What if My 401(k) Plan Is Lousy?

Advice on how to make the best of a sub-par 401(k) plan.


Many financial advisers (including yours truly) suggest that most people maximize contributions to their company's retirement plan. But what if your organization's plan is lousy? Lousy could mean a poor menu of investment choices, high expenses, low or no company contributions, or other deficiencies. Here are a few tips to help you make the best of a lackluster 401(k) plan:

Find the best funds in the plan. Even if your plan is sub-par, many times there are a couple of funds that are decent. Consider focusing your investments in those few funds and using investments outside of the plan to compensate in terms of your portfolio's overall asset allocation.

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Get the full company match. If your company matches your contributions, contribute at least enough to receive the full company match. For example, if your plan offers to match half of all contributions up to 6 percent of your salary, that's an extra 3 percent contribution from the company, which gives you an instant 50 percent "return" on your money. That's hard to beat.

Contribute to an Individual Retirement Account (IRA). Everyone can contribute $5,000 ($6,000 if you're age 50 or over) to an IRA. For traditional IRAs, tax deductions will depend upon your income. Likewise, with a Roth IRA there are income ceilings that determine whether you can make a Roth contribution.

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Take advantage of other retirement savings options. If your spouse's company offers a better plan, try to maximize your contributions to that plan first. Remember, still take full advantage of any matches offered by your company's plan.

Do you run a business on the side? If the business is generating income, consider starting a retirement plan. Among the options to consider are a SIMPLE plan, a SEP IRA, and a Solo 401(k).

Discuss your concerns with your company. Do your homework and outline your concerns with the plan. With new 401(k) disclosure rules scheduled to take effect on Jan. 1, 2012, your plan administrator may be receptive to your input. Of course, common sense and civility should prevail when bringing concerns to the company's attention.

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One advantage of a 401(k) plan, even with the worst of plans, is the discipline of making contributions every paycheck. For many folks, the fact that the money is never there to spend is key. If you are going to divert retirement savings from your company plan to another vehicle make sure you set aside the money or have the contributions made automatically on a recurring basis.

Roger Wohlner, CFP® is a fee-only financial adviser at Asset Strategy Consultants where he provides advice to individual clients, retirement plan sponsors, foundations, and endowments. He recently cofounded Retirement Fiduciary Advisors to provide direct investment and retirement planning advice to 401(k) plan participants. Follow Roger on Twitter and LinkedIn.

Corrected 4/6/2011: A previous version of this article misidentified Individual Retirement Accounts (IRAs).