What I learned through my company’s 401K transition

Estimated Reading Time: 7 minutes Working for a global company that is privately owned and on the “smallish” size provides some unique opportunities for exposure and ability to make an impact. Recently it was decided that we would transition from Fidelity to another payroll provider that also offered retirement services so we could achieve autonomy. Given my interest in personal finance in addition to my background having obtained my Series 7 and Series 63 licenses I raised my hand in being part of the consultative process to select the administrator. The 401K administrator transition is probably more complex than what you might initially think.

Two important goals were established

Our goal was two-fold. Firstly, we wanted to ensure that our accounting and finance teams had a platform that would allow them to process payroll in multiple countries while simultaneously being able to sync the 401K administrator services. Given the fiduciary component there were two types of plans we had options of choosing, a 3(38) or a 3(21). I won’t get into all the technical details because most will find it boring but for those that are interested in understanding the differences between the two a simple google search will present a plethora of results, such as this: and you thought just picking the investments were complex!

Change is challenging with such a personal subject

What we found was the process was hugely personal for many of the plan participants even if they didn’t understand much about the investment or retirement planning process. Features such as platform and easy access web portals ranked atop the list as desires (even to the detriment of fund fees that can drag down a nest egg of your total portfolio). Shockingly, even concerns of personal loans and how easy they were to initiate was one of the objections we dealt with. REALLY?!?!? We are talking about 401K’s and retirement doesn’t that defeat the whole purpose? If you are wanting a loan there should be other avenues instead of raiding your sacred nest egg. Ultimately we opted for a 3(21) plan because as an organization we felt it gave us better control to choose the investment vehicles on behalf of our participants. We were able to source a little something for everyone should they choose to get more involved with the investment decision process or sought guidance from an advisor or an automated advice tool. The final lineup of funds had consistency from our prior plan with some additional layers and best of all it reduced fund fees exponentially. Bonus: we actually have some Vanguard funds to pick from!

My list of takeaways

I would be remiss if I didn’t look deeper at some of the learning’s this opportunity provided me. It isn’t everyday you are able to be part of something that can have a lasting impact on your peers – in what I believe is a positive and profound fashion. Some of the things that stood out are: 1) People don’t know much about retirement. Perhaps it is because it seems so far off or something that doesn’t even seem possible for some. Considering the path to retirement has been turned upside down over the last thirty years it shouldn’t come as a surprise. Gone are the days of pensions and health care coverage in the post-work era. For some generations even social security is a big question mark. Retirement wasn’t something you had to think about, you only had to dream about it until the golden years were thrust upon you. 2) Financial education or simple discussion is necessary. If I had to guess the vast majority of households don’t have a budget. A large portion of society was probably never taught how to balance a check book. Simple fundamentals such as cash flow or the differences between equities or bonds are probably a foreign language. It’s sad to think that these concepts aren’t taught in school. Even more troubling is the dire need for it given what is outlined in point one. The subject of money, personal finance, and retirement shouldn’t be taboo. Fear of being shunned because we feel inadequate and are afraid to ask questions shouldn’t prevent these issues from being discussed. Yes, money is a hugely personal topic. I don’t know what my friends salaries are or what their net worth is and it isn’t something I need to know but imagine if things could be discussed more openly how much better off we could all become. We could learn from each other’s mistakes. We could share best practices. We could educate ourselves freely simply by discussing a topic in whatever comfort we have. 3) People shy away from subject matter they don’t feel confident in. This very well could be why people don’t know much about retirement or why they don’t even discuss it. They are embarrassed or afraid so it is easier to shy away then look like a fool.  The world of money and finance is insanely complex. I could throw out ideas like shorting stocks, making covered calls, buying with margin and people would run away in horror. The world of derivatives and what brought down the world economy in 2008 still isn’t fully understood by the industries brightest. So why would anyone think they know it all?  Rather than run away immerse yourself in the things you are curious about or don’t understand. Take interest in something that is truly powerful. At some point we all need to replace our paychecks with a source of income. 4) People just aren’t interested. I still haven’t fully digested this one but it is true.  It is out of sight, out of mind. Fresh out of college graduates are more focused on their weekend plans, middle aged folks are just trying to make it through the day and get their kids from one after school activity to the other, and people winding down their careers think it’s too late. We constantly struggle with people jockeying and competing for the precious minutes through-ought our day. Social media has become a time suck. The internet has sapped us dry from the days of quiet time. We actually have to monitor screen time for our children. Everywhere we look there is a battle for our attention. No wonder people aren’t interested in retirement, it is difficult enough just to deal with the problems and issues we face today…why look 20, 30, 40 years out? 5) People know it is important but don’t have any hope. A study conducted by the Harris Poll found that 78% of Americans working full time live paycheck to paycheck. Every year an article like this is published essentially indicating the same thing. While data and statistics can be misleading I would venture to say this concept or idea is probably more accurate than not.

Final Thoughts

I’m extremely thankful for the opportunities I’ve been given. Some reinforce my values and ideas. Others open up a whole new world I never knew existed. And yet some make me excited and inspired about what is possible. Taking on this project of our 401K transition at my workplace left a lasting impression on me. It shook me at the core of what I intended to achieve back in 2008 as I walked through the doors of Merrill Lynch for the first time. I long for the moments of instilling passion and hope and being able to make a difference. I might not be doing it in the ways I initially thought but that is okay. Sharing my thoughts in this blog were a stretch of the imagination eighteen months ago but here I am.  It might not be earth shattering. It might not be for the masses. But I am striving to get better and if even just one person is reading this and doing the same I’d consider it a success! If this is the first time you’ve stumbled upon us be sure to start here and don’t be a stranger and check back regularly 🙂