Dear Mr. Berko: Ive had the same job for 20 years. Im 57, and, like the other employees here, Im really unhappy with the 401(k) plan offered by the boss and managed by his poker playing/drinking buddy.
Dear Mr. Berko: Ive had the same job for 20 years. Im 57, and, like the other employees here, Im really unhappy with the 401(k) plan offered by the boss and managed by his poker playing/drinking buddy. Its just a fixed annuity that pays 3.1 percent, and the company doesnt contribute a cent to our plan that covers about 60 of us. Can you give us advice on how to improve our returns? At this rate and at my age, this annuity doesnt give me and others enough growth to retire. Many of us are waiting anxiously for your answer. And do you think you can help my daughter with her 403(b) plan, which is invested in a variable annuity. Shes a teacher and has invested $33,000 of her own money, and after 12 years, its only worth $38,000. I know the stock market has done better. Can you give her advice, too?
Dear W.T.: Your 401(k) plan is the sorriest annuity Ive seen since Ion Iliescu was president of Romania. And your daughters annuity, with an embarrassingly poor choice of mutual funds, contains annual fees high enough to pay her medical-insurance premiums for the next three decades.
Because I dont have a copy of the plan, I cant advise you on your daughters 403(b), but Ive posted you the e-mail address of an attorney who is a 403(b)-457 consultant. I suspect that your daughters 403(b) plan is a product of a corrupt teachers union and an I dont care school board. This lawyer/consultant whom Ive recommended will suggest that the unions have so much raw power that it is dangerous to bark at them too loudly. Bad and sad as it is, unions and school boards together are more powerful and influential than the infamous boss Tweed and the Tammany Hall Machine. And in some cases, more dangerous, too.
But I can give you some worthwhile advice that can improve the performance of your 401(k). Your plans 3.1 percent average annual return certainly begs for improvement. Because the broker who manages your company plan is the boss drinking/poker buddy, I have two suggestions for your consideration. Your boss must know that the company 401(k) plan needs some zippity-do-da and sizzle. Heck, even Mickey Mouse, with a carrot in his left ear could do better than 3.2 percent. So ask your boss to add windows better known as self-directed brokerage accounts
(SDBA) to the company 401(k)?
Windows opens you to a personal 401(k) brokerage account at Charles Schwab, Moors & Cabot, Smith Barney, Fidelity, etc. and provides you access to more than 6,500 mutual funds, common stocks that trade on the New York and American stock exchanges and over the counter, as well as bonds, convertible issues, exchange-traded funds, options, unit trusts, etc. These firms can match you with a professional who can help you make investment choices.
If you elect this method, I strongly recommend if you are not extremely market knowledgeable that you keep it simple and purchase only no-load mutual funds. So Bruce, Mairs & Power Growth, Delafield, Third Avenue, Stratton Small-Cap Value, Fidelity Balanced, Fidelity Value, Fidelity Low Price Stock and T. Rowe Price Capital Appreciation are a few funds for which I care. Dont trade these funds; rather, keep them for at least 10 years, and allow them to work for you.
Now, if the boss refuses to provide you and other participants with a SDBA, then your remaining recourse might be to sue your employer. Your boss might not realize that he has a responsibility under Employee Retirement Income Security Act to comply with 404(c) as described in a Department of Labor bulletin (96.1) or 29 CFR 2550.404c-1-ERISA section 404(c) plans. (And I thought the Dewey Decimal System was tough!)
Anyhow, my daughter, Hilary, who gave me this ERISA code, told me that you need an ERISA attorney to proceed. She believes that you have such an open-and-shut case that the ERISA attorney should pay you for the privilege of accepting the case. However, I suspect, if you show this column to the boss, that he will, with alacrity, allow you and other participants to have an SDBA. But that wont solve your problem because its now your responsibility to make sure that your 401(k) meets your objectives.
While you couldnt make much money with that stinky annuity, you couldnt lose anything either, except the 9 percent early-exit fee. However, while you might be able to earn a 10 percent-plus annual return on those funds, its also possible that your losses in a bad market could exceed the potential return. But if youre a long-term investor (at least 10 years), I believe that you and your work buddies will be well ahead of the curve.
Malcolm Berko responds to letters he receives; send questions to Berko, c/o Central Penn Business Journal, P.O. Box 1416, Boca Raton, Fla. 33429. He answers questions by mail or in his column for free. If readers want in-depth analyses, they may be asked to become clients.
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