Other than your employer handing you a matching contribution (take it!), there are few things that work effectively to boost your 401(k) kitty. Of course, savings more always works, but that's up to you. What should your employer be doing to help you?
The process of improving returns is incredibly simple. If your employer was to get rid of all actively managed funds and replace them with passive index funds, you'd see immediate improvement.
I've long criticized employers for not doing this. According to the White House, some $17 billion is effectively siphoned out of retirement accounts because of overpriced 401(k) funds. That's because fees on actively managed accounts often cost 10 times more than passive funds. Your returns suffer because you pay the higher fees. It comes out of your retirement funds.
There's been a proposal by the Department of Labor to make all retirement plan sponsors and advisers fiduciaries, which would force employers to do the right thing and offer mostly passive funds. It may come out soon.
But House Republicans, largely doing the bidding of the financial services and insurance industries, are working overtime to kill this rule.
The U.S. House recently passed a "Retail Investor Protection Act" to nix the DOL proposal, although it faces an uncertain future in the Senate. President Obama has said he would veto it if it comes to his desk.
Whether the DOL rule survives shouldn't matter. Your employer is already obligated under federal law to offer you a retirement plan that's diversified, well managed and low cost. Many employers have been sued when they haven't complied with this law. There will be more lawsuits if employers fail their employees in this regard.
What You Can Do
I'm forever an optimist on improving retirement plans because it's not particularly difficult to do. There's plenty of competition among mutual fund companies and there's actually been a silent war to lower fees on passive funds. That mean expenses have been coming down on many funds, although most employers aren't getting the message or acting to lower costs.
Here are three things you can do:
1) Organize and do your research. You will want to find like-minded employees or executives who are concerned about your 401(k) plan. Form a little committee and see how your plan compares to similar plans in terms of assets and employees. See Brightscope for plan comparisons.
2) Request an independent fiduciary audit. These professionals review plans and make objective recommendations. Since they are not brokers or representatives of fund companies, they can tell your employer how to save money, boost returns and find the cheapest funds for your plans. They only get paid for their advice.
3) Stock your plan with passive funds. You can find a passive index fund for nearly every investment class from big U.S. stocks to global bonds. These funds hold hundreds -- and often thousands -- of securities and don't trade them. That lowers your cost and gives you more diversification. If you need some ideas on who offers them, point them in the direction of Dimensional Funds, Fidelity, iShares, Schwab, SPDRs and Vanguard. They all compete against each offer to offer the best passive funds. I've invested in these products for years in my retirement plans.
Don't wait for a government rule to back up your need for a decent retirement plan. You can do this on your own if your organize and do your homework.
