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Employer and 401k Relationship
Old 10-12-2009, 04:19 PM   #1
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Employer and 401k Relationship

Cliffp's post got me thinking. Why are one's employer and 401k so closely related. Why can't an individual just open a "401k" at Vanguard and contribute to it through the year. The tax deduction could be made directly on the 1040 just like an Traditional IRA. The only problem I see with this system is matching, but couldn't employees just submit documentation once a year showing their contributions and receive a check for their matching? Could a system like this work? It seems that it would eliminate a lot of bad plans.
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Old 10-12-2009, 05:19 PM   #2
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Originally Posted by rjpatt View Post
Cliffp's post got me thinking. Why are one's employer and 401k so closely related. Why can't an individual just open a "401k" at Vanguard and contribute to it through the year. The tax deduction could be made directly on the 1040 just like an Traditional IRA. The only problem I see with this system is matching, but couldn't employees just submit documentation once a year showing their contributions and receive a check for their matching? Could a system like this work? It seems that it would eliminate a lot of bad plans.

Read why it was set up... as a salary deferral system... it only became a 'retirement' vehicle when the masses started to contribute...

Some could say you can open up an account at Vanguard... but it is called an IRA... so you would want them to change the IRA rules so you can contribute more?

As for you final question... not all plans are created equal... we just changed plans at my company and I was the one who did most of the documentation work... you can take a loan from an 401... the company matches your contribution... but our company has a vesting schedule... so if you leave, then all the money is NOT yours.. my company's plan will allow you to save as much as 90% of salary... not many companies will allow that...

The only reason a plan is 'bad' is the company wants a bad plan... my company's new plan has 82 mutual fund options... and we could have had IIRC over 1,000...
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Old 10-12-2009, 05:49 PM   #3
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Not to mention health insurance tied to employers!
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Old 10-12-2009, 07:53 PM   #4
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My employer went to a new plan, so all our balances had to move from old funds to new funds. They proudly touted that all the fund choices were no load funds, but had no idea that the actual expense ratios were quite high. Nor did they understand that most of the funds were a special share class for adviser directed accounts, so there were extra 0.25 to 0.50 per year expenses on the individual funds as well. I bet the guy who "sold" this plan to the company was a very happy guy. I would never have bought this on my own, but until I leave and take my balances with me, I'm stuck making the best of the choices available.
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Old 10-15-2009, 10:43 PM   #5
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Originally Posted by rjpatt View Post
Cliffp's post got me thinking. Why are one's employer and 401k so closely related. Why can't an individual just open a "401k" at Vanguard and contribute to it through the year. The tax deduction could be made directly on the 1040 just like an Traditional IRA. The only problem I see with this system is matching, but couldn't employees just submit documentation once a year showing their contributions and receive a check for their matching? Could a system like this work? It seems that it would eliminate a lot of bad plans.
It could, but I think companies like vanguard give preferential fee structures to companies for having "simplified' plans with fewer options. If you did as you suggest, the transaction fees would likely be much higher. Obviously tax laws would have to be changed to account for this...and I think a previous poster made a good comment that the 401k was originally designed for high earners and thus the rules have not been changed to keep up with what the plans have evolved into.
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