Companies juggle their 401(k) plans

This article suggests that regulations that go into effect next year requiring 401(k) plans to clearly disclose management fees are motivating firms to juggle their 401(k) plans.

The article brought back a memory. Many years ago when I was still actively investing in my 401(k), there was an anomaly in my statement. I compared the interest payment in a specific fund with the amount on my wife’s statement for the same fund, and the amounts didn’t jibe. We had almost the same amount in the fund, had made almost the same contribution during the period, but one interest payment was twice as large as the other. I was never able to get anything approximating a reasonable explanation, but I was offered the opportunity to remove my money from the 401(k) and put it into an IRA, and I still don’t understand how this was lawful.

One would think that companies would put special effort into getting the best deal possible for their employees in the 401(k). It’s a benefit that is important to the employee and costs the company nothing except due diligence. But the number of changes to 401(k) plans and falling fees (.11% between 2007 and 2009) suggest that it took the pressure of impending regulation to make this happen, and recent class-action lawsuits based on excessive fees support that idea.

I hope that most companies pay attention to how well their 401(k) plans work, but statistics in the article suggest otherwise. I expect there’s a full spectrum – from companies that find the absolute best deal for their employees, through companies that are clueless, into companies that actively skim money out of the 401(k) that should be in their employees’ pockets. What I don’t know is the distribution. The fact that 64% of firms changed their 401(k) last year compared to less than 20% in 2009 doesn’t prove that there was a problem but the quotes and statistics in the article suggest it.

Are these changes happening because regulations take effect next year? That’s the assumption in the article, but there are other possible explanations. A few high-profile lawsuits can motivate companies to do what they should have been doing anyway; more hard-to-answer questions from better-informed employees can do it. Changes in the economy or the investment environment could even be part of the explanation. But whatever the cause, lower fees and more transparency in 401(k) plans are good.