One of the things you have to figure out whenever you start a new job is what retirement plan options your new employer offers.
If you’re lucky, you’ll be in a job that has a good retirement plan that doesn’t take too much work to set up. That’s the situation I was in when I got my first job out of law school (way back before I knew anything about personal finance or investing).
Since it was a big firm, my 401k had good, low-cost, index funds that you could be happy investing in. If you did absolutely nothing, the firm automatically enrolled you in the 401k plan at a 5% contribution rate and defaulted your contributions to a Vanguard Balanced Fund – basically a 50% stock, 50% bond fund with low expense ratios. It wasn’t the optimal asset allocation for a 20-something, but at least it was something. And most importantly, people like me who knew nothing about investing weren’t getting scammed by our 401k provider. The costs for investing were low and the investments were sound.
My recent switch into a non-traditional legal career with a small, non-profit employer reminded me of just how vigilant we all need to be when it comes to our retirement savings. Not all retirement plans are created equal. Most of the time, there’s no one to help you. And some of the time, if you’re not careful, you might very well get scammed. That’s why it pays to learn about this stuff.
The World Of Non-Profit Retirement Plans
As I wrote about last month, I recently pivoted in my legal career, moving out of the traditional practice of law and into a non-traditional legal role with a branch of my state bar association. This non-traditional legal role is with a small organization – only 30 employees or so – and importantly, it’s a non-profit organization.
I never knew it before, but apparently, the non-profit world is riddled with employers offering bad retirement plan options. The New York Times recently wrote a five-part series about this issue that I think is worth reading. Basically, non-profit employers often don’t have the size or institutional knowledge to make sure that their employees get good retirement plan options. Many times, non-profit employers get stuck with high fee, crappy retirement plans. 403(b) plans – which are what most non-profit organizations offer – are also apparently less regulated compared to traditional 401(k) plans in the for-profit sector. As explained by the New York Times, its a significant cost for people:
In fact, millions of people who save in 403(b) plans may be losing nearly $10 billion each year in excessive investment fees
When you think about it, it makes sense that small, non-profit organizations would end up with bad retirement plans. The employers I worked at in biglaw or state government were giant organizations with large assets and dedicated employees who could scrutinize retirement plans and make sure that employees weren’t getting screwed by whatever retirement company they used.
In contrast, a small organization – like my current employer – doesn’t have dedicated employees to handle that kind of stuff. Instead, these small employers are pretty much in the same position as most people – they don’t really know anything and trust that whoever is handling their money for them is doing it right. But as we all know, when money is on the line, not everyone will have your best interests at heart.
Signing Up For My New Retirement Plan
The process of signing up for my 403(b) plan was unlike anything I’d encountered in biglaw or state government. In both of those places, I didn’t have to do anything really – I was just automatically enrolled in the plan and all I needed to do was go online, set up a username and password, and then pick how much I wanted to invest and what funds I wanted to invest in. My choices were clear and limited, and I didn’t have to really talk to anyone.
Here, in order to signup for my organization’s 403(b), I had to actively go and do it myself. I first talked to our HR person, who basically handles all of the administrative stuff in the office. She told me to get in touch with some outside financial advisor guy who administered the organization’s 403(b) plan. I looked him up on LinkedIn and saw that he was a financial advisor for an independent financial advisory firm in the suburbs.
When I contacted him, he sent me a basic form to fill out that analyzed my risk tolerance. Naturally, my risk tolerance ended up being very aggressive, which made sense given my age and expected investment time horizon.
The confusing thing to me was how little information there was out there. Because my 403(b) was administered by this small financial firm, there didn’t seem to be any way for me to just look at every investment option I had. My last retirement plans were administered by Fidelity or by the state retirement system, and in both of those jobs, I could just go to a website and see exactly what options were offered in my plan. In this case, it felt like I was buying insurance from an insurance salesman.
After reviewing my risk tolerance profile, the financial advisor guy sent me what he thought would be good options for me to invest in. Take a look at a partial list of what he sent me:
My jaw dropped when I saw these options. The funds carried a front-load of over 5% plus expense ratios near 1% (there were even more expensive options he showed me that I couldn’t fit in this screenshot). And worse yet, all of these were actively managed funds – which study after study has shown doesn’t lead to higher returns. This was pretty much unacceptable to me and there was no way I was putting my retirement savings in these funds if these were my only choices.
Searching For Better Investment Options
After reviewing these options, I immediately scheduled a call with the financial guy to find out what the deal was with this 403(b) plan. My concerns were pretty straightforward – these fees were way too high and none of these funds interested me. All I wanted were passive, low-cost index funds.
“Oh, do you have investment experience?” he asked me.
“A little,” was my response.
He then went on a little spiel about how actively managed funds did better during downturns and that the market was looking a little “frothy.” Whatever.
When I asked him about the possibility of any Vanguard options, he basically gave me a run-around, telling me something about how Vanguard was too expensive for him to offer. I really didn’t understand it, but I guess it was clear, there were no Vanguard options in my 403(b) plan. He didn’t seem to be able to send me a list of all of the available fund options I had either.
After a little more discussion, I went straight to the point. I wasn’t interested in any actively managed fund and all I wanted was for him to send me whatever his lowest cost, passively managed index fund was. A few hours later, he came back with what he thought was a solution for me – a group of iShares funds from Blackrock. He assured me that it was the only fund he was aware of that had extensive index fund options with no upfront fees.
I looked up the Total Stock Market Fund that he sent me on Morningstar, ticker symbol BASMX:
Not amazing, but manageable. At a 0.34% expense ratio, it’s still nearly 10 times more expensive than the same Vanguard Total Stock Market Fund, but I won’t lose sleep over this. It’s at least doable. And as long as the other fees he told me are true (he said the only other fee was a $50 annual administrative fee), the 403(b) won’t kill me with fees.
So, was this guy trying to rip me off? I honestly have no idea. Maybe he got something from steering me towards those ridiculously expensive, actively managed funds. Or maybe he just seriously thought those were better options for me. I do know that the 403(b) agreement made it clear that he has no fiduciary duty to me.
One thing that I do think about is that, if I’ve spent hours of my life learning about this stuff, what happened to all of my coworkers who probably know nothing about investing? Are they all invested in these high-cost, actively managed funds? My guess is probably yes.
Make Sure To Analyze Your Retirement Plan
Depending on your employer, you’re going to have plans with varying levels of quality. The bigger your employer is, the more likely you’ll probably have a better retirement plan. If you’re employed by a small employer, make sure to pay careful attention to your plan and question what you see. You don’t want to get scammed.
It helps that I’ve learned enough about this stuff to know what to look for. If you’re new to investing, make sure to carefully examine the expense ratio of funds that you’re investing in. I’d say anything with an expense ratio of over 0.5% is pretty high. If it’s near 1%, it’s way too high.
Another piece of advice is to find out what your retirement plan costs in terms of administrative fees. It wouldn’t surprise me to see plans that charge some ridiculous percentage of assets under management on top of the expense ratio of the funds.
If you’re in a situation where you only have crappy funds, you need to figure out a way to get your employer to give you better options. I feel like there’s way too much info out there these days for employers to be getting suckered by these crappy plans.
I’ll be keeping a close watch on my 403(b) plan simply because I don’t really trust anything that this financial guy told me. I have no idea if he’s allowed to deliberately lie to me – I would hope not – but the fact that he initially tried to steer me towards these expensive funds didn’t leave me with a good feeling. I work way too hard for my money to lose it all in fees that I don’t need to pay.
More Recommended Ebike/Scooters
Check out these other ebikes/scooters I've had the chance to do a review for:
- GEN3 Outcross Bike – The GEN3 Outcross is a solid, affordable fat tire ebike that does a good job of doing what I need it to do. It works great for city riding, giving me a smooth ride in all conditions. It’s works really well as a winter ebike since the fat tires give it good traction over snow and ice. Check out my GEN3 Outcross Review.
- Himiway Escape Bike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Bike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($10) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
- Moomoo (5 free stocks) – Moomoo is a free investing app currently offering 5 free stocks (usually worth around $75-$100) if you open an account using a referral link and deposit $2,000. Read my Moomoo referral bonus guide for more information.
- Webull (5 free stocks) – Webull also gives you 5 free stock valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free stocks using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- Upgrade ($100) – Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Importantly, this bonus says that it’s now scheduled to end on October 31, 2022. As long as you get your account opened before October 31st, you should be eligible. Here’s a post I wrote with more details: Upgrade $100 Referral Bonus – Step By Step Directions.
- SoFi Money ($350) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $300 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Fifth Third Bank ($250) – This offer is limited to customers in the following states: Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, West Virginia, and South Carolina. If you don’t live in one of those states, you won’t be able to open an account online but you can still open an account in-branch if you happen to be visiting a city that has a branch. This is a fairly easy bank bonus to earn, especially since there are plenty of data points showing what will trigger the direct deposit requirement. In addition, you can open the Fifth Third Momentum Checking bank account, which comes with no monthly fees or minimum balance requirements. Read my guide on this bonus here.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link.Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- OnJuno ($100) – OnJuno is a fintech/neobank that is currently offering a $100 referral bonus if you open an account using a referral link and complete a direct deposit of $250 or more. The account has no fees or minimum balance requirements. Even better, the bonus posts immediately after you meet the requirements. If you can meet the direct deposit requirements, OnJuno is an easy bank bonus that’s worth snagging. Check out my OnJuno referral bonus guide here.
- Varo ($50) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $50 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
- Fairwinds Credit Union ($100) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Spiral ($50) – Spiral is a fintech bank that's currently offering new customers a $50 signup bonus after opening a free checking account with them. The Spiral referral bonus is especially good because it's a free checking account and doesn't require a direct deposit to earn the bonus. Here is my step-by-step guide on how to earn your Spiral Bank bonus.
- One Finance ($50) – One Finance is a fintech bank that’s currently offering a $50 signup bonus if you open an account using a One Finance referral link and have a direct deposit of $250 or more. This is a completely free bank account with no minimum balance requirement, so if you can meet the requirements, it’s worth doing. Check out my One Finance referral bonus guide here.
- Albert ($150) – If you can manage to do a real direct deposit, Albert is an easy account you can use to earn a referral bonus. Here’s a review about Albert I wrote. And here’s a step-by-step guide on how to earn your Albert referral bonus.
- Netspend ($20 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $20 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $20 to start! Make sure to check out my in-depth guide on how to set up these accounts.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
- Upgrade Bank. Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Note that it’s now scheduled to end on October 31, 2022.
- Novo Bank. Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. It’s the business checking account I currently use for this blog.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
It’s just sad, man. Wall Street makes BILLIONS by fleecing everyday Americans with administrative fees that otherwise would compound into a more substantial retirement fund. Good job doing your homework, FP. It’s unfortunate you have to have essentially a PhD in investing to avoid getting ripped off.
It’s nuts. I really wonder how many of my coworkers are invested in these expensive, actively managed funds.
Way to stay on top of this, FP… I’ve heard from a few podcasts that 403(b)’s have terrible and expensive investment options. Question – with not having a 401(k) through work, can you now save more into your solo 401(k)? I think you may be able to save north of $50k?
So I screwed myself now when it comes to my solo 401k. 401ks and 403bs are all in the same bucket – you can save 18k total between both of them. In contrast, the 401k or 403b contribution limits are counted separately from the 457, which is what I had when I was working in state government (I didn’t have a 401k with my state govt job).
So basically, my “employee” contribution to my solo 401k is going to be less now because any contributions I make to my 403b count towards my yearly contribution limit.
What I’ll probably do is try to figure out what my 1099 income will be each year and aim to fill up as much of my 401k/403b space as I can with my side hustle earnings, since my Solo 401k plan that I have with Fidelity is really good (total stock market fund, expense ratio of 9 basis points, and no admin fees either).
My husband got his small company to switch from their crappy expensive plan to fidelity. Vanguard was too expensive for the company (though cheaper for employees). I think the next best option was schwab.
That’s pretty sweet. I’d love if my org would switch over to a real company instead of whatever they’re using.
I’d talk to HR and see what can be done as its entirely possible they are unaware of how crappy the options are. Given that this guy’s first reaction was “do you have investment experience,” I’d say its a safe bet no one realizes they are getting screwed. There may be a reason they have this guy/firm and the reason may be as simple, and irrelevant, as “his name was first on a google search.” That said, don’t be surprised if they give you the task to find a new administrator and/or explain to them why this is such a poor plan.
Also, I know a ton of companies and now universities have been sued over the last few years because their 401(k)/403(b) plans were so bad. You would think the bar association, which is filled with lawyers, would be aware of this. Obviously, this isn’t a tact to take but may help move the wheels, or at least get this guy to offer better funds.