What to Do If Your Employer’s Retirement Plan Is Bad

What to Do When Your Employer’s Retirement Plan Falls Short

A poor employer retirement plan can significantly impact your ability to build wealth for retirement. High fees can eat away at your returns over decades, while limited investment choices may prevent you from diversifying your portfolio effectively. The good news is you have more control than you might think. Below, we’ll walk you through practical strategies to work around a disappointing employer plan and still build a robust retirement portfolio. From exploring alternative retirement accounts to advocating for better options at work, you’ll discover actionable ways to take charge of your financial future.

Exploring Alternative Retirement Accounts

When your employer’s plan disappoints, alternative retirement accounts can fill the gaps and help provide more control over your investment strategy. Here are some alternative retirement accounts to consider:

• Individual Retirement Accounts (IRAs) – Traditional and Roth IRAs offer significant advantages over many employer plans. You’ll typically find lower fees, broader investment options, and more flexible withdrawal rules. For 2024, you can contribute up to $7,000 annually to an IRA, or $8,000 if you’re 50 or older. Traditional IRAs provide immediate tax deductions, while Roth IRAs offer tax-free withdrawals in retirement. 
• Health Savings Account (HSAs) – Often overlooked as retirement vehicles, HSAs provide triple tax advantages when used strategically. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. After age 65, you can withdraw HSA funds for any purpose without penalty, though you’ll pay regular income tax on nonmedical withdrawals.
• Taxable Investment Accounts – While they lack the tax advantages of retirement accounts, taxable investment accounts offer complete flexibility in investment choices and access to your money. They’re particularly valuable if you’ve maxed out other tax-advantaged options or need more liquidity before the traditional retirement age.

Understanding Rollover IRA Options

Rollover IRA options become especially important when dealing with poor employer plans, as they provide an escape route for your accumulated savings. Here are some rollover IRA options:

• Direct Rollovers – When you leave your job, you can transfer your 401(k) balance directly to an IRA without triggering taxes or penalties on the transfer itself. This direct rollover preserves the tax-advantaged status of your savings while typically providing you access to better investment options and potentially lower fees.
• In-Service Withdrawals – Some employer plans allow in-service withdrawals for employees over age 59½, even if they’re still working. This feature lets you roll over a portion of your 401(k) to an IRA while continuing to work and contribute to the plan. Check with your HR department to see if this option is available.
• Roth Conversions – If your employer plan allows it, you might consider converting traditional 401(k) funds to a Roth IRA. You’ll pay taxes on the converted amount in the current year, but future growth and withdrawals will be tax-free. This strategy works best when you expect to be in a higher tax bracket in retirement.

Optimizing Personal Investments

Taking control of your retirement planning means going beyond employer-sponsored plans to build a comprehensive investment strategy. Here’s how to help maximize your personal investments:

• Dollar-Cost Averaging – Consistent investing through dollar-cost averaging helps smooth out market volatility. Set up automatic transfers to your IRA or taxable investment account to maintain steady contributions regardless of market conditions. This approach often yields better results than trying to time the market.
• Diversification Strategies – Bad employer plans often offer limited investment options, making it difficult to build a diversified portfolio. Use your personal investment accounts to fill these gaps. If your 401(k) only offers expensive large-cap funds, focus your IRA investments on international stocks, small-cap funds, or bonds to create a better balance.
• Low-Cost Index Funds – High-fee actively managed funds in employer plans can significantly drag down your returns over time. In your personal accounts, prioritize low-cost index funds that track broad market indices. These funds typically charge expense ratios of 0.1% or less, compared to 1% or more for actively managed options in employer plans.

Advocating for Plan Improvements

You don’t have to accept a subpar retirement plan without a fight. Employee advocacy can lead to meaningful improvements that benefit everyone. Here are some specific actions you can take:

• Document Specific Issues – Before approaching your employer, gather concrete evidence of problems with the current plan. Compare fees to industry benchmarks, identify gaps in investment options, and calculate how these issues impact long-term returns. 
• Build Coalition Support – Rally coworkers who share your concerns about the retirement plan. A group request carries more weight than individual complaints. Consider surveying colleagues about their retirement planning priorities and present unified feedback to management.
• Propose Specific Solutions – Don’t just highlight problems—offer solutions. Research better plan providers, suggest specific investment options to add, or propose educational workshops. Make it easy for your employer to say yes by doing the legwork yourself.
• Work With HR and Benefits Committees – Many companies have benefits committees that review and make recommendations about employee programs. Volunteer to join or present your findings to these groups.  

Avoiding Excessive Fees

High fees represent one of the biggest threats to your retirement savings, potentially costing you tens of thousands of dollars over your career. Here’s how to avoid excessive fees:

• Understanding Fee Structures – Employer plans typically charge administrative fees, investment fees, and sometimes individual service fees. Request a detailed fee disclosure from your plan administrator to understand exactly what you’re paying. 
• Calculating Long-Term Impact – A seemingly small fee difference compounds dramatically over time. An extra 1% in annual fees on a $100,000 balance costs you over $30,000 in lost returns over 20 years. 
• Minimizing Unavoidable Fees – If you must use a high-fee employer plan, minimize the damage by contributing only enough to capture the full employer match, then directing additional savings to lower-cost IRAs or taxable accounts.

Take Control of Your Retirement Future

A disappointing employer retirement plan doesn’t have to derail your financial goals. By diversifying your retirement savings across alternative retirement accounts, understanding your rollover options, and maximizing personal investments, you can build wealth despite plan limitations. Take action today by reviewing your employer plan’s fee structure and exploring IRA options with a reputable low-cost provider. Your future self will thank you for taking control of your retirement planning. If you need help navigating your retirement options, contact Prime Financial Capital today. We’ll connect you with a trusted financial advisor to assist in creating a comprehensive retirement plan that fits your unique needs and goals.

Disclaimer: Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness. This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice.