Author Topic: employer selected funds in a 401k/s there a kickback?  (Read 10339 times)

JDowding

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employer selected funds in a 401k/s there a kickback?
« on: May 25, 2013, 11:03:42 AM »
I am wondering if I am paranoid:  the selection of available mutual funds made my available by employer is limited to about 30 funds.     I diligently researched the most promising funds from that list, and selected 3 (low expense, morningstar rated).    Now, 2 months later, my employer is changing up the list, and 2 of my funds are going off.  Unless I select otherwise, they are going to automatically shift me into two other funds. 

As I look at the news funds, I don't see any advantage over the old ones, one has a tad lower expense, but is not rated, and is new, so it has no history.    I asked my employer what they didn't like about the old funds, and why they thought the new ones were better, but that was ignored.

So I am wondering if there is some other incentive to the employer when they choose what funds to make available?   Like, are they getting a kickback?
Is that legal?

Maybe I'm just grumbling, it takes time to try to make informed decisions, having them switched up just two months later is beyond annoying.

dontvote

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employer selected funds in a 401k/s there a kickback?
« Reply #1 on: May 26, 2013, 11:50:31 AM »
Maybe they changed 401k administrators. That may give you a different mix of funds. If you work for a financial firm that sells mutual funds there may be some conflict requiring a switch.
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thezfunk

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Re: employer selected funds in a 401k/s there a kickback?
« Reply #2 on: June 06, 2013, 12:25:06 PM »
I am wondering if I am paranoid:  the selection of available mutual funds made my available by employer is limited to about 30 funds.     I diligently researched the most promising funds from that list, and selected 3 (low expense, morningstar rated).    Now, 2 months later, my employer is changing up the list, and 2 of my funds are going off.  Unless I select otherwise, they are going to automatically shift me into two other funds. 

As I look at the news funds, I don't see any advantage over the old ones, one has a tad lower expense, but is not rated, and is new, so it has no history.    I asked my employer what they didn't like about the old funds, and why they thought the new ones were better, but that was ignored.

So I am wondering if there is some other incentive to the employer when they choose what funds to make available?   Like, are they getting a kickback?
Is that legal?

Maybe I'm just grumbling, it takes time to try to make informed decisions, having them switched up just two months later is beyond annoying.

You get 30?  I get about 8.  They have changed a few of them out over the past couple of years too.  One I really liked and they switched it for one with much higher expenses.  That's why I stopped putting money in my 401K and do an IRA.  We don't get 401K matching, we just get 'profit sharing' which is usually about 2% of your salary.  That gets dumped into your 401K whether you put in any yourself or not.

Cries

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Re: employer selected funds in a 401k/s there a kickback?
« Reply #3 on: June 19, 2013, 02:11:25 AM »
I just quit my job working in a corporate/investment banking role at the bank with the largest asset management arm in the US.  I can attest that there are "kickbacks" (in your words).  However, on the bank's side, these are structured as cross-sales to justify relationship lending. 

In short, the banks go pitch the CFO/treasurer at corporations and say: "use our high-expense/recently-incubated funds in your 401k, and we'll forever give you cheap loans under any terms you want."

This happens at just about F500 company.

It goes without saying that I immediately pulled all my money out of my company's plan upon resignation. 
« Last Edit: June 19, 2013, 11:23:33 AM by Cries »

rawraw

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Re: employer selected funds in a 401k/s there a kickback?
« Reply #4 on: June 19, 2013, 05:24:16 AM »
One of my employer 401K's has like 30 options and all the expense ratios are under 1%.  But there is still a difference between the index and actively managed ones, of course.

Cries

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Re: employer selected funds in a 401k/s there a kickback?
« Reply #5 on: June 19, 2013, 04:19:32 PM »
One of my employer 401K's has like 30 options and all the expense ratios are under 1%.  But there is still a difference between the index and actively managed ones, of course.

Good for your employer.  They are obviously doing right for their employees.  I love to see employers giving their employees the option to use vanguard (or something similar).

However, many other companies will look for "ways to pay the banks" in forms other than interest expense on loans.  These CFOs systematically push costs onto their employees by giving them limited/high-expense 401k choices (for example, a 401k with 8 fund choices; 5 of the funds read something like the following: "Euro-Pacific Small Cap Growth Equity Fund (1.75% expense ratio)").

If you are at a Company with 401k offerings like the above - dont be confused.  Its entirely intentional on the part of management. 
« Last Edit: June 19, 2013, 04:22:00 PM by Cries »

rawraw

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Re: employer selected funds in a 401k/s there a kickback?
« Reply #6 on: June 19, 2013, 06:23:40 PM »
Good to know -- I wouldn't have connected the two

JDowding

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Re: employer selected funds in a 401k/s there a kickback?
« Reply #7 on: June 19, 2013, 07:24:04 PM »


Thanks for the comments.   I had also read someplace else (forget where) confirming that this is legal.      In my case, I don't actually think that my own employer is acting in bad faith, the funds that are available did contain funds that I was comfortable with if I spent enough time tracking through them.     I am more unhappy about their unilaterally "transfering" my money from old funds to new funds when the approved list changes.      Of course, I am free to transfer it to another approved fund if I want to, but, ya know, selling is bad.


I just quit my job working in a corporate/investment banking role at the bank with the largest asset management arm in the US.  I can attest that there are "kickbacks" (in your words).  However, on the bank's side, these are structured as cross-sales to justify relationship lending. 

In short, the banks go pitch the CFO/treasurer at corporations and say: "use our high-expense/recently-incubated funds in your 401k, and we'll forever give you cheap loans under any terms you want."

This happens at just about F500 company.

It goes without saying that I immediately pulled all my money out of my company's plan upon resignation.

JDowding

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Re: employer selected funds in a 401k/s there a kickback?
« Reply #8 on: June 19, 2013, 07:31:42 PM »
Incidentally, I completely agree with you about pulling your 401k money into an IRA that you can manage yourself as soon as you leave the employer.   I wish I had understood that a long time ago.