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Changing Jobs? Beware of Bad Information About 401(k) Options
Posted By Carole Fleck On April 8, 2013 @ 1:58 pm In Money Talk | Comments Disabled
About to change jobs? If you have a 401(k) account, you’re at risk of getting bad information when you ask the company managing your retirement plan about your options.
Turns out that, in some cases, the people who give advice over the phone push departing workers toward rolling over their 401(k)s into a privately owned individual retirement account (IRA) that the investment company sells. What these plan providers also don’t disclose to workers are the fees associated with that move or other options that may be more appropriate, such as keeping their funds in a 401(k), according to a government report.
The report says workers must be protected from deceptive marketing disguised as advice.
“Some unscrupulous firms are making a profit by keeping customers in the dark,” Sen. Tom Harkin, chairman of the Health, Education, Labor, and Pensions Committee, says. “When Americans call up their 401(k) plan provider looking for advice, they shouldn’t be inundated with marketing materials masquerading as objective, investor education.”
More than 90 percent of all new funds that flow into IRAs come from 401(k) rollovers.
Generally, when workers leave a company with a 401(k), they have four options:
The Government Accountability Office (GAO) report was issued after an investigation into the practices of 401(k) service providers in helping workers decide how to invest their retirement assets when they change employers.
Among the findings:
The GAO used undercover investigators to call 30 firms to understand how they market their products to employees with 401(k)s. Seven incorrectly said that their IRA was free or that there were no fees to open or maintain an IRA.
The investigators also reviewed the websites of 10 large firms. Five wrongly said their IRAs were free.
The GAO recommended, among other things, that the federal government establish uniform standards to help 401(k) account holders make better-educated decisions, require the full disclosure of IRA fees by service providers and encourage people to keep their retirement savings in the 401(k) system.
Harkin and two other Capitol Hill Democrats, Sen. Bill Nelson of Florida and Rep. George Miller of California, have written officials of the Labor Department and the Treasury Department, urging them to take action. “For most workers,” they said, “[their 401(k)] is their largest financial asset, and they have a right to full and fair information on all of their investment options.”
The GAO’s findings, Miller added, come as no surprise, “since IRAs often come with higher costs when compared to a 401(k).”
Nelson, who chairs the Senate Special Committee on Aging, said, “Saving for retirement is tough enough, so it’s terrible when employees lose hard-earned money to misleading sales pitches, harmful products or just poor investment advice.”
Photo credit: Eden pictures via flickr.com
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