It’s official. When the Government Accountability Office (if that’s not an oxymoron in itself) tells you that the 401(k) rollover process is just too confusing, you can be sure that mutiny on the bounty is coming soon. Have you all noticed how; now that we are into 2013, the regulation did such a great a job in disclosing fees within your 401(k) plan? I’m being sarcastic if you can’t tell. What should have been a very simple “show me the fees on the front of all my statements” has turned into another cycle of information disclosed on page 36 somewhere in a chapter that you won’t read.
According to a story in the USA Today (www.usatoday), The Government Accountability Office found that financial firms often encourage workers to roll over a 401(k) into an individual retirement account, or IRA, even when that might not be the best option. The report said that what the guidance workers currently receive is either too complex or too general, leaving them vulnerable to financial firms that may try to steer them toward IRAs with higher fees. They failed to mention that at the same time because of regulation they already created, many 401(k)’s have limited choices. They certainly didn’t mention how big companies like Fidelity handle 401(k) plans and then try to get clients to move out of their own 401(k) plan into a fee based managed service that they offer in another part of the company.
What’s so confusing about all of this that has me blown away is that you have three simple choices:
- Take it – you can cash it in but it’s not a good idea
- Leave it – that is if your employer let’s you. If you can leave your 401(k), fees are likely to be cheaper but not always. Choices will likely be fewer if you leave your money, but every once in a while your 401(k) will have a large amount of options.
- Roll it – if you roll your 401(k), it’s important to make sure you classify it as a Rollover IRA. This will give you the opportunity to re-roll the assets back into a 401(k) plan if you choose to in the future. The cost of the IRA will be dependent on the custodian, choice of investments, and whether you do it or end up getting help.
“Labor regulations do not ensure that 401(k) plans provide complete and timely information to participants on all their distribution options,” the report said Democratic lawmakers say the report shows a need for stronger consumer protections in the growing 401(k) rollover market. The lawmakers — Sen. Tom Harkin, D-Iowa, Sen. Bill Nelson, D-Fla., and Rep. George Miller, D-Calif. — called on the Obama administration to modify rules in order to protect consumers from receiving advice that could be biased. “Service providers should not be permitted to provide incomplete information or steer workers to company investment products,” the lawmakers said in a letter to the Labor and Treasury departments. (source: usatoday.com)
Hmmm…. Here’s an idea GAO. Perhaps you need to first fix the fact that many companies sell their own products to customers today under other brand names and aren’t even required to disclose it to them when they sell those very products. Fixing the confusion can be made very simple for consumers—just make everyone provide complete and utter transparency. That should be easy, unless of course, you realize that it’s all about politics. That’s the only part of this that’s confusing.
CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Editor in Chief of Your Smart Money Moves
Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
Find us on Facebook here – CLICK CLICK