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employer selected funds in a 401k/s there a kickback?

Started by Peter, May 24, 2013, 11:00:00 PM

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JDowding

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

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.


Cries

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. 

rawraw

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.


TravelingPennies

Good to know -- I wouldn't have connected the two

TravelingPennies



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.


https://forum.lendacademy.com/index.php?topic=1144.msg8392#msg88888888Quote"> from: Cries on June 19, 2013, 02:11:25 AM

TravelingPennies

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.

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