Challenging the authority

We take for granted that our employer does the right things for us with our retirement plan. After all, they have serious fiduciary and legal responsibilities when administering a 401(k) or 403(b) retirement plan. It’s not outrageous but rather exactly what you would expect. Our employer must act in our best interest, make sure we have diversified investment choices and ensure we pay reasonable expenses.

Yet, even with the best of intentions, employers can still make mistakes or be too trusting.

In 2013 my friend “Josie” took a new job in a new city with a hospice care non-profit. Since she was eligible immediately, she signed up to contribute to the 403(b) plan. Signing up was easy and so was picking her investments – there was only one investment fund available to everyone at the company.

After a few months of watching her 403(b) account, Josie became concerned. She could see on her statement that a 5.75% sales fee was being taken on each contribution into her account. She started researching and learned that she was investing in a Class A mutual fund. This is category of mutual funds pays a front-end commission to the investment broker.

Indeed her company had hired Ron as the outside broker and advisor to their 403(b) plan. Ron’s job was to recommend the investments and assist the employees with retirement questions. For his guidance, Ron was earning nearly 6% of all new contributions to the 403(b) plan.

Then Josie learned that Ron was also on the board of directors for the non-profit and an influential person in the community. Instead of being deterred by his prominent position, she called Ron to express her concern and =get a better understanding of her retirement plan.

Ron defended the plan design and ended their conversation by saying that the fee was reasonable as “it all comes out in the wash”. Josie was not comforted by either his tone or words and responded bravely “it sounds like it’s coming out in your wash”. But the fee and lack of options in the plan still didn’t sit well with Josie so she called her Human Resources department. It was a brief but more reassuring conversation – the new CEO was reviewing the 403(b) plan and more information would be coming.

Fortunately for all, the company’s new management saw the conflicts and recognized their fiduciary responsibilities to the employees. Changes were eventually made and the 403(b) plan was amended to include more investment choices and less expensive fees. Soon after that, Ron left the board.

In the end, Josie felt good about speaking up, although it was intimidating. A sense of responsibility to her fellow employees helped give her the courage. Her co-workers were contributing but not paying close attention because their own lives were so full. Many were the primary breadwinners and working to provide end-of-life care around the clock for their patients.

Unless financial literacy comes naturally or is taught, we generally do not seek it out, no matter what the challenges of our day-to-day life may be. Still, do not take for granted that all is as it should be – read your statements, talk to your co-workers, ask the questions!