Is Your Retirement Plan at Work Underperforming?
Here’s the most likely reason.
If the investments in your retirement plan at work aren’t performing the way you know they should, you may not need to look far to discover the cause. Many plans cause employee accounts to underperform because, frankly, their sponsors (employers) make mistakes or don’t administer the plans in the optimal way. That’s obvious from the following:
» Slightly more than half of the nation’s nearly six million small businesses may not have the retirement plan that best suits their needs, according to a Fidelity survey of small business owners. Of those who said they don’t currently offer a retirement savings plan for their employees, 34% listed “too expensive” as the reason, indicating they don’t have a true understanding of costs. When asked a series of basic questions about the plans they do offer, respondents on average answered just 66% correctly.
» The IRS allows companies to limit maximum contributions below the legal ceiling, and about 14% do so, according to the Plan Sponsor Council of America. About 5% of these have left in place the limits that were once required by much older 401(k) rules, which capped contributions at 15% of one’s salary. That tells me these employers don’t keep up with the rules, don’t understand them, don’t care or have procrastinated in optimizing their plans.