What recourse do I hv against changes in 401k company plan? The "team" deleted the hi-performing Sector funds.

Question

Public US company is changing manager from Fidelity to T. Rowe Price. My Sector funds in Fidelity are named "T Rowe Price" but are not in the new 401k offered when the whole thing becomes managed by T Rowe Price. The company team claims that they have the "fiduciary" responsibility to "protect" their employees against those who 'don't have the financial astuteness" to make the right decisions within their funds. The new funds only have history of 5-9% return rates, but the sector funds have netted me year over year return of 26% as I watch it and understand what I'm doing. Other well-informed employees who understand finance are also upset. We want the company match, but need to do the 401k with TRP in order to get it. What can we do after the VP of HR has said 'NO'? Do we file Class action suit? Report to some other finance authority? "Harp" on the sales reps that come to visit us? Other suggestions?

Answer 1

You have not gone the the president yet? That would be your next step. But in order to do so to have the greatest impact you perhaps should get a petition signed first by all those who are of like opinion as you. You will need a significant number of signitures. I do not know how large your comany is but lets say there are 300 employees at your location, about 50 signitures should be sufficient. The petition should be diplimatically worded but should state the case explicitly. A class action suit would more than like get you fired.



I may be out of line with this suggestion, but there is the possibility that the "new" plan was developed because it entailed a better deal for the company than the old plan. Read that in whatever syntax you wish.



Unfortunately, some 401k plans are not very good in the variety of choices that they offer. The company does however have a point. They do have a fiduciary responsibility. T Rowe Price does offer some excellent funds. The Capital Appreciation Fund is one of my favorites. But no it will not generate a 26% return. On the other hand in a bear market it most likely will not loose you 50% either. This particular fund went through the last bear market with the worst return being +3% for the year. That was when most of the sector funds were loosing 50% of their value.

Answer 2

Unfortunately you can't really do anything. The Plan Sponsor (your employer) is required to act in a diligent way in order to operate the plan. They have a high level of fiduciary duty in order to select the right investments and to monitor vendors and others involved with the plan to ensure that it operates correctly.



This includes selecting the funds in the plan and the vendor/investment firm who provides services. There might be some reason they made this decision that you are unaware of (although the reasons should be made public).



You can contact an ERISA attorney who can advise you on whether or not filing a claim against your employer would do any good. As long as your employer covered their tracks and has substantial information as to why the change was made then there probably is no case and they were simply acting within the fiduciary guidelines. Now, if you can show that the change was not made with the best interest of the participants in mind, then you might have a case.



Otherwise, employers are pretty much free to change their plans as they see fit.

Answer 3

Hello,



I can understand your concern but it sounds like your company is trying to do what is in the best interests of its employees. Your company might also be trying to protect itself from lawsuits should employees make very poor investment decisions. It is important to point out many companies are conservative when creating 401K platforms and profit sharing plans. Most plans, especially those where only the company contributes are set up with the balanced investor in mind



I would try to look at the silver lining in this situation in that your company may help you avoid making poor investment decisions. T. Rowe Price is an excellent mutual fund company, especially when it comes to domestic equity. T. Rowe Price offers many good mutual funds, a few of which may be similar to a sector fund. In addition, T. Rowe Price has an excellent investment research staff and its funds have very reasonable fees.



I am not an attorney, but I do not think there is much you could do to change your company’s decision. You could make a few suggestions, but be prepared to back it up with a sound rationale that is appropriate for a large number of its employees. You might invest in sector funds outside of your 401K plan and then using diversified funds inside the plan.



I hope this helps.



Michael A. Weiss, CFA

The Editor

The Mutual Fund Investor

http://www.mutualfundinvestor.net

Answer 4

Okay, this may be off the wall, but give it a thought...suppose you were to say " we want out"....then roll your 401 balance into a Fidelity IRA account...traditional if you don't want to pay taxes, or pay some and go ROTH.

Now, step two ...next enrollment period, you sign up for the TRP 401...you'll be back to getting the match...and you'll have had some time to find their best funds possible.

On a Fidelity website you can continue to "groom" a more aggressive portfolio and on a T Rowe site do what you can.

( There's got to be SOMETHING there you can " work with"... international?...small-cap? )

Or just roll with the punches...accept the new stuff and just thank your stars you had a chance to jumpstart YOUR nestegg for awhile. ( Say, you never know...it could be a blessing...this bull market is getting stretched...might be time to " duck and cover" anyway.

Hope everthing works out!

Answer 5

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