Not all 401(k) plans are created equal
Seattle Times staff reporter
Patti Brown and Cheryl Gunderson have a lot of company when it comes to their views of their 401(k) plan.
"They're doggie funds — low performers with poor management," Gunderson says of the 10 funds offered by her employer, Alaska Airlines. "We never participated in the bull market, and now we're fully participating in the down market."
The two women, flight attendants at Alaska for more than 20 years, have had similar complaints about their retirement plans over the years.
In 1997, they formed an alliance with several co-workers to change how the airline handled its retirement plan.
Gunderson and Brown say they have spent hours in the Pierce County law library researching the federal employee-benefits law and more time at home comparing the mutual funds offered in their 401(k) plan with those available.
They sent e-mail to plan administrators and union representatives, questioning how the retirement policies were established.
"It was mentally consuming," says Brown, who left the company last year.
Gunderson and Brown say there have been changes in the plan since they started their research. The company resolved the women's initial concern on whether money from a frozen plan could be dispersed. It removed trading restrictions and in 2000 replaced the company that had administered the plan.
The women say this is small consolation and that issues remain, including the performance of the current funds and the fact that Alaska offers more choices to pilots.
"It feels frustrating," Gunderson says. "It takes a lot to move in any direction."
That's the reality, say 401(k) experts. Lobbying to change benefits does take considerable work and it might not be rewarded.
Asking questions and doing homework is the best way to influence the plan an employer offers, they say.
Larry Sanicola, a project manager at World at Work, an organization that studies human-resources trends, says the top-priority questions fall into two categories: how decisions are made and how the plan is paid for.
In larger companies, decisions on the benefits package are made by committee, some of which have an employee representative.
In union shops, a bargaining agreement likely covers some aspect of a 401(k) plan.
These committees, along with a benefits administer, are the first places to register your input.
Sanicola said if it seems like returns aren't what they should be, you should ask some questions about what fees are charged and to whom.
Fees can drastically affect the returns on even identical funds. (The Labor Department provides an explanation of 401(k) plan fees and questions you should ask your employer, at www.dol.gov/pwba/pubs/401kfe~1.htm.)
Ted Benna, a Jersey Shore, Pa., consultant who runs the 401(k) Association, says he often fields questions from people who track their stock funds and notice the return is lower than the return published in newspaper tables. That's "an indication that there's some additional expenses other than normal investment fees and that should be pointed out," he says.
Benna, called the father of the 401(k) for theorizing how that section of the tax code could be used to save for retirement, advises those who are unhappy with plan offerings to comparison shop. This involves asking what comparable companies offer and seeing how the mutual funds compare with other funds in the same asset class.
When it comes to petitioning human resources, he says, put your concerns in writing and be specific.
"Just saying 'our funds stink' isn't constructive," he says. "Maybe it doesn't offer particular category, like large or small-cap value that would be of particular interest right now. Another might be performance based on similar type of funds."
Will you get your way?
While it is common for companies to add a mutual fund, changing fund administrators happens less frequently. Warren Cormier, president of Boston Research Group, says about 10 percent of companies make these "cataclysmic" changes in a given year. The reasons they give most commonly are bad investment performance, poor customer service and excessive fees.
Most employers have a committee that meets at least annually to discuss their plans. At Nordstrom, for example, an oversight committee meets quarterly to discuss the 401(k).
If funds fail to measure up, they can be thrown out, said spokeswoman Brooke White. The speed at which a company can change plans depends largely on its size. The difference in changing a plan with 25 employees and one with 25,000 employees is much like the difference between steering a golf cart versus an 18-wheel big rig.
In the same way, this has to do with the amount of influence employees can have.
With larger companies, employees don't even have their hands on the wheel.
"What the employee can do is tell the employer he's not happy," Cormier says. "It has only a very indirect impact on what the employer does."
Amy Trask can be reached at 206-464-2032 or firstname.lastname@example.org.