New hires have plenty of questions and concerns when they’re just starting with a company, and that’s all for the good. But at the top of the list should be your 401k plan, and how that benefit will be maximized during your tenure at your new company.
No doubt, U.S. companies want to help educate their employees about proper retirement savings planning. According to the investment consulting firm Callan, 84 percent of U.S. employer retirement plans “offer investment guidance and advisory services.” Additionally, four out of five companies engage a consultant to help both the company and its employees get the most out of their company retirement plans.
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Unfortunately, investors don’t seem to be up to par. A 2017 study by The American College of Financial Services in Bryn Mawr, Pennsylvania, shows that 75 percent of respondents failed a 38-question quiz about retirement plans, with an average score of only 47 percent (60 percent represented a passing grade.)
That’s a big problem, especially as more workers get ready to retire. “Over the next 12 years, an estimated 10,000 baby boomers will reach age 65 every day,” says David Littell, retirement income program co-director at The American College of Financial Services. “More and more Americans are retiring, but so few understand basic facts and strategies when it comes to ensuring that their retirement is a comfortable one.”
Being less than knowledgeable about your contributions can lead to costly mistakes, such as borrowing from your account and paying higher fees, and ultimately result in less money when you reach retirement.
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Don’t let that happen to you, especially if you’re a new employee just starting on the job. Use that “newbie” status to ask a few key questions that can help make you a smarter investor, and move you much closer to a beneficial and profitable investment portfolio. Start with these questions:
What are my plan vesting dates? One question new hires should ask is what is the vesting period on their 401k account, says Ryan Bayonnet, a money manager at Ohio-based Hyland Financial Planning. “A vesting period is the amount of time that an employer mandates you must work for their company before you are able to leave with the employer match that they place in your 401k,” Bayonnet says. Employees should know “a vesting period can be immediate, deferred a few years, or a schedule where part of their contributions vest each year until you are 100 percent vested,” he says.
What about company matching? New hires should ask employers (start with human resources) if the employer matches employee contributions and if the match is dollar for dollar, or based on another formula, says Stephanie Genkin, founder of My Financial Planner in New York. “I see many companies offering 50 cents on the employees’ dollar up to 6 percent in my clients’ 401ks. Employees want to make sure they contribute enough to get the employer match.”
Do I have access to an automatic rebalance program? Larger plan providers will usually have information on their websites that will allow you to set up parameters that will trigger an automatic rebalance, says Kevin Michels, a wealth manager at Medicus Wealth Planning, in Draper, Utah. “This feature works great because it allows you to responsibly put your 401k plan on autopilot.”
Do I have access to advice? Some plans will hire an advisor that will meet with you individually and help you determine how to invest your account, Michels states. “However, before working with the advisor, make sure you vet them and ensure they are competent and working as a fiduciary.”
What are my plan fees? The last thing you want to do is to overpay in fees, says Evan Lavoie, a wealth expert at Blue Sail Wealth Design, in Irvine, California. “It can drastically change what you end up with over time, asset-wise.” By federal law, your plan administrator must provide participants a quarterly plan statement that includes a thorough fee disclosure, he says. “Ask about plan administration and investment fees and expenses — how much are they and are there ways to cut those costs down?”
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Getting answers to these key plan questions gives a new employee a leg up their individual retirement plan. Always remember, an informed retirement investor is likely a successful retirement investor.
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5 Questions Investors Should Ask About Their 401k Plans originally appeared on usnews.com
