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401(k) and 403(b) Plans and the Golden Rule

Frank Cirullo

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Does your 401(K) or 403(b plan really serve the employees who participate in it? Or does it cost more than it should?

Remember, if you procrastinate on cutting your plan's cost, it won't help anyone at your company. Can we agree that it is prudent to cut your plan's cost sooner rather than later? If so, take these five easy steps, today:

  1. Switch out of investments that do not at least match the market's performance. Most employers are still going for the long ball: They don't have a long term track record of picking mutual funds that beat index funds in performance, but that has not stopped them from picking a core mix of mutual funds that they hope will beat a diversified, core, mix, of no load, low cost index funds in performance. Does your plan have expensive managed funds and/or asset-allocation, target-date, lifestyle, life cycle, and balanced funds that don't have at least a ten-year track record? Does your investment adviser and/or consultant have a long term track record (ten years or more) of picking a mix of funds that beat a core mix index funds in performance? Have you asked for his or her track record?
  2. Hire a record keeper and administrator who will charge you not more than the benchmark for the cost of record keeping and administration. Remember, watch out for hidden or camouflaged costs that create the illusion that a plan is either “low cost" or “free. "
  3. Manage your plan so that it is truly low cost.
  4. Educate the employees so that they, too, can become part of an effective system of checks and balances. That way they will protect themselves and your company from a renegade fiduciary who does not get it on what a low cost plan looks like.
  5. Monitor your plan so that it remains low cost month-after-month, quarter-after-quarter, and year-after-year.

Would you like to know if your 401(k) or 403(b) plan is more expensive than it should be? If so, it makes sense to get an honest evaluation of your plan's cost from someone who does not have conflicts of interest. You can get the proof you need about the real cost of your plan from any knowledgeable person who does not sell investments or services to your plan.

Michele Varnhagen, Labor policy director for the U. S. House Education and Labor Committee, said this: “About 80% of individuals don't understand the fees that are being taken out of their 401(k) assets. It's in all of our interest that individuals are able to retire at some point in their lives. There needs to be better clarity about what the key components, the key charges, are. "

U. S. Secretary of Labor Elaine Chao said, “We all agree that excessive fees are counterproductive. "

Every employer and employee should be aware of this fact: 401(k) and 403(b) plans cost more than they should. It proves that employers and employees are not getting the kind of education that shows them how to cut their plan's cost.

Can you think of any reason why you should not take the five easy steps I outlined so that you, too, can have a low cost 401(k) or 403(b) plan?

Frank Cirullo is a twenty-five year financial veteran who teaches students how to have more money; more time; less stress. Easy! For free lessons, visit his Web sites at or


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