Take control of your employer retirement plan!

This post is inspired by Broke Now, Rich Later's post on getting a Roth 401k offered at his company.

I love to hear about people like BNRL who are taking control of their retirement options at work. There are too many people who are stuck with horrible investment options at their jobs but prefer to complain about it than to do anything. They just assume that since it's what's in place, it's what the company thinks is best.

In reality, what probably happened is that a representative of your company who knows nothing about benefits was sold a policy that sounded good at the time. They may not have known about things like sales loads, expense ratios or asset allocation options so they trusted the sales person to set them up with a good plan. Unfortunately, what likely happened is that the company got stuck with an expensive plan with bad investment options (like the one I saw recently with no international but 5 bond funds) and, that's what will reamain until someone who knows better comes along and makes an issue out of it.

You should be that someone. For your benefit and the benefit of others in the company.

Will it be easy? Nope. It will take time, effort and persistence. And, it may never happen. But you don't know if you don't try.

If you are going to go down this path, there are things you should be prepared for.

1. Whoever chose the plan, if they're still there, probably won't like that you're trying to change it because it will make them look bad. So, be *very* delicate in how you approach this. Don't make them wrong, just point out alternatives.
2. You should be willing to do this on your own time unless your company assigns this to you as a project.
3. You'll get much further if you have people standing behind you so rally the co-workers but don't be obnoxious by complaining about how horrible the benefits plan is. This will not make you any friends in management and those are the people you need to convince.
4. People like numbers but they like charts and graphs too. This is a sales pitch and you should treat it as such. Offer concrete examples and run the numbers of how this will impact the company and each investor bottom line. For example, if the cheapest fund in your selection is a S&P fund with a 1.15% ER (don't laugh, this is a real example) then run the numbers. Show the difference that a 1.15% ER will have on $10k invested over 30 years. Compare that to $10k invested in VFINX (Vanguard's S&P fund) with an expense ratio of .18% and you will have a nice fat number to show them.
5. Follow the chain of command. Nothing will tick people off more than if you skip them and they hear about it from someone else.
6. Provide expert commentary. If your company is ok with it, find a consultant to hire to set up the new plan. If you're flying solo and have to convince them, do your homework and bring in supporting documentation from known sources.
7. If at first you don't succeed try, try again. If you're automatically shot down, then you need to really rally the troops. Start a grass roots campaign for financial education and get a petition going. Make your point clearly and without emotion. Whatever you do, don't lose your cool.

There are other things, but that should get you started. I'm hoping that BNRL will post about how things are going for him so others can get ideas to use.

If you do decide to go down this path and they agree to change the plan/policy/whatever, see if you can shoot for the stars and get them to implement an auto-enrollment policy. I am a huge supporter of these for two main reasons (the first one is most important to me).

1. It will get the people who otherwise wouldn't enroll on their own to start investing. People don't enroll for lots of reasons, most of which are excuses so if you make it opt-out instead of opt-in, most people won't complain. True story: Recently I was presenting a basic financial education seminar at a local small business. At the end of the seminar I did a little poll to see how many people in that office were enrolled in the 403b plan which had just started a matching program. I was not surprised to learn that a full 2/3 of the people attending the seminar were not enrolled in the plan. ALL of them intended to enroll but just hadn't gotten around to it or didn't understand the process. The solution: everyone got their forms, sat around the table and we got them all enrolled right then. If that company had an auto-enrollment program, all of those people would have been participating the whole time (some had been there for 3 or more years) and they would be much further along the road to retirement.
2. It will benefit the company by getting more money into the plan. This will do a few things: 1 - they will probably get better deals on plan fees. 2 - it will help with non-discrimination testing. 3 - it will allow highly compensated employees to contribute more if they've been phased out.

If you decide to take this all on, then good luck! If you have any questions, just ask I'll be happy to help in any way that I can.

Personal Finance 101 Posts of the Day 4/14/07

• Frugal Zeitgeist talks about marriage and money.
• My Money Blog discusses renting vs. buying.
• Money Walks gives ideas on how to teach kids about money.

Personal Finance 101 posts of the day 4/12/07

• Young and Broke talks about how people aren't saving these days.
• Broke Now Rich Later tells us how he's campaigning for a Roth 401k at his job.
• Consumerism Commentary asks if personal finance should be required in high schools. He says no but I strongly disagree.
• The 6 Month Project talks about ways to trim your budget.
• Mighty Bargain Hunter talks about pre-packing your lunch to take to work.
• The Thinking Men talk about how you can get a free credit report.

Personal Finance 101 posts of the day 4/10/07

• Young and Broke lets us know that Minnesota is going to require financial education in school. And can I just say: About freaking time!!! Hopefully more states get with the program!
• Care One lists 101 ways to save one dollar a week.
• Ask Mr. Credit Card talks about what he’s learned from 10 years of marriage.
• Web Financial Planner wonders how rich is rich enough.
• Queercents talks about the US savings rate.
• Investments and Loans tells how to build your emergency fund.
• Debt Consolidation News talks about why home ownership may not be for everyone.

Personal Finance 101 Posts of the Day 4/6/07

• Fire Finance talks about the risks of payday loans.
• Money Walks give 10 tips on how to master your savings skills.
• Ririan Project lists 22 myths that can cost you money.
• Wealth Building Lessons talks about how to increase your FICO score.
• Saving Simply talks about why tax refunds are bad.
• Bankruptcy Law New York posts about why he hates pre-bankruptcy credit counseling.
• Money Walks talks about how to become a saver.

Refund Anticipation Loans Part 2

In January I wrote this post about how tax prep firms were getting into the Refund Anticipation Loan (RAL) business.

Now, according to this NY Times article, fewer people are making this financial mistake. Apparently the number of these loans has decreased 22.5%. All I can say is THANK GOD! These loans made me sick because they allowed people who know better to prey on those who don't. Lack of knowledge isn't a great excuse, but there is a level of trust involved when someone hires a financial professional of any sort (tax, investment, etc.). People assume that the person they're hiring isn't going to screw them over. Unfortunately that is what often happens.

The solution? Education! Education! Education! I keep talking about it, eventually I'm going to do it. I want to start a non-profit that is dedicated to getting financial education in our school systems. Until that happens though, I call on all of you! Particularly those of you who have kids. Get involved with your kids school and get the parents together to lobby for financial education requirements. The squeeky wheel gets the oil so come on people! Squeek loud!

10 Reasons You Aren’t Rich

From The Street, 10 Reasons You Aren't Rich covers some of the traps that people fall into that hold them back. (My comments in italics)

1. You Care What Your Neighbors Think This is huge! One of the reasons I'm leaving Washington, DC is that so many people around this area care about things like what you drive, where you work, etc. It gets old and really, the people worth knowing aren't the ones who care about what kind of car you drive or what kind of shoes you wear. Live your life in a way that makes you happy and comfortable and who cares what others think!
2. You Aren't Patient In today's world of easy credit and instant gratification it can be hard to wait to buy something until you have the cash. But, the advantages of waiting are: 1 - you save money in interest, 2 - you tend to appreciate things you have to work hard to get instead of those that come easily, 3 - waiting gives you time to decide if you *really* want something rather than just following your impulse, 4 - saving up gives you time to do your homework and find the best deal on whatever it is that you want.
3. You Have Bad Habits This includes your "Latte Factor." The three hardest things to give up are: coffee, alcohol and cigarettes. It's not a coincidence that they're also the most expensive and the worst for your health. Cutting back on those vices not only saves you money today but also in the future on health care costs.
4. You Have No Goals My Goal Setting 101 class is my least popular class but it's the one that I think people get the most from. The first question I ask is: "If you don't know where you're going, how will you know when you get there?" The answer to that question is: You don't. Without goals you're just floating along rather than moving forward with a purpose. IMO, goal setting is the most important part of financial planning but is also the most overlooked.
5. You Haven't Prepared This is why you need an emergency fund. It's a fact of life: Stuff happens. No matter how prepared you are, you aren't prepared for everything. But, you can do your best. The easiest thing you can do is establish an emergency fund. This fund should be in a cash account (or equivalent) that can be accessed quickly and without penalty. You should aim to have at least 3 months worth of expenses in your account though some people like to keep much more. When you figure out how much you need, take an honest look at your life. Is your job steady? Do you have dependents? Do you own a house? Do you have adequate insurance? The answers to those questions will help you figure out how much (or how little) you need to have in your account to be secure.
   
6. You Try to Make a Quick Buck When people approach me about the best way to turn $1,000 into $10,000 in a week I have 2 standard responses: 1 - go to Vegas. At least there you get free drinks while you gamble with your money. 2 - Re-read The Tortise and the Hare but this time, learn the lesson. When it comes to investing, the vast majority of the time slow and steady will win over the long run. Set your investment up, make it automatic and then forget about it except for when you re-balance twice a year.
7. You Rely on Others to Take Care of Your Money I'm a huge proponent of DIY. It's why I started Personal Finance 101. I saw the aftereffects of too many people who had gotten screwed by investment advisors who sold them bad products. There is no reason why someone can't manage their own money, particularly now that Target Retirement Funds exist. If you're just starting out, there are 2 books I recommend that every newbie read. The biggest thing to keep in mind: You are the only person who cares about your money!
8. You Invest in Things You Don't Understand I did this when I first started investing. I started buying stocks without knowing what I was doing. I just listened to what others were buying and followed the herd. Not only did I lose a *ton* of money to transaction fees, I lost a ton in the investment itself. Since then, I've sold off the losers, held on to the winners (I did get a couple right) and have stuck to funds. I have realized that not only do I not have the knowledge to pick stocks, I don't have the desire to learn the skill so funds are the way to go.
9. You're Financially Afraid I see this all the time, especially in those who lost a lot of money in the dot bomb. So many people who lost money during that time are too scared to invest in stocks again. Every time I ask them about their experience, they were always almost 100% in tech stocks and freaked and sold when stocks went down. When I explain to them what would have happened had they A - been diversified and B - stuck to an investment plan instead of freaking out they start to calm down. For those who are worried about investing in anything risky I usually suggest starting with a balanced fund like the Vanguard STAR fund. That fund is 60/40 stocks/bonds so, while it earns more than bonds it's not as volatile as stocks. I then suggest they start adding small amounts into more agressive funds once they're used to being a bit more agressive. I also forbid them from checking their accounts more than once every 6 months. Frequent account reviews are the worst thing people who are risk averse can do. Any little dip will freak them out and trigger a panic reaction.
10. You Ignore Your Finances I'm a big supporter of a hands-off money management style. But, that's very different from ignoring your money. To have a hands-off style, you first have to have a plan. Then, you can implement that plan, make it automatic and just check back a few times a year to make sure you're on track. Find the balance that works for you - somewhere between checking every day and checking once a year is good.
    

Personal Finance 101 Posts of the Day 3/28/07

• 7CM reminds us to Take a Money Day to Organize Your Finances
• Financial Baby Steps asks Should Personal Finance Be A General Education Class?. My answer is a resounding YES!!! The reason I started my business was because I kept hearing from way too many people who started their adult lives without even basic financial education and got themselves into trouble. It's horrible! My goal is to eventually start a non-profit geared towards requiring financial education in both high school and college. I think that the basics about credit and debt should be taught in high school before they start getting credit cards and digging a hole. In college they should expand on their basic education by teaching students about investing, retirement planning, goal setting and how to manage debt. Hopefully our government will wake up and take care of this.
• Wealth Building Lessons gives is Ben Stein’s Basic Rules of Retirement.
• Financial Hack talks about the benefits of low-cost living.
• Endless Gibberish talks about why they like credit cards.

Personal Finance 101 Posts of the Day 3/18/07

• Debt Consolidation News gives us a young adult's guide to personal finance.