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Investing Specialists

A Checklist for Lobbying for a Better 401(k)

Follow these steps to benchmark how and where your plan falls short.

In a previous job, I worked for a very small company. We had a 401(k) plan, but as is often the case in such situations, it wasn’t great. Given our plan’s small size, I don’t imagine we had a lot of clout with the investment providers that managed our assets. The person in charge of the plan was also responsible for hiring, human resources, and facilities; she wasn’t a finance person, and she had her hands full with other obligations.

None of that is unusual; in fact, many small 401(k) plans have high costs and lack features that are associated with better outcomes, such as automatic enrollment. (The good news: Most 401(k) participants--and assets--are in larger plans, where costs are much more attractive.) 

But the head-scratcher to me, in hindsight, was that I don't remember anyone bothering to try to make the plan better. Sure, we muttered about it among ourselves, but I don’t remember anyone taking it up with management to make improvements. 

I suspect that goes on in a lot of workplaces, especially smaller ones. Employees who are earning matching contributions may fear that critiquing the plan could make them seem like an ungrateful rabble-rouser. Or they might suspect their plan isn’t great, but they don’t feel they have the tools to make objective assessments about how it falls short. 

If you’re concerned that your company retirement plan isn’t as good as it can be and want to try to help make it better, or if you’re helping a loved one with a subpar plan, what follows is a checklist of the key steps to take. Note that this review process mentions “401(k)” throughout, but the steps outlined below generally apply to 403(b)s and 457s, too.

Step 1: Gather information. 
The starting point is assessing your plan and reviewing the available information. There are a few key documents that employers must make available to employees about their 401(k)s, as follows:

  • A summary plan description: This is a basic description of your plan and its features. It outlines who can participate in the plan, how vesting works, the default options that are used for contributors who don’t make choices, and the details on matching contributions, among other information. It also details any additional features of the plan, such as whether it allows loans and whether Roth contributions are available. If you’re an investor, think of this as the “prospectus” equivalent.
  • A summary annual report: Also called Form 5500, this report is updated annually. It includes details on the number of people who are participating in the plan, the amount of assets in the plan, the amount of administrative or other expenses shouldered by the plan, and details on the investment choices. Think of this as the 401(k) version of an annual report for a mutual fund or publicly traded company.

Step 2: Check up on fund fees. 
Once you’ve gathered those documents, the next step is to scrutinize what’s in them. Fees aren’t the sole determinant of a 401(k) plan’s quality, but they’re quantifiable, so they’re a good starting point for the review process. They’re also often a “tell” about the rest of the plan. If the fees are high, it’s a decent bet that other aspects of the plan are not great; if fees are low, that’s an encouraging sign. But also remember that fees tend to be closely aligned with the size of the plan. Large plans can benefit from economies of scale that smaller ones don't enjoy. If you work for a small firm, it's important to be realistic and benchmark the costs you pay relative to plans fielded by similarly sized companies.

Fees in 401(k)s fall into three main categories: investment fees (to manage the investments in the plan), administrative fees (to run the plan), and fees levied on participants who use certain features, such as 401(k) loans. Because the investment and administrative fees affect everyone in the plan, it's best to concentrate your energies on them. 

Start with investment fees, because they're usually the most straightforward. You can typically find fees for the options in an investment lineup in the Form 5500, and you can probably also find them on your investment provider’s website. offers a huge array of data to help make an assessment of whether your mutual funds' fees are high or low. Just be sure that you're matching the share class in your plan to the appropriate share class on the site. For a given fund, click the Price tab on its main page to see more details about its expenses, including some information about how it compares with other funds in its category. Also, pay attention to what share classes you can buy: Does your plan hold higher-cost share classes even when cheaper ones are available? (The cheaper share classes may not be available to your particular plan, but it's worth asking.)

If you can't find information on your plan's holdings on, it could be that they're collective investment trusts. These funds are often low-cost and solid; they tend to pop up more frequently in very large 401(k) plans than they do in smaller ones. CITs are held to less stringent reporting requirements than mutual funds, but you should be able to find what you're paying in annual operating expenses. 

If you participate in a 403(b), you may notice that your investment menu doesn’t include the usual Fidelity or Vanguard funds. Instead, it may be populated by funny-sounding contracts, called variable annuities, or high-cost mutual funds. The 403(b) market is finally getting some much-needed reform, and it’s an area where savvy employees can help drive positive change. (The website 403(b)wise has resources for those looking to escape from overpriced, subpar plans.)

Step 3: Check up on plan-level fees. 
Moving on to administrative fees, where things can start to get a little more slippery and confusing. It's not necessarily a shady sleight of hand, but plans can charge administrative fees in a number of ways, making them difficult to surface and compare. 

The employer can pay administrative costs itself, or, more commonly, it can pass them on to plan participants. If the latter, the administrative costs may be deducted directly from plan assets, or they might be embedded in the individual-fund fees. If administrative costs are deducted directly from plan assets, they can be charged as a percentage of assets, such that larger plans and larger participants pay more, or they can be levied as a flat fee on each participant. The latter arrangement has become more common in recent years because it's considered more fair; after all, participants typically use the same amount of services (access to the website and call centers, quarterly statements). 

Those varying fee setups mean that there's no single location for the information. But a starting point is your plan's annual report (Form 5500). In it, you may see your plan's administrative expenses expressed as a dollar amount. You'll then need to divide that dollar amount by the total assets in the plan to arrive at a percentage that’s similar to a mutual fund expense ratio.

Armed with what you're paying for investment and administrative expenses, you can begin to assess the reasonableness of your plan's costs. There aren't hard-and-fast cutoffs about what constitutes a high-cost plan, especially because asset size is such an important determinant of who pays what. provides some comparative information on 401(k) plan expenses, and Page 57 of the BrightScope/ICI Defined Contribution Plan Profile includes the averages for plans of various sizes.

If it appears that your plan has above-average costs, document your sources.

Step 4: Assess breadth and quality of investment options.
The next step is to review the quality of the investment lineup, checking breadth as well as quality. You can typically find an investment lineup in the Form 5500, and you can probably also see the complete, up-to-date menu on your investment provider’s website.

Start by assessing the breadth of your plan. More options aren’t always better, but you’re looking for the basic portfolio building blocks for workers at various life stages. Thus, your menu should include well-diversified U.S. stock, foreign-stock, and core bond funds, as well as target-date funds for investors who don't want to handle asset allocation. The average number of funds on 401(k) menus is 21; that’s counting target-date funds as a single fund option. It's not cause for concern if your lineup doesn't offer exposure to each and every small asset class--in fact, that may be by design--but it's fair to ask to be able to build a plain-vanilla stock/bond portfolio within the confines of the 401(k).

In addition to checking up on the types of funds in the lineup, dig into the funds themselves to assess their quality. Don’t focus strictly on performance or even Morningstar Ratings (or "star ratings"), as worthy funds can look poor on a short-term basis. Analyst Reports discuss the soundness of funds' strategies and the stability of their management teams. Index-tracking funds can often be solid choices in that they typically provide a lot of diversification at a low cost and they're not subject to manager or strategy changes.

Many companies also include their own stock on the 401(k) menu--about 38% of large employers, according to a Callan survey of large plans. While the presence of company stock isn't automatically a problem, holding large positions in employer stock isn’t generally a good idea from a diversification standpoint. In addition, employees can end up with overly concentrated positions in company stock if the employer directs matching contributions into it. 

Here again, document your research process, flagging subpar funds and keeping an eye out for holes in the lineup. Not each and every fund option must earn a Morningstar Analyst Rating of Gold (or any Morningstar Medalist rating at all), but you should document funds that have low ratings or any other red flags. 

Step 5: Assess employer contributions.
One of the biggest potential advantages of contributing to a company retirement plan is that many plans make contributions from the employer on behalf of the employees. In the Brightscope/ICI data, 86% of all plans offer some type of employer contribution. These employer contributions usually take the form of matching contributions--if the employee kicks in a percentage of salary, the employer matches a specific portion of those contributions.

Find the amount of your contributions that you're being matched on in the summary plan description. Any free money is good money, but it’s worth assessing how your employer’s match stacks up relative to other employers. In the Brightscope/ICI data, the most common matching configuration was a 50% employer match on up to 6% of salary. The next-most common setup was a 100% match on 4% of salary. Bear in mind that employer contributions are typically discretionary and depend on business conditions. Amid the current recession, some companies have reduced or eliminated their matching contributions. That’s not usually a reason to stop saving in it, but it makes sense to keep tabs on the situation and follow up with the decision-makers on the plan once business conditions improve.

In addition to reviewing the basic arrangement for employer contributions, check up on when employees become eligible as well as the vesting schedule for the matching contributions (how long you'll need to stay at the company to be able to take those contributions with you when you leave). The Brightscope ICI data showed huge variations, but the most common configuration was for employees to be eligible for matching after 12 months of employment and for matching contributions to vest over six years. (The second-most common configuration was eligibility for matching after 12 months with immediate vesting--a much more generous setup.) As mentioned above, matching in company stock isn’t a best practice, given that the goal is to help employees build diversified portfolios.

Step 6: Assess availability of other features.
Fees, investment options, and matching are the three key metrics of how good a plan is. But also take stock of additional features, such as automatic enrollment or automatic escalation. Does it include a Roth 401(k) option or the ability to make aftertax contributions? A lack of such features isn’t necessarily deal breaker, but if you value any of them, take note.

Key features to survey include the following:

• Automatic enrollment (offered by 71% of large plans but much less prevalent among smaller plans) 
• Automatic escalation (offered by 76% of large plans)
• Roth contributions (offered by 87% of large plans)
Aftertax contributions (typically most attractive for higher-income workers who are maxing out traditional or Roth contributions)
• In-plan conversions of pretax or aftertax contributions
• Loans
• “Roll-ins” (participants can bring funds into the plan from previous employers)
• Financial advice (online advice, onsite seminars, or managed account services, for example)

Step 7: Write it up and share it.
If you’ve gone through the preceding steps and determined that your plan doesn’t measure up in one or more of the preceding areas, document it in writing and with supporting data. Attach documentation relating to your points, such as the ICI Brightscope data on total plan expenses and other issues, the Callan data on plan features, or the relevant Morningstar data for individual funds.

The next step is to share it with individuals in your company who are in a position to effect change or, at a minimum, to people who can communicate your issues to the plan’s decision-makers. If your company is quite small, your best point of contact will likely be the person who coordinates benefits for employees, probably someone in human resources. If your company is larger, it likely has a 401(k) committee that’s charged with overseeing the plan; find out who’s on the committee and communicate your issues directly to them. 

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.