Wal-Mart bones its workers on 401k plans - imagine my shock

[Tinfoil Hattie]

Is a 401k Really Good For You or Just Kickbacks For And Robbery For Someone Else?

http://grahambrokethemold.blogspot.com/2010/02/is-401k-really-good-for-you-or-just.html

In a recent Forbes magazine (Jan. 18 print edition) there is an excellent story about the backdoor deals that go on very commonly with employers' 401K plans and how they choose inferior mutual funds for you, and that they are also a very limited choice of inferior mutual funds.

The writer, Stephane Fitch (who did a superb job of journalism here) uses the example of Wal-Mart, which has 1.2 million participants in its 401K plan, which makes it the most populous 401K plan in the world.  Wal-Mart which is known for its low prices offered to shoppers in stores, apparently wasn't so nice to its own employees when offering them high priced retail mutual funds in their 401K plan, and also limited choices of those high priced mutual funds with only ten funds to choose from.

Fitch says, and I quote her story directly here:

    "It was as if the greatest retailer in history had consigned its employees to shop for retirement services in a Soviet department store."

The story goes on to say that Wal-Mart is anything but uncommon among employers in this aspect.  Disgracefully, tens of millions of workers have 401K plans infested with poor fund selections, almost zero cost disclosure and fees that do not take advantage of employers' bulk buying power.

From the original Forbes article:

http://www.forbes.com/forbes/2010/0118/investing-walmart-retirement-401k-paying-retail.html

"Merrill Lynch, with Wal-Mart's blessing, was choosing mutual funds based on payments that the funds would make to Merrill Lynch," says Braden attorney Derek Loeser of Keller Rohrback in Seattle, Wash. "This explains the anomaly of a $10 billion plan ending up with off-the-shelf retail funds that just so happen to share revenue."

http://www.youtube.com/watch?v=J6_1Pw1xm9U

This practice was transparent at my last job.  The 401k had a few shitty funds with terrible earnings, all of which had fees and loads that required high earnings before you'd even break even.  The meeting with the 401k pimp was mandatory, and he really tried to twist my arm to get me to sign up.  I refused.

Another good blog comments on this fuckery:

http://baselinescenario.com/2010/02/16/wal-mart-paying-retail/

Ted K. points out (and comments on) Stephanie Fitch’s article in Forbes on Wal-Mart’s 401(k) plan. The crux of the matter is that Wal-Mart seems to have done a lousy job creating a good 401(k) plan for its employees. Until recently, it had ten funds, only two of which were index funds; the other, actively managed funds all had high expense ratios (the ones Fitch quotes are above 1 percent).* More shockingly, the expense ratios paid by plan participants were the same as the expense ratios paid by individual investors in those mutual funds. It didn’t even pool its employees’ money together to get institutional investor rates. The irony, of course, is that Wal-Mart is the world’s best, most powerful negotiator when it comes to getting low prices for the stuff it sells, yet it exercised no negotiating power in getting low prices for its employees — even though it had $10 billion in assets to swing like a club.

One allegation of the current lawsuit is that Merrill Lynch, which administered the plan, may have chosen funds for the plan because of (legal) kickbacks it was getting from the fund managers. In other words, Merrill was pushing specific funds onto Wal-Mart employees because it was effectively getting sales commissions for those funds. This is classic banking behavior, of course, but it’s a bit of a mystery to me why Wal-Mart would put up with it; since it’s just as easy for Wal-Mart to create a good 401(k) plan for its employees as a bad one, why did it create a bad one? (I don’t actually think Wal-Mart would actively go out of its way to screw its employees if it didn’t benefit it some way.)

They must have gotten something like a better deal on funds for the upper management.

One hundred years from now, people will look back and say we were all suckers for paying expense ratios of over 1 percent to fund managers who generally fail to beat the market. Unfortunately, we will all be dead before then, and in the meantime we’ll be paying those fees.

[icarus]

lol
Isn't it obvious?  Wal mart doesn't want thier folks to retire.  They'd rather have them owe thier soul's to the company, forcing them to be "greeters" at the age of 75.

Truly pathetic.

[max_power]

This is why I never invested in the 401K even before i was a doomer.

[zenobia]

I was watching TV last night, and Wal-Mart has this new series of commercials, one touting how "it contributes to employees 401(k)s even when the employees don't"!  I thought that was funny.  (The ones where they say how "green" they are are even funnier to me.)

Having audited a ton of 401(k)s for regulatory compliance, I can tell you that, pretty much without exception,  1) the fund choices were either very limited or way too extensive; 2) the fees within the funds were impossible to determine; 3) the Plan was "sold" to the employer  - the employer really had either no interest or no knowledge on HOW to set up a decent selection of funds and depended on the salesperson to "help" with those decisions; 4) the employer made little or no real effort to enroll eligible employees; and 4) the funds were terrible investments.  There's more, but those are the high points.

Only one of the many plans I audited was well-run and in addition, run in the SPIRIT of the purpose of a 401(k).  The sad thing about that plan, however, was that the employees were agricultural workers contributing $5 or $10 a paycheck to the Plan.  There was no way they were ever going to have any money when all was said and done.

My opinion is that 401(k)s are just another corporate ruse.  Not only that, as Hattie points out, these horrors are just another way to pump the stock/bond market and pad the pockets of Wall Streeters.

[icarus]

Having audited a ton of 401(k)s for regulatory compliance, I can tell you that, pretty much without exception,  1) the fund choices were either very limited or way too extensive; 2) the fees within the funds were impossible to determine; 3) the Plan was "sold" to the employer  - the employer really had either no interest or no knowledge on HOW to set up a decent selection of funds and depended on the salesperson to "help" with those decisions; 4) the employer made little or no real effort to enroll eligible employees; and 4) the funds were terrible investments.  There's more, but those are the high points.

My opinion is that 401(k)s are just another corporate ruse.  Not only that, as Hattie points out, these horrors are just another way to pump the stock/bond market and pad the pockets of Wall Streeters.

With that being said, what about all of those who say the 401K has been great to them?  I've seem more of those people than the opposite.  Mostly older retired folks who claim that any other method of savings would not have given them as  good a return as the 401k.

[Bill from Pennsylvania]

Shaft-Mart

In China, you might get beaten to death if you dare shoplift from Wal-Mart:
http://thebsreport.wordpress.com/2009/09/08/woman-accused-of-shoplifting-at-china-wal-mart-beaten-to-death/

Back on topic:
I've contributed to a 401k in the past... I'm thinking about just gutting it. I wonder how badly I'll get penalized?  At least I'll have the cash, vs possibly none of it being here in the distant future...

[oklahoma89]

This is why I never invested in the 401K even before i was a doomer.

Oh, so you can mis out on the 3% match...the match is FREE money

[zenobia]

401(k)s are a great deal if you make enough money to be able to make substantial contributions which are then matched in whole or part by your employer.  Since your contributions are tax advantaged, you can also get that benefit too.  I have audited plans where people contribute hundreds of dollars a month.  And they were not even HCEs.  People have also benefited from the rise in the market.

However, few people can make those kinds of contributions and enjoy those advantages.  Maybe you are just lucky to know some very fortunate people who were able to contribute over a long period of time and the gamble paid off!  Lucky for them too!

My experience, sadly, has been otherwise.   It made me so sad to see these poor people putting away a little bit here and a little bit there even as the market was going down.

[illingsk]

Having audited a ton of 401(k)s for regulatory compliance, I can tell you that, pretty much without exception,  1) the fund choices were either very limited or way too extensive; 2) the fees within the funds were impossible to determine; 3) the Plan was "sold" to the employer  - the employer really had either no interest or no knowledge on HOW to set up a decent selection of funds and depended on the salesperson to "help" with those decisions; 4) the employer made little or no real effort to enroll eligible employees; and 4) the funds were terrible investments.  There's more, but those are the high points.

My opinion is that 401(k)s are just another corporate ruse.  Not only that, as Hattie points out, these horrors are just another way to pump the stock/bond market and pad the pockets of Wall Streeters.

With that being said, what about all of those who say the 401K has been great to them?  I've seem more of those people than the opposite.  Mostly older retired folks who claim that any other method of savings would not have given them as  good a return as the 401k.

That was then. This is now icarus. 401k's are being strip-mined. Since Wal-Mart is a corporation, and corporations appear to have won what I call the trifecta (control of the Judicial branch to go along with their control of the executive and legislative branches), they can strip-mine the 401k's with impunity. They'll do so until there's nothing left. No one's going to retire on what's in a 401k anymore. I turned mine in last year when I figured it out and payed of my mortgage. That at least saved me $1000 per month in principal and interest. Good thing too because since then my local municipal and county governments have seen fit to jack up property taxes, and the new multinational corporation that bought the local power generating and transmition company jacked up the electric rates after promising not to. My neighbors are in shock. They even had the nerve to lower the amount that I get paid for what I sell back to them with excess from my solar system during the day while raising what I pay when I draw from the grid at night. Life is getting very ugly inder the heel of these reptile-brained corporations.

[max_power]

This is why I never invested in the 401K even before i was a doomer.

Oh, so you can mis out on the 3% match...the match is FREE money

the company i work for pay a match!!!??? thats funny! Also the 401k company is Putnam, which is known for ripping off the 401 Ks by giving the good deals to their buddies and after hours trading etc,

[icarus]

. . .  I turned mine in last year . . .

Any suggestions on what I could/ should do with my present 401k without taking big hits?  Can I transfer it to something else.  Don't tell me take it out and put it under the mattress.  As far as investing in gold, I'm not convinced that is the answer either. It's currently worth under 15K.

[Citizen J]

Due to a job change, I was able to roll my Fidelity 401K into an IRA with a socially responsible bank (Wainwright).  Unfortunately Wainwright does not provide details on the CD's where it's invested, but I'm happy with the bank - it's treated me right for 20 years.  I'm not adding to the IRA though, in the belief that investing is futile and the government has plans for my IRA as well.  When I reach the non-penalty age soon, I plan to take it out in increments and hopefully turn it into land or other preps.

I did like the tax advantage that the 401K had, of lowering my taxable income.  So I set up a Health Savings Account which gives me similar tax advantages for my contributions.  I don't mind buillding the HSA up to the max - I'm pretty sure I'll be needing, and spending, every penny.

[Leeshee]

It's only "free money" if you ever actually see it. I have about as much faith in my generation retiring on their oh-so-loved 401(k)s as I do in the rapture.

I'm an Athiest.

[metaforge]

Any suggestions on what I could/ should do with my present 401k without taking big hits?  Can I transfer it to something else.  Don't tell me take it out and put it under the mattress.  As far as investing in gold, I'm not convinced that is the answer either. It's currently worth under 15K.

Well, you don't give a lot of details... like your age, whether you want to and are competent to pick individual stocks, real estate, etc.  You will take a hit if you are young & take it out early: taxes + 10% penalty.  You can roll it over into an IRA, which can then allow you to buy individual stocks, or even real estate or precious metals, or just keep it in cash.

You don't want put it in the mattress advice, so ... what do you think is going to do well over the next X years?

[zenobia]

If you want to get out of your 401(k), you might have a couple of options.  It all depends on your Plan Document and ERISA regulations.  First, read your Plan Document, which outlines the rules of the Plan.  The Summary Plan Document (SPD) is the document you probably have.  If you don't have a copy, get one from your Plan Administrator or off the website of your TPA or Plan, whatever you have.

Typically, you can get your money if you leave your job - you take a distribution.  You have 60 days to roll it over into a new plan before taxes and penalties kick in.  You can sometimes also get a hardship withdrawal, but this means that you WILL have to pay taxes.  It depends on whether you also have to pay a penalty.  Usually you do not have to pay a penalty if the hardship withdrawal is for medical bills (that you can't pay with other funds) or educational payments.  There are also other exceptions, depending on the PLAN.  And you have to PROVE the hardship, approval usually depends on your Plan Administrator.

You can also borrow against your plan.  Usually, you can only borrow up to 50% of your vested interest in the Plan and you can only have one loan.  You can usually have two loans, as long as one of them goes toward the purchase of your primary residence. 

Borrowing might be a good option.  You have to pay a market interest rate (which is usually fairly low) and you have to make a payment each pay period, but at least you would have control of HALF of your money, which would be better than nothing.  And, you can keep borrowing from yourself if you don't mind paying loan fees.

If you don't mind paying taxes and the penalty on closing out your Plan, that is always an option.


Sorry, I used to know a lot more about this stuff, but I have conveniently forgotten much of it.