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I want to ditch my great 401(k).
When BrightScope rankings of 401(k) plans were available to individual investors, mine ranked very highly. By most measures in this Morningstar article on whether to keep your 401(k) in retirement, mine merits keeping. Besides these factors, I have a few of my own reasons that I like it.
First, I like its stable value fund, which is managed to keep a $1 per share price (not guaranteed) but with a higher return than any money market I’ve seen. In fact, it did very well during the high inflation of the last few years. This fund is nearly half of our bond/cash allocation, and I won’t find the same combination of safety and return elsewhere.
Second, I like that the plan’s policies mean this portion of our portfolio has some guardrails such that it’s difficult to interrupt compounding unnecessarily. (Thank you, Charlie Munger.)
Third, while I value the simplicity of having assets under one umbrella, I also like having a nice chunk at a second provider. I call this “fraud and cybersecurity diversification,” and while the term is clunky, it probably needs no explanation. Of course I could get this anywhere.
So, what’s the problem?
The website is a pain. Every single time I log in, the username/password fails on the first try. At least it then reliably works on the second. I got used to it in my 15 years in the company and have continued to live with it over three years of retirement. And once in, the site is not user friendly. I’d keep living with it if this were my only complaint.
Lately I’ve been researching exactly what happens to my account when I pass. Obviously, my named beneficiary who is my spouse inherits, but then what? Can she keep the account forever? If not, will she get a few months to roll over into an IRA, or will she automatically get a check in the mail when she reports my death? These are not IRS rules but plan policies, so I can only get my answers from the administrator. I found most of what I needed to know in the summary plan description but have further questions, which I’ve submitted twice with no response.
When I logged on to do the above research, I found a message that I needed to designate a beneficiary as I had none on file. I’ve had the same beneficiary designation in place for years. I submitted the information again and also contacted the administrator. Their reply informed me that even though the system showed no information on file, I could rest assured my previous designation remained valid. Really? The correct information appears when I log on now, but sorry, I do not rest assured.
It’s tempting to take my money elsewhere. If I do, this could be a simple rollover to an IRA, but as I’m beyond age 59½, there are other options.
Any other retirees out these still holding on to your 401(k), or near retirees planning to?
Mine is held by Empower, which is owned by Great West Financial, an insurance company. We will part ways as soon as I retire. Good riddance.
Our retirement system is far from perfect, but the greatest feature is choice. You choose to keep or eliminate your 401k. You choose to convert to Roth or not. You choose your investments and financial service providers. The worst feature is choice requires taking responsibility for your own actions. You are responsible for education regarding your options, finding unbiased information about investments and financial services, following the tax code, and being in command of everything.
Most of the time when I hear about issues with a 401k, it is more an issue of the responsibility people have to exercise with their 401k than the plan itself.
I think what say in your first paragraph about our system in general is true.
As to the second, I can’t say I’ve heard many complaints about 401(k) plans. My own and that of my old work colleagues is a great plan. That’s why I’m still in it despite the negatives I mentioned. So far anyway.
We’re lucky in that our 3 employers all have 401(k)s at Fidelity. So far I’ve left my accounts there since I’ve retired. Two of the plans allow use of Fidelity’s BrokerageLink where we can invest in just about anything. (I’ve used it for Vanguard ETFs, T-bills, and TIPS.) And the 3rd is a pretty decent plan (low expense ratios) from when we both worked at IBM. I have been doing Roth conversions from my other 401(k) directly to a Roth IRA which I opened at Fidelity for convenience. It’s very easy to do a conversion with one phone call to Fidelity.
Sounds like that’s worked out well. I agree, Roth conversions at Fidelity couldn’t be easier.
I prefer not having a layer between me and my brokerage company. I understand the desire for broker diversification because we’ve seen recently with the fraud attacks that brokers can suddenly change/alter policies that might warrant a quick move of funds.
The only thing I can think of in favor of 401k is that some offer automatically rebalancing your portfolio every year or 6 months. That can be nice, but they don’t offer rebalance bands, an approach I like even better.
Thanks for the comment. My plan does offer the automatic rebalance to a set allocation, but I don’t use it.
401K usually protects your money from creditors, civil lawsuits, and even bankruptcy proceedings.
Since I never thought I would one I did the following..
I have changed employers many times thru my career.
Every time I change jobs, I roll over my 401K to Fidelity/Schwab (Vanguard is another good choice). It’s a logical choice.
You and me, some of us remember to roll over the 401k account to an IRA account at our preferred stock broker company. Most people are clueless about 401k rollover when changing job (my unscientific statistic is 2 out 10 persons).
Thanks for that comment. I’ve read that if you roll your 401(k) into an IRA and keep it separate from your other IRAs, it continues to enjoy that better protection.
As someone who rolled over their qualified 401K without understanding what I was giving up, I’d really like this to be true. I’m not a lawyer but all I’ve found (so far) is that if it’s kept separate it enjoys BAPCPA (non-capped) protection under federal bankruptcy law. That’s great, but it’s substantially less that full ERISA protection. With full ERISA protection an ambulance chaser might not even bother to bring a lawsuit since they know a qualified 401K is not up for grabs. But exercising federal bankruptcy means you already had to hire a lawyer for the lawsuit, lost the case, and now you’re hiring a bankruptcy lawyer and pursuing federal bankruptcy trying to protect what would have been fully protected (and possibly not even litigated) as a 401K. However, no one will be happier if you can show me something I’m missing.
I’m not a lawyer and I haven’t written about this issue in years, so take what I say with a grain of salt. My recollection: When you roll over your 401(k), tracing rules can apply if creditors come after you, including creditors who result from a legal judgment, and thus your old 401(k)’s legal protections can apply. But for them to apply, my recollection is that your 401(k) balance has to be in its own IRA, rather than commingled with other IRA money. As I understand it, this is why I’ve ended up with multiple IRAs at Vanguard–because the firm didn’t want to commingle old 401(k) money with other IRA money.
It would be great if someone could correct or confirm my recollection.
One way or another that’s why it’s a good idea to have an umbrella policy, both to protect your assets and to cover legal expenses if sued. The premiums are very reasonable.
I agree. An umbrella policy is a good idea and another layer of protection. But that doesn’t stop them from coming after your assets as well. That happened to a family member of mine.
I hope that’s true, but what I’ve read indicates it’s only partially true. Here’s one reference (although hardly definitive):
Retirement accounts provide protection against creditors | Mesirow
As a practical matter, I believe that ERISA protection includes near absolute protection from typical lawsuits. Federal bankruptcy protection has some notable exclusions, including judgements resulting from DUI’s. Since a DUI in some states includes driving while on prescription and OTC meds that “may cause drossiness”, that’s a pretty big limitation. Also, when referencing “state laws”, I always assumed it was the state I live in. But if you’re in an accident while driving in another state, I think you might fall under the laws in that other state (whose protections of IRA’s might be quite different than what you have in your home state). Sorry for being a nag, plus I also would love a definitive answer to all this. Plus I’d really really like to be wrong on this.
Thanks Jonathan. That’s my understanding as well. Hopefully someone who knows for a fact will weigh in.
Sorry I cannot. I read what I mentioned about this, but can’t vouch for it or shed light on any nuances. What you’ve said makes sense and could be another significant reason to hang onto it.
I think I read a while back that IRA protections from creditors is per individual state laws.
Yes, as I understand it that’s why it’s necessary to keep the Rollover IRA separate.
I rolled everything except the stable value fund to Vanguard after I retired. It’s been a while, but as best I remember, some of the funds were Vanguard funds in any case, so why add a layer. I finally moved the stable value fund money when I started taking RMDs.
That sounds like a good move for you.
My advice would be to get out of your 401K and rollover to an IRA with Fidelity, Vanguard, or Schwab. You get a solid platform and complete control. You should not accept such poor service. Remember companies change, plans change and record keepers change. Consolidation of assets at one good provider will make it easier for you and your heirs. This is a path I have taken for the last 25 years through multiple job changes. I stuck with Fidelity and they have delivered.
Our plan and administrator have never changed since I started with company. Still, if it weren’t for the points in the plan’s favor, I’d likely take your advice and move. I like Fidelity as well but might move the 401(k) balance elsewhere for the diversification consideration I mentioned. We’d still have our investment accounts at only two providers.
Our various IRAs are in Schwab, Betterment and Wealthfront. We couldn’t be happier with the services, and the websites are ridiculously easy to use.
That’s great. I’m happy with Fidelity’s as well.
when I was working for a major health insurance company we had State Street for our our fund company. I remember contacting them asking for a document showing what companies were in my chosen fund and they refused to provide the information as they said it was proprietary. That set off all kinds of warning sirens in my head.
Another reason to consider rolling over your 401K is that these plans usually have much higher expense ratios than if you have your money in your own IRA and utilize index ETFs. My expense ratio at Vanguard is 0.05, so I’m only paying a pittance in management fees.
Also each time my wife or I changed jobs we rolled over our 401K into our own IRAs to have better control over our funds.
”Fund holdings are proprietary” would likely have sent me elsewhere too. I can’t complain about the investment choices in my plan. Except for company stock and the stable value fund, the choices are all index funds so the holdings are transparent, and the highest expense ratio of any of them is 0.025%, most of them less, with no admin fee on top.
I understand your uneasiness. My wife and I have the same employer, so we also have the same 403(b) provider that came with a change in company ownership in 2016. We also have the same first-time login failure you describe. Additionally, they transposed our email addresses when two-factor sign-in was initiated years ago. A call to the provider just produced an “I’m sorry, we can’t work it out at this time, please call back.” It’s still there. Along with other seemingly small indications that the ship is not tightly run, we’re motivated to jump to another provider when we retire. We’ve already rolled our 401(k)s from the old employer into IRAs.
!!! That email address issue would have me heading elsewhere as well.
We both rolled over our 401ks (and older 403b for my wife) into Vanguard Trad IRAs and Roth IRAs. I spent several years finding and organizing my wife’s aunt’s many accounts and did not want to put that burden on my children. Vanguard has all the investing options we need, and having a decent combined amount gets you some benefits. I’m sure Fidelity or others would also be fine.
I wouldn’t want to leave anyone to track ours down either. Our accounts are at a manageable total of two providers so am not too worried about this. 🙂
I kept my plan with my old employer for ten years after I retired. My desire to consolidate all investments in one place is the reason I eventually rolled it into an IRA.
The problems you describe are those of the record keeper, not the plan. If I were you I’d be complaining to your employer’s HR department or whomever is responsible for the benefits.
For many years I was the guy in my company selecting and managing the record keepers, stuff happens.
That’s good to know. I’d have expected better of the company.
We still have Spouse’s, but they are still working (very) part time and are able to continue to participate. They work for a smaller company and it seems they change plan administrators every few years. So when Spouse is finished, we plan to roll over to their tIRA and Roth. Chris
Periodic changing of administrators would nudge me toward leaving as well.