better Communication = Better Results.

Participants want guidance.  And 67% of 401k plan participants now expect their employer to play a role in providing this advice.  Clear and consistent communication and advice will boost participant engagement every time.  And its most effective when employers are sensitive to both how and where the employees want to receive information (On-line, face to face, in groups, one on one, et cetera).

As the tsunami shift from defined benefit retirement income (i.e. pensions, social security) to defined contribution (401k, profit sharing, personal investing) continues - the 401k concept needs to keep improving.  And lower fees, auto enrollment (and escalation), transferring or sharing of liability and clear and consistent advice and communication goes a long way in that regard.












For many of us, a 401k will be the cornerstone of our retirement income plan.  With traditional defined benefit pension plans going the way of the pay phone and typewriter – Americans are now charged with making smarter retirement planning decisions – ready or not.

But with a 401k plan it takes two to tango.  The Employer (sometimes referred to as “plan sponsor”) which includes all of those involved in decision making.  And the “participant” – an employee who is not involved in 401k decision making.  We need smart decisions from both employer and participant to make the most of the plan.  Here are two things smart employers know about their 401k:

Lower fees = Better Results

Obviously.  Markets are unpredictable while costs are forever.  And the jury is out:  study after study reveals higher costs leads to worse performance.  I’m not saying that cost should be the only consideration – or that you should go straight to the lowest cost provider.  Nobody makes any purchase decision based only on the price.  But in today’s world you can have a great 401k plan for around 1% all in expenses (administration, recordkeeping, investments, advice & fiduciary protection) More than 1.5% is unnecessary and more than 2% is excessive.

Auto enrollment (and escalation) works

The only thing people hate more than making  decisions is changing them!  That’s why having employees automatically enrolled in your 401k plan is effective.. you’re harnessing the most powerful force in the financial universe… inertia!  And while auto enrollment has brought millions of new savers into retirement plans , most employers set the default rate at 3% and because of…. inertia, it stays there!

Which brings us to auto enrollments sister:  auto escalation.  Here you automatically increase your participants’ contributions to coincide with a raise or possible a work anniversary.  But this is a trickier one because many plan sponsors fear that automatic deferral increases will be viewed as “coercive” – which is why less than half of the companies offering auto enrollment in their 401k plans extend to auto escalation.  But it still works.

In the next post we will hit “two more” things smart employers know about their 401k plans,







In parts 1 and 3 of this series we discussed 401-k retirement plan fees and how important it is – for both employer and participant – to keep them reasonable.

Generally there are two types of retirement plan fees and expenses.

1.  Recordkeeping and Administration

2.  Investment expenses

Let’s explore #2 . When it comes to evaluating investments,  it’s critical to remember:  markets are unpredictable… while expenses are forever.

In the end, the lower your costs, the greater your share of the investment return.  And research suggests that lower cost investments have tended to out perform its higher cost alternatives.

There are two ways to improve participants returns. The first is to earn higher returns than the average investor by finding a winning manager or a winning investment strategy (an “alpha” or “skill-based” approach). Unfortunately, research shows that this is easier said than done . The second way is to minimize expenses. And study after study reveals a common thread:  higher costs lead to worse performance for the investor.

The illustration below compares the ten-year records of the median funds in two groups: the 25% of funds that had the lowest expense ratios as of year-end 2012 and the 25% that had the highest, based on Morningstar data. In every category we evaluated, the low-cost fund outperformed the high-cost fund.
Average annual returns over the ten years through 2012


Notes: All mutual funds in each Morningstar category were ranked by their expense ratios as of December 31, 2012. They were then divided into four equal groups, from the lowest-cost to the highest-cost funds. The chart shows the ten-year annualized returns for the median funds in the lowest-cost and highest-cost quartiles. Returns are net of expenses, excluding loads and taxes. Both actively managed and indexed funds are included, as are all share classes with at least ten years of returns. Source: Vanguard calculations using data from Morningstar.

Indexing can help minimize costs

If—all things being equal—low costs are associated with better performance, then costs should play a large role in the choice of investments. As the chart below shows, index funds and indexed exchange-traded funds (ETFs) tend to have costs among the lowest in the mutual fund industry. As a result, indexed investment strategies can actually give investors the opportunity to outperform higher-cost active managers—even though an index fund simply seeks to track a market benchmark, not to exceed it. Although some actively managed funds have low costs, as a group they tend to have higher expenses. This is because of the research required to select securities for purchase and the generally higher portfolio turnover associated with trying to beat a benchmark.

Asset-weighted expense ratios of active and indexed investments


Notes: “Asset-weighted” means that the averages are based on the expenses incurred by each invested dollar. Thus, a fund with sizable assets will have a greater impact on the average than a smaller fund. ETF expenses reflect indexed ETFs only. We excluded “active ETFs” because they have a different investment objective from indexed ETFs. Source: Vanguard calculations, using data from Morningstar Inc.

Look: Employers that offer 401-k plans have more choice today than ever. “Open architecture” platforms give plan participants endless investment choices. And since we can’t control the markets - and it makes sense to focus on things we can control – reducing costs via ETFs and index funds is a worthwhile endeavor for anyone who sponsors or participates  in 401-k plans today.







In the first post we talked about expenses and fees in 401-k plans and how important it is – both for employer and participant – to keep them reasonable.  And in today’s world anything more the 1.5% in total – is unreasonable.  More than 2% is now excessive.

Fees charged for these plans come under particular focus as the Department Of Labor (DOL) aims to create greater transparency through regulatory disclosure under 408 (b)(2) and 404(a) of the employee Erisa act.

Probably the most in-depth research on this topic comes from Deloitte consulting and the ICI (Investment Company Institute) via a report entitled Inside the Structure of Defined Contribution/401(k) Plan Fees:  A Study Assessing the Mechanics of the “All-In” Fee. 

I love the title of the study, particularly the phrase “All-In” Fee because that is what you should be looking for.  In a nut shell, here is what the report reveals:

  • Many fee structures and arrangements exist in the defined contribution marketplace.
  • Plan size (in terms of number of participants) was found to be a significant driver of a plan’s ‘all-in’ fee.  Larger plans tend to have lower ‘all-in’ fees as a percentage of plan assets.
  • A correlation also exists between the ‘all-in’ fee and the average account size in the plan. Plans with larger average account balances tend to have lower ‘all-in’ fees as a percentage of plan assets.

There are three general groups of services that define contribution plans typically procure.  First, defined contribution plans generally require certain administrative services such as compliance (to make sure the plan is administered properly), legal, audit, Form 5500, and trustee services.  Administrative services also include record keeping services, which maintain participants’ accounts and process participants’ transactions, and often also include educational services, materials and communications for participants and plan sponsors.  Investment management services are a second category.  Investment options are offered through a variety of investment arrangements such as through mutual funds, commingled trusts, separate accounts, and insurance products.  In some plans, investment services include the offering of company stock or a self-directed brokerage window as an investment option.  A third set of services occurs in some instances when the plan sponsor seeks the professional services of an investment consultant or financial adviser and/or financial advice services for participants.

Totaling all administrative, recordkeeping and investment fees, the median participant-weighted ‘all-in’ fee for plans in the 2011 Survey was 0.78% (Exhibit 2) or approximately $248 per participant.  The data suggest that the participant at the 10th percentile was in a plan with an ‘all-in’ fee of 0.28%, while the participant at the 90th percentile was in a plan with an ‘all-in’ fee of 1.38%.








Hopefully, this information can be a starting point for you to benchmark the Fees in your own 401-k plan -  Are your Fees more or less than the 0.78% median?

In the next and last post we will dig into the Investment Management portion and how to find great low-cost investment choices.

The full report can be found here.











Did you know excessive fees levied on 401-k plans can drastically reduce the size of your retirement nest egg – even when market performance is satisfactory?

Also, were you aware that excessive fees are also a concern for 401-k plan sponsors who have a fiduciary (legal) duty to avoid choosing service providers (investment advisors, brokers, lawyers, record keepers, etc..) whose fees are unusually high?

Do you know how much is too much?

Anything more of 1% a year (for all services)  is no longer necessary.  More than 2% is excessive.

Because it’s tricky to figure this out by yourself, a plan review  will reveal what the total fee is for your 401-k plan.  And if you are paying more than 1%, there are ways to reduce your fee without compromising the quality of the plan and services rendered.  And in the next two posts we will explore how to do that.


Do you recognize a 401-k fiduciary?








About six years ago, in the context of servicing a 401-k plan, I was reviewing a document entitled “Fiduciary Warranty Checklist” that was generated by a Life Insurance company who was the plan provider.  This document was well designed with a bold & raised gold stamp on it. It emitted a sense of security and stability.  I certainly liked that word “Warranty” and it was giving me the impression that the Insurance company was either a fiduciary to the plan or somehow relieving the plan sponsor (employer) of liability.

But I really didn’t understand it all… and then clients started asking questions.

After digging deeper, the fine print revealed that the Insurance company is not serving as a fiduciary of any kind and that all of that duty (and associated liability) belonged to the employer!  Six years later, I still find the word fiduciary a bit confusing as well as ERISA law in general.  But I do know a little more about it:

1) The word “Fiduciary” is so freely and overused in connection with 401-k marketing it has become essentially generic.

2) Stock brokers and Insurance Agents are NOT  Fiduciaries to 401-k plans (As of this writing.  That may change soon)

3) Registered Investment Advisors (RIA’S)  may serve as a fiduciary and it can occur in different ways:

  • RIA Co -Fiduciary:  Works alongside the employer and shares liability
  • RIA 3(38) :  Assumes the entire fiduciary process, hence most of the liability.  By hiring a 3(38) you have the opportunity to “Contractually delegate” most of the fiduciary duty.
  • RIA 3(21) limited scope:  This advisor does not have discretionary authority – and has the same liability as a co-fiduciary
  • RIA 3(21) full scope:  This advisor does have full discretion – offering comparable liability protection to the 3(38) AND has the ability to hire and fire your other service providers.

There is more to this topic and please know this is not legal advice and I am not an attorney.  For 401-k legal advice please consult a qualified ERISA attorney, perhaps Ary Rosenbaum  (who I learned most of this from).

In the end, these laws are always changing, so while it’s good to have an overview, an employer offering 401-k is probably best served by hiring competent specialists they like and trust (Lawyers, Accountants, Administrators, Financial planners et. cetera) allowing them to do what they know best.

As for that insurance company’s “Warranty Checklist”?  Well it was – and still is -  just a reminder to the employer about how they can protect themselves under the ERISA 404(C) requirement for offering a “broad range of investment alternatives”.

Any questions or thoughts about Recognizing a 401-k Fiduciary?  Please comment below or click here!       


Three Pillars Of A Solid 401-k Plan






The 401-k plan – for better or worse – has become the primary method for Americans to accumulate funds for later in life.  And despite a few shortcomings, the fact is 401-k plans still offer big benefits:  high contribution limits, tax benefits, loan access, Roth options, employer matching (sometimes) and more.  Perhaps the biggest benefit is payroll deduction.  Forced savings can make all the difference in our spend first, save later society.  But some plans are just better than others.  If you are an employer who offers (sponsors) a 401-k plan, here are three pillars that will ensure you have a solid plan:


An excellent fund line up:  Diversification and low cost matter most.  Be sure to offer funds from all asset classes, divvied up by size, style and geography – using both regular funds and ETFs with an emphasis on index funds.

Reasonable fees:  Fees include – but are not limited to – fund expense ratios, recordkeeping, administration, asset management etc.  Know what they are and keep them low (1% or lower “all in” if possible).  It is now an ERISA requirement that fees be reasonable.

Transparency & open disclosure:  A big change that took place in 2012 was fee disclosure regulations.  Each provider must disclose information about fees charged and services provided for those fees - and although the 401-k providers generally prepare the statements, in the end the Department of Labor hold the plan sponsor (employer) responsible for the disclosure.  

Just as we review our own personal financial goals and investments, employers (sponsors) that offer 401-k plans should do the same on a regular basis.  And the three pillars:  your fund lineup, reasonableness of fees, and level of transparency & open disclosure  are a great place to start!

Any questions or thoughts about Three Pillars of a Solid 401-k Plan?    Please comment below or click here!








A 65 year old couple in good health faces about 50/50 odds that one of them will still be ticking at age 95.  That means they will need to plan for at least thirty (30) years of inflation adjusted retirement income.  And as retirement funding in America continues to shift away from pension plans – contributions to 401(k)s will increasingly play a major role in that nest egg.

If you happen to be an employer who sponsors a 401(k) plan – or a participant in one – there is something you need to know about the fees:  What they are.

The cost and expenses in these plans can crater the best investment ideas – indeed they should be one of the key elements when judging a plan and your investment options.. yet I would wager that you don’t know what they are.

The good folks at nerd wallet  just finished a study concluding that “9 out of 10 Americans (92.6%) underestimated the total 401(k) fees the average household will pay over the course of a lifetime”

According to NerdWallet, when posed the question “How much will the average American household with 2 working adults pay in 401(k) fees over the course of their lifetime?:

  • 38.1 percent of respondents thought a 401(k) might cost them less than $10,000.
  • 32.8 percent guessed somewhere between $10,000 and $50,000.
  • 13.8 percent thought $50,000 to $100,000.
  • 7.9 percent said $100,000 to $150,000.
  • And 4.1 percent tried “The Price Is Right” gambit, shooting the moon and guessing in excess of $200,000.

The correct answer is…..

$150,000 to $200,000 but only 3.3 percent of respondents got it right.

 Any questions or thoughts about What Every Plan Sponsor and Participant Needs to Know about 401(k) Fees?    Please comment below or click here!       







There are an estimated 700,000 defined contribution plans and of those about 175,000 do not currently use a financial advisor.

These companies, ever so slowly, are becoming aware that their plan provider is not their co-fiduciary.  I worked for an 800 lb gorilla 401-k plan provider for many years, mistakenly thinking that they were a co-fiduciary to the plan.  They were (and are) not.  But as Bob Dylan once said “times they are a-changin”.  As the complexity of fiduciary responsibility grows, reliance on a financial advisor becomes an increasingly desirable objective.  You can still go it alone, if you choose, but why on earth would you want to?

Value added Services.

 Here are a few ways a Financial Advisor/Firm can help

1. Lowering plan costs:  Employers using a 401-k advisory firm typically report a better understanding of plan fees and lower overall plan costs.

 2. Better Investment Choices:  A skilled 401-k advisor will closely scrutinize your holdings to determine if there is proper diversification and uncover redundancies in your investment lineup.

 3. Improved Participant Education:  Probably the most significant measure of your plan’s success is your participation rate.  Now more than ever, participants are looking for assistance in reaching their financial goals.  A skilled advisor can provide you with the consistent, robust education (both on-line and in-person) that will improve your participation rate.


Sponsoring a 401-k plan is more than just time-consuming and complicated – it also places legal responsibility on you as sponsor of the plan.  And your plan vendor cannot act as a fiduciary.  Co-Fiduciary responsibility – along with lowering plan costs, improving investment and participant education - are now very compelling reasons to hire a financial advisor.

What are you waiting for?

Any questions or thoughts about Now 401-k Plan Sponsors Can Have a Financial Advisor?  Please comment below or click here