Many plans are hobbled by high fees or inadequate choices. Here’s how to tactfully advocate for changes.

By Liam Pleven
Published on Feb 20. 2015 on The Wall Street Journal

It’s tough to tell whether your 401(k) plan is delivering all it should for retirement. It’s even harder to persuade your employer to make changes if you find room for improvement.

Common flaws in the popular savings plans include high fees and the absence of low-cost index funds, which can make investing cheaper and easier. Conflicts of interest, fraud or theft, though far less common, also can cost 401(k) participants dearly.

Yet pushing for change can put workers in the uncomfortable position of confronting their employer. Few people want to question the judgment of people who sign their paycheck and control promotions and raises.

That means employees who see ways to bolster their 401(k) need to determine whether the requests are reasonable, and then make the case tactfully.

Jessica Robinson, a 37-year-old dental hygienist, and her husband, Brian, pointed out to her boss, Brad Dodds, how fees were affecting everyone who participates in the 401(k) plan at her small dental office.

The fees “kind of put up a red flag,” says Ms. Robinson, who lives in Eden Prairie, Minn.

Mr. Dodds hadn’t paid much attention to fees. “I just looked at my statements and put them in the drawer,” he says. He and the Robinsons approached Wells Fargo Advisors, a unit of Wells Fargo, which recently agreed to reduce the plan’s annual administrative fee to 0.75% of assets, down from 1.5%. For a participant with an account worth $100,000, the change would save $750 a year.

About 53 million people save for retirement in 401(k) plans, nearly double the number two decades ago, according to the latest estimate from the Investment Company Institute and the Employee Benefit Research Institute.

At the end of September, investors had nearly $4.5 trillion in 401(k) accounts and almost $2.2 trillion in similar defined-contribution plans, the ICI estimates. By comparison, there is more than $8 trillion in traditional defined-benefit plans, which offer a predictable payout.

Here’s how to advocate for a better 401(k) plan.

Pick Your Battles

First, figure out whether the changes you seek are worthwhile.

High fees should be a major concern, as the consequences in terms of lower retirement savings can be significant.

You may have a decent chance of success in arguing for lower fees. “That’s something that an individual employee could reasonably ask for,” says Burton Malkiel, an economics professor at Princeton University and author of a paper on retirement plans to be published this summer in the Journal of Investment Management.

Index funds, which are designed to track investment benchmarks such as the S&P 500, also are worth lobbying for. Many experts consider them the best option for investors because the funds tend to charge lower fees than those run by active stock pickers. Index funds also don’t leave investors at risk of lagging behind the market, which active funds often do.

But some plans still don’t offer index funds, particularly smaller plans. More than 97% of 401(k) plans that had more than $1 billion in assets offered at least one index fund, according to a December report from BrightScope, a San Diego-based firm that rates 401(k) plans, and the Investment Company Institute.

By contrast, 79% of plans with $1 million to $10 million in assets offered an index fund, and about two-thirds of plans with less than $1 million in assets did. The report was based on audited filings with the U.S. Department of Labor for 2012.

Similarly, many plans don’t offer target-date funds, according to the report. Such funds typically adjust their mix of investments to become more conservative as an investor nears retirement, and they can be useful for investors who don’t monitor their accounts closely.

On the other hand, some requests may be long shots. it could be tough to get your employer to make larger contributions to employee 401(k) accounts or to offer more a generous match for employee contributions, because the added cost could be substantial.

One rule of thumb: The changes you seek should benefit participants generally—and not promote unnecessary risk-taking. “The XYZ Hot Tip Stock Fund may not fit the criteria to go on the [investment] menu,” says Nevin Adams, a spokesman for the National Association of Plan Advisors, which represents financial firms that work with 401(k) plans.

Do Your Homework

Even in some relatively large companies, the people in charge of making decisions about the 401(k) plan may not know much about investing. Doing some research on your own is essential.

For example, if you want to push for lower fees, start by reviewing your account statement and the disclosures that plans are required to provide participants. Fees come in various forms, including administrative costs charged to the plan—which can be borne by participants—and expense ratios on individual funds that participants invest in.

It isn’t always easy to determine whether your fees are high or low, because that can depend on various factors, including how big the plan is and how much of the cost your employer is willing to bear.

“A lot of times, companies themselves don’t know they’re overpaying,” says Mike Alfred,BrightScope’s chief executive.

But you can try to narrow it down. For example, compare the expense ratios on the funds in your plan to similar funds. Many broad stock-market index funds charge annual fees of less than 0.20%, or $20 on a $10,000 investment, so if you are paying substantially more, that could be a sign of a high-fee plan.

The average expense ratio on an actively managed mutual fund, adjusted for assets, is 0.85%, according to investment-research firm Morningstar.

If you work for a larger company, you also can search for your plan on BrightScope’s website, which ranks 401(k) plans and compares them to plans offered by rival firms based on fees, company generosity and other criteria.

Details also are available on Form 5500, which employers file with the Labor Department and which you can search for on the agency’s website or request from your employer.

Once you know the details about your own plan, it can be worth checking with relatives or friends, too. Brian Robinson, Jessica’s husband, felt that the 1.5% administrative fee in her 401(k) plan was relatively high based on his experience working for larger companies, which often cover those expenses.

“You don’t even see the fees,” he says.

A report issued last year by Deloitte and the Investment Company Institute also could provide some guidance. The report, which looked at the combined impact of different 401(k) fees, found that the typical participant is in a plan with annual fees of 0.67% of assets. For plans with $1 million to less than $10 million, that figure is 1.27%, and for plans with at least $500 million, it is 0.37%. Participants bear 87% of those costs on average, according to the report.

Similarly, if you want to bolster your case for adding an index fund, you can point to endorsements by Warren Buffett and others. For target-date funds, you can note that the Labor Department allows employers to invest participants’ 401(k) contributions in the funds by default, a measure of their wide acceptance.

Be Diplomatic

Once you research the issues, you may know more about how your plan measures up than the people you will be lobbying.

Still, be professional and diplomatic when raising a question that could come across as criticism of your employer’s decisions.

“There’s a certain amount of risk,” says Norman Stein, an expert in benefits law at Drexel University. “It might seem like a complaint.”

Figure out whom you should approach at your company. That might be your boss or someone else designated to take fiduciary responsibility for the plan. In larger companies, it might be easiest to approach the human-resources department.

Consider writing a letter. “You’ve got to frame the request. Keep it positive. Put it in writing. Be prepared to assist,” says Greg Carpenter, chief executive of Employee Fiduciary, which is based in Mobile, Ala., and offers record-keeping services to 401(k) plans.

One template for such a letter about adding index funds is available at, a website for followers of Vanguard Group founder and index-fund champion John Bogle,in a section on campaigning for a better 401(k).

Note that the Bogleheads template invokes the Employee Retirement Income Security Act, or Erisa, which covers an employer’s legal obligations in operating a 401(k) plan. Citing the law could help ensure your request is taken seriously, but it also could raise the stakes.

Another option is to suggest alternative service providers, if you think the financial firms your employer works with charge too much.

Check if your colleagues are concerned about the same issue, which could bolster your case. Also, think about your position in the company. The reaction may depend in part on whether you are seen as model employee or a troublemaker, Mr. Stein says.

And consider the workplace culture. Jay Greenberg, an executive at the National Council on Aging, which is based in Arlington, Va., says he spoke up in a meeting about the nonprofit’s 401(k)-style plan several months ago. “I asked, ‘Why don’t we have index funds?’”

Index funds were soon added to the plan’s investment options. Mr. Greenberg says he didn’t fear retaliation because the council cultivates open dialogue. He also is a former entrepreneur who is financially independent, and he believes his reputation for financial savvy helped his comment get taken seriously.

Consider Your Options

If your campaign falls short, that doesn’t necessarily mean you should stop contributing to your 401(k). But you may need to consider your individual circumstances and do some calculations to determine the best course of action.

For example, it generally is worthwhile to contribute enough to qualify for any match your employer offers. But if the fees in your plan are high and the match isn’t generous, it might make sense to take some money you would have contributed and instead invest it in a low-cost index fund in an individual retirement account, says Princeton’s Mr. Malkiel.

On the other hand, Mr. Malkiel says, “a generous match will make up for high fees.”

Still, keep on pressing for lower fees, he adds, in case there is a change at your company that makes management more receptive to the notion.

Keep in mind that some problems go well beyond fees or investment choices, and may be worth the attention of regulators.

Investors who think their employer is involved in a “sweetheart deal” related to the 401(k) plan should consider calling the Labor Department, says Timothy Hauser, a deputy assistant secretary at the department’s Employee Benefits Security Administration.

“Nobody comes before the plan or its participants,” he says. “We depend on plan participants and private actors to look out for this system.”

Similarly, if you suspect that your employer isn’t putting your 401(k) contributions into your account as required, that is a reason to call the Department of Labor, says Drexel’s Mr. Stein.

Participants in 401(k) plans can call the Employee Benefits Security Administration at 866-444-3272, or use the consumer-assistance page on its website.

The law protects people from retaliation, and the department can file a lawsuit to enforce that protection, Mr. Hauser says. Still, be aware of the risk. “There are some bad people out there,” he says.

Jerome Schlichter, a St. Louis lawyer who has filed a number of cases regarding 401(k) plans, says fees have come down as a result of increasing attention.

But, he says, “there’s work to be done.”

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