They started the do it yourself craze for home improvement, perhaps they can do the same for 401(k) plans. The Home Depot, which has a $3.7 billion 401(k) plan, has shrunk their plan administrative expenses in half over the last three years.
The plan investment lineup has 12 options, in addition to target-date funds and a self-directed brokerage window. While that maybe a lot of funds, participation rate is higher than average at 61%. The brokerage window only is used by 1% of the participants.
While people will scoff that Home Depot can have the power to cut expenses in half because they have $3.7 billion, small and medium sized employers may have the same power if they are just willing to listen to financial advisors and third party administrators who are telling them that their current providers stink.
I spoke to an advisor today who reminded me of an old client that I had at my old producing TPA. He told me he approached the human resources director at the company, telling him he was paying 75 basis points in investment advisory fees on a $20 million 401(k) plan. The human resources director couldn’t care less, but the reason was that this director would send my boss a schedule for the New York Jets and circled the games he wanted to attend. So I know this H.R. director got to see a lot of Bill Belichek and Tom Brady at Giants Stadium.
So what can Home Depot tell us? Plan sponsors can do it themselves to fix their 401(k) plan, they just need the right tools. A good financial advisor, TPA, and ERISA attorney are the right tools. Free tickets for the Jets aren’t, even Giants (go Big Blue) tickets aren’t either.