Why don't we have more investment options with our 401Ks?

Question

Why can't we, for instance, put matching 401K money into our houses? Why do we have to invest in some fund?

These Funds do not disclose their fees, which are often substantial. When saving for retirement, why are we so limited in our freedom to choose?

Answer 1

I've had 401K's with several different employers over the years.

They all disclose their fees, and they all have MANY options for the different types funds (stock, bond, cash, etc)

If you want to invest money in your house, you can, but it won't be the pre-tax money from the 401K. That's the difference between the 401K money and regular cash.... Pre-tax Vs. after-tax makes a big difference.

Answer 2

401K investment options are limited for a variety of reasons. First, the people who are responsible for choosing the company that will administer the plan are usually in the human resources department. They got stuck with something no one else wanted to do and just want to make the task as easy for themselves as they can. Second the plans are with very few exceptions set up primarily in which-ever fashion most benefits the company not the employees. Third the human resources people probably don't know any more about investing than you do and will choose the plan from the company that has the best salesperson. Fourth, the H/R people aren't licensed to give advice and are restricted from doing so which makes choosing the simplest plan a priority. The good news is, most people change jobs seven or more times over the course of their working life and every time you leave an employer you have the option of rolling the money over to a self-directed IRA. It's true most funds are far from transparent when it comes to their fees and those charged to administer 401K plans are frequently outrageous. Remember the H/R people who are being sold don't know the difference and for the most part don't care. It's a hassle they want to be rid of as soon as possible. Not pretty, but that's life. Still a bad deal in this case is better than no deal at all, particularly if there is a decent employer match. That's free money and will certainly balance, at least, the fees.

Answer 3

Actually, the funds are required by law to disclose their fees. They are in a prospectus. If you are getting fees that are not in the prospectus then you may want to find a lawyer about suing the company managing the fund.

As for putting the 401k money in your house. How about if you can only do that if you promise not to move from that house until you are 59½ years old? What is to keep you from raiding your 401k and buying a house and then turning and selling the house? The retirement funds cannot have every single possible investment idea in them. It is not feasable.

What you may want to check on is getting a different company to manage your 401k. If there is only one choice where you work then your problem is with your place of employment. Get onto them about getting other approved vendors in there. If they cannot do that then check out some other retirement plans that do not come thru the employer, such as the Roth IRA.

Some companies allow you to borrow money from your 401k to use in purchasing a home. You have to pay the money back to the 401k though. It is like treating your 401k as a little bank and you got a mortgage thru it. There are limitations on it and of course not all vendors allow it.

Answer 4

The employer has a fiduciary responsibility to provide competitive investment options - its spelled out in the laws governing 401(k) plans. All mutual funds do disclosure their fees - if you look. But a 401(k) is a RETIREMENT account using pre-tax money - not intended for house purchases or improvements.