One man's hunt for a better 401(k) plan

Armed with a pretty good understanding of the stock market, Alan Wenker spent an entire decade engaged in stop-and-start efforts to find a better plan for himself and his colleagues at Feed Products North, a small company in Maplewood that sells minerals to animal feed mills.

Yes, you read that right. Ten years. It should not take that long, and the marketplace for retirement plans for smaller employers has improved a bit since Wenker set out on his quest.

Still, anyone at a smaller company who would like to cut costs in half while also offering improved investment choices, as he did, would be wise to consider the hurdles Wenker had to clear.

So why are all the details so important? Most people starting their careers now will spend 45 years trying to save enough so they can stop working someday. But if the investment costs and fees inside your 401(k) or similar fund average, say, 1 percent of your assets each year instead of 0.25 percent, the difference can cost more than $100,000 by retirement.

And that's just the fees side. Most actively managed mutual funds, which try to pick investments that will do better than an index of similar securities, often don't outperform that index over long periods of time. Even so, many employers don't provide a full menu of index funds inside their retirement plans.

Wenker, now 47, was only beginning to understand all this in 2000 when he went to work for Feed Products North as the company's controller. His new company had no plan in 2000, so he decided to start one. And he took the path of least resistance, signing up for the 401(k) plan that his company's payroll processor offered. When Feed Products North switched providers a couple of years later, Wenker moved the plan as well.

All along, however, his opinions about investing were evolving. He'd read Andrew Tobias's book "The Only Investment Guide You'll Ever Need" and became a fan of the National Public Radio show now called "Marketplace Money."

As Wenker became more aware of the importance of diversification and low costs, he realized that his plan had no index funds and was costing him and his colleagues about 2 percent of their balances each year.

He started around, even picking up the phone when the cold callers rang. "But you always end up at the same place that you already are," he said. "which is a set of mutual funds and a nice guy with a glossy brochure. But the funds are essentially all the same. They tend to have higher expenses, because they have to pay for the guy in the suit with the glossy brochures."

Jessica Weiner, who spent years working at insurance companies that pitched plans to small businesses before starting a consulting group called the Value Quotient, explains why.

"One of the realities you have in the smaller market is that the brokers who get involved with a plan are typically benefits experts," she said. "I call them incidental brokers." As in, 401(k)s are incidental to them, an afterthought. Where they really make their money is pushing health, life and other insurance, especially policies aimed at senior executives and company owners.

Wenker's breakthrough came in 2008, when he found an article about Dimensional Fund Advisors, a mutual fund company that does not attempt to pick stocks but constructs low-cost portfolios in a way that often ends up outperforming index funds by a bit.

Looking to improve your own 401(k) plan? I'd start with administrators like Employee Fiduciary, the Online 401(k) and Invest n Retire. The ShareBuilder 401(k) plans also are worth a look, as is Charles Schwab's new initiative to set up plans that include only exchange-traded funds.

If you decide, as Wenker did, that you want a professional adviser on call, you can phone Vanguard at 1-800-841-7999 and ask for a referral to a financial planner that can set up a retirement plan with Vanguard funds. Dimensional offers referrals, too.