Dear Mr. Berko: 

My company just established a 401(k) plan, and a small group of us who are buds can’t figure out the investment choices. Our human resources department won’t give us any investment advice or explain the mutual funds in the plan that are best for us. So I asked my brother, who is a loan officer at a large bank, but he’s reluctant to comment because my employer’s business and personal accounts are with his bank. Enclosed is the information that we were given. I’d appreciate your advice, which I’ll share with my buddies. Tell us which are the best funds, and please don’t mention the name of the brokerage firm (it’s a small firm), because our CEO may be friendly with the people there. Also, what do you think of the new “myRA” plan run by the government? 

Confused in Durham, N.C.



Dear Confused: 

Of course you are. Human resources, the most unproductive department of any business, is usually staffed by a bureaucracy of stupids. The bigger the bureaucracy, the easier it is to avoid responsibility for dumb decisions, such as that 401(k) plan.

An acquaintance of mine who wears a Roman collar would exclaim: “Well, by Hoover Dam, that’s the sorriest excuse for a retirement plan I’ve ever seen!” I’ve never heard of any of those mutual funds, not one of which has a performance record preceding the market crash of 2008. So I’m as certain as Socrates that brokerage has embarrassing videos of your boss, or he’s a blood relative with its principal.

If this CEO truly cared, he would better serve his employees by employing a large no-load fund family, such as Fidelity, Vanguard or T. Rowe Price, whose stable of funds have verifiable long-term performance records. I’m uncomfortable with your plan because: 1) The selection of funds is laughable. 2) Their expense ratios exceed 1 percent. 3) The setup cost of $75 per participant is unacceptable. 4) The plan’s administrative costs (0.52 percent) are much too high. 5) The brokerage fees are unacceptable. In other words, you guys are getting ripped off big-time. Even though the company will match your contributions (4 percent, up to $12,000), I’d elect not to participate.

I recommend that you max out a Roth individual retirement account and then open a nonqualified investment account with a no-load fund family, investing with it the amount you intended to invest in the company plan. If you let me know which fund family you choose, I’ll help you select the funds that should agree with your long-term goals. Although you won’t get a tax deduction, there are hundreds of funds that should outperform the fund choices in the company plan. I believe the potential performance of the known funds plus the lower administrative costs and fees will exceed the tax benefits you would gain from a qualified plan. And you might be way ahead of the game by paying taxes each year on the annual contributions at today’s rates rather than paying taxes 40 years hence (at a certainly higher rate) on all the invested money plus the cumulative gains.

The Obama administration’s “myRA” is a farce; forget about it. According to a member of Congress, the administration proposes to fund a new IRA bureaucracy with a first-year budget of $31.2 million and a staff of 37 new federal employees. Beware: In 1977, when oil was $12 a barrel, President Jimmy Carter established the Department of Energy with 31 employees to promote “energy conservation.” Today the DOE has 16,000 employees and a $27 billion budget, and oil is $100 a barrel.

Treasury Secretary Jacob Lew suggests that this is an excellent solution for low- and middle-income workers, such as the waitress who works two jobs to support her kids. If she invests $25 a week for 11 years at current bond rates, she’ll amass $15,000. Jacob, I think you’re smoking some pretty bad stuff. Most of us would rather do business with a bank than the government; it is cheaper, is more efficient and costs less.