A small rant about bad retirement options

It all started when we asked SIL if she could open a 529 account for her second child so we could contribute to it as we’d been contributing to that of her first child.

She told us that her financial advisor at work had told her not to open a second 529 plan.  I wondered at the quality of that advice as we’d recently done an ask-the-grumpies post on that very topic.

DH asked who her advisor was.  Turns out it’s some company named AXA.  If I say too much that’s terrible about AXA, their lawyers will likely contact us, just like they did the owner of the finance for teachers site.  AXA features (along with a similar company named Legend) in the  NYTimes article(s) below about 403(b) plans that are a terrible deal for teachers because of their high fees and lock-in periods.

It makes me so mad that we’re doing this to our teachers!  Especially since teachers from my parents’ generations have great defined benefit pensions, while those starting out now are, like the rest of us, largely dependent on putting money from our take-home pay into defined contribution plans.  It is terrible that for many of them, their only 403(b) options are eating away at their retirement savings with high fees and bad advising that pushes them into higher fee funds.  K-12 teachers (especially those who aren’t high school math teachers and maybe should know better) should be able to trust that their employer is going to pick out a good plan so all they have to do is save money for retirement.  Why can’t TIAA-Cref manage more K-12 403(b) plans?

I mean, it’s bad enough that my FIL’s company uses Edward Jones.  (This summer upon retirement, he informed me that he would be saving 10K/year rolling over his retirement assets to Vanguard on retirement.  My MIL noted that’s equivalent to 4-5 online classes she does not have to teach.  Made that generous $200 donation his EJ broker gave each year to his local hunting club fundraiser seem pretty negligible.)  I am so glad we got him that Bogleheads book on investing after his nth email asking us about some risky single stock his EJ broker was pushing on him.

Do you have decent 401(K)/403(b) retirement options at work?  How big are the fees on your plan?

46 Responses to “A small rant about bad retirement options”

  1. Sandy L Says:

    For 11 years, my only 401k option when I worked for GE was GE stock, GE bond or GE mutual fund. It was fine when the stock was doing okay. It was Really bad when stock went from 60 to 5 and at that point I had been paying in over 10 years so my retirement took a big hit. I sold it all at 12 and put it in a low fee total stock market fund which has done fine. They have since expanded the program to include more mutual funds and My division was sold to another company. The new one offers an age based fund. I am sure there are many fees but there is some company match that offsets that. It’s not as good as the one I had when they sold our division but I do have a pension and thank god for that. It’s the best benefit I have right now as my healthcare plan is expensive and high deductible to boot. I am sad for the younger generation as pensions are great.

  2. yetanotherpfblog Says:

    Our work used to use Principal which had rates ~1% (with very pushy brokers on top of that), though we switched about a year ago to a provider that has Vanguard-level rates. Now I want to check fiancé’s 403b, though…

  3. bogart Says:

    I work at a university and have access to both TIAA-CREF and Vanguard. I’m with the former though it’s possible I should change that — my earlier 403bs did not have Vanguard as an option and I just stuck with TIAA when I started here. I don’t actually even know what either charges except that I do know both are “great” with Vanguard maybe a better great than TIAA. It’s possible the difference matters now as I have a fairly large balance in my account, especially with the recent market tear, but even so — I know both are good.

    My DH has a pension (on which he is already collecting) and I have 100% survivorship. It’s not a vast sum, but it’s really nice to have guaranteed household income before anyone even gets out of bed.

  4. nicoleandmaggie Says:

    Indivisible says:
    Re: ACA: Please, call your senators every. single. day. We’ve updated http://www.trumpcareten.org with resources, staffers’ contact information, and we post new call scripts daily.

    Re: Puerto Rico: if you can, please make a donation to Unidos https://hispanicfederation.org/donate/ to help people on the ground right now. The fund will be managed by the Hispanic Federation, a leading Latino nonprofit organization with more than 25 years of experience in providing disaster-relief assistance to Latinos in the United States and Latin America. One hundred percent of the proceeds will help hurricane victims and the recovery efforts through fellow community and civic organizations in Puerto Rico.

    • Shannon Says:

      Thanks for the PR advice. We’re giving money, but I’ve been holding off until I found the time to research which local PR charity to give to. Problem solved. Goes to show that procrastination sometimes pays off as you may find someone who does your work for you. ;)

    • CG Says:

      I donated today! I have been wishing I knew how to help, so thank you for the suggestion.

    • Revanche @ A Gai Shan Life Says:

      I’ve had Hispanic Federation on my radar since falling in love with Hamilton because of LMM’s advocacy. I don’t typically follow celebrity type advocacy but his family was involved with them before he was famous and they’ve got a vested interest in doing good for PR so the math seemed right on that, in addition to learning more about their background since learning their name.

  5. Leigh Says:

    My first employer did all of their match in employer stock for a long time… You could sell it during a trading window but no one really did. At least the 401(k) had good options, though back when I started, there was no index fund!

  6. Sara Says:

    My husband’s 401(k) choices are atrocious. With the exception of a sole S&P 500 index fund, every fee is above 1.5%! We put in exactly enough to get his full match (in the S&P 500, of course), then use his IRA to make sure his retirement portfolio is balanced overall. It makes me very, very glad that before we started dating, he asked me to look at his options once he started contributing–their auto-enrollment was to an actively managed fund with fees over 2%!

  7. gasstationwithoutpumps Says:

    University of California has both a decent defined-benefit pension (though they are phasing that out for new hires) and a 403B plan. The 403B can use any fund that Fidelity sells (which includes a number of non-Fidelity funds) as well as some UC-specific funds. I moved most of my equity-based 403B savings to an assortment of different social-choice funds, triggered by UC deciding to move my contributions to a new fund without my permission.

    • nicoleandmaggie Says:

      I use Fidelity for my stuff. (I still have some legacy Ing stuff that I have tried to move over to Fidelity several times, but they keep losing the paperwork and then the stock market started going up and down with large swings so I didn’t want to be out of the market to switch.)

  8. Cloud Says:

    The way financial services companies are allowed to fleece people out of money makes my blood boil. I’ve only had one employer who has made a meaningful match to my retirement savings… but at least I’ve mostly been in decent plans. Although the last one was ADP and they had higher fees and stupider investment choices than I like, so I rolled that over to my Vanguard account when I left.

    Anyway, for me this all ties in to the way we have transferred most risk to individuals in this country. We’re so afraid we might accidentally help someone who doesn’t “deserve” it that we’ve opened ourselves up to having one bit of bad luck destroy us. I hate it.

    • nicoleandmaggie Says:

      YES, you are so right.

      And now we’re doing more transferring things like pollution risk and food risk and workplace safety risk and water risk etc., back to people just like this were the turn of the 19th century instead of the 21st. Where is Teddy Roosevelt?

      • Cloud Says:

        I think the closest we have right now might be Elizabeth Warren, at least on the financial things.

        I will never understand the “let the consumers decide” mindset on safety things. Sorting through the evidence on some of the safety risks could well be a full time job, even for someone with the scientific training needed to understand the studies. Which is why I favor hiring people to make it their full time jobs and having them make rules to keep the rest of us safe. Or, if the libertarians among us don’t like the idea of rules, at least have our designated investigators publish super clear ratings and guidelines.

      • nicoleandmaggie Says:

        Also we’re USED to having these rules. It’s a big surprise when they’re not followed.

    • Linda Says:

      I love your line about accidentally helping someone who doesn’t “deserve” it!

  9. becca Says:

    I have a reasonable TIAA-CREF account with Vanguard (for my old employer, I had both target date [at 0.09% ER] and index [at 0.04%], for my current employer I have only the index from Vanguard- there are BlackRock target date funds at 0.23% gross ER/0.12% net ER; I don’t know whether I should pay attention only to net or not).
    In the past when I was with a midsize employer, I had a reasonable 401(k) that had Vanguard index funds, but I rolled over to Vanguard anyway.

    • nicoleandmaggie Says:

      TIAA-CREF is pretty good. I think it’s net to pay attention to (I vaguely think one of our early posts talks about this), but you’ll probably want to look elsewhere to make sure since it’s been a while since I’ve had to compare things.

  10. Linda Says:

    We have wide array of Vanguard funds available through our 401(k) and Roth 401(k) plans. My employer also has a partial match (something like .25 on each dollar up to the first $6k, as I recall) and we also have a pension. Despite maxing out my retirement plan for the past 19 years, when I met with a financial planner a few years ago he identified a potential gap if I lived long enough, so I also opened a variable annuity with Vanguard.

    It really stinks that teachers get such bad options. I think Cloud hit the root of the problem on the head: as a society we’re too obsessed with people “deserve” the benefits they’re getting. Ugh.

  11. Debbie M Says:

    We had a *bunch* of bad options for our 403(b) but also TIAA-CREF and Fidelity (which y’all actually taught me had some low-cost funds). If we did our research, we could find decent plans with decent fees, but of course no one would talk about it because they aren’t financial advisors. (And the default is no contribution.) Later they narrowed it down to five companies (including TIAA-CREF and Fidelity), so it was easier to sift through all that.

    I preferred my Roth-IRA with Vanguard, though, since there was no matching for the 403(b) (and also the Roth 403(b) wasn’t available at first). And I have since rolled over my 403s into my IRA.

    We also had a great pension, which is providing the majority of my retirement income, and that was IN ADDITION TO Social Security (unlike for many teachers with my same retirement plan who do not contribute to SS and if they do via other jobs still get penalized).

    So even though I’m jealous of other people’s stock options, I can’t complain at all and feel super, super lucky.

  12. SP Says:

    This is really bad!! I don’t think it is right that people are limited to ~$5k in an IRA that they control, but (if you are lucky) another $18k in a 401k/403b that the employer controls your options for. Not only is risk transferred to the individual (in place of defined benefit plans), but the individual is not even allowed to make optimal choices for themselves. Do companies pay some of the tax differential for 401ks, or why is this benefit only offered through employers? Is it so people who are married can’t shelter $36k from taxes unless both have jobs? I don’t get it.

    My LA job and current job has fine low-cost options. My previous company had higher fees and less good options, but I was only there 1 year, then rolled it over into my new plan. I think it was MyLife or something, but also was bought by someone else at the end (some initials and a last name?).

    • Leigh Says:

      I wonder a lot of these things too. I wonder too if people are more likely to save for retirement if it automatically comes out of their paychecks.

      • SP Says:

        A cursory Google tells me historical differences in the way they originated drove different tax code treatment, and it is not being changed due to 401k service provider lobbyists wanting to continue to profit of of the generally less good workplace 401ks. Disgusting, but not surprising.

        They should make it easier for auto contributions to IRAs from paychecks. It is possible if your employer allows direct deposit into multiple accounts, but only a few people are motivated enough to set that up.

  13. nicoleandmaggie Says:

    Hey guys, Trumpcare is officially dead again (for now).

    But people in Puerto Rico need immediate help. Donating is great (and thank you everyone who has!), but the government can give a faster and bigger response. But there’s no will in congress to do something right away, it’s more of a we’ll get around to it in a couple of weeks.

    Take that time you were going to spend calling about the ACA and ask your members of congress to help PR (which is part of the USA, even though it’s not yet a state!) right away. Here’s the 5calls script: https://5calls.org/issue/recAScXAMMJ3ngb7F

  14. jasonedwards57 Says:

    I am lucky that I have Fidelity as an option. No offense to TIAA-CREF but I hate their choices. I have never been a fan of annuities and that will continue. Some folks at my university ask for my advice and I tell them to go with Fidelity. They just have better choices (we don’t have Vanguard).

    • nicoleandmaggie Says:

      TIAA-Cref’s lifecycle funds are about (not quite) as good as Fidelity’s. So for people who just want to set and forget, they won’t get into too much trouble just going with TIAA-Cref. Basically with TIAA-Cref people are paying for someone to come out and fill out forms for you in person, rather than over the phone as with Fidelity. (I’ve chosen Fidelity personally, but TIAA-Cref is a much better choice than Ing/Orange/whatever it’s called now which pushes active management and has pretty big .7% fee off the top.)

  15. jasonedwards57 Says:

    I should also say that I have access to index funds, which IMHO, is the only way to go. So my fees are quite low. My biggest complaint with my university is that the match they give us is lower than other places I have seen.

    • nicoleandmaggie Says:

      It is better to do a target date fund than to keep putting off investing because the choice is too difficult! For people in the scared of money category, set and forget is an excellent choice.

  16. Revanche @ A Gai Shan Life Says:

    I used to have TIAA-CREF which I rolled into Vanguard, then I had a really terrible 401(k) option for some years, and then kind of like punishment for complaining, my new company didn’t have any retirement options at all. I’m still kicking myself for not pushing harder on that front or finding a good alternative because it drives me bananapants to only get to contribute $5k on my own, and lose the ability to contribute $18K annually. That’s why I’ve been getting into contributing more into our taxable brokerage because I don’t have any plan through work :(

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