What makes a good 401K failure case?



  1. Catastrophic Failure of Plan Sponsor—Bankruptcy, Embezzlement or other Fraud.
  2. Fund options do not make economic sense:
    • Line-up of fund choices limited to proprietary fund;
    • Company stock is a big portion of 401K investment;
    • High expense ratios in fund choices;
    • Fund choices lag market benchmarks on either gross or net basis (before and after net expenses).
  3. Close personal or business relationship between owners of plan sponsor and Financial Advisor:
    • Weekly golf game between Financial Advisor and Owner of Plan Sponsor
    • Common investments—real estate, boats, planes, etc.
    • Family relationship
    • Service on local charities with plan sponsor—the Stanford Financial Model—give it away and then take it back.
  4. Feel Good letter from Compliance Officer—are you sure everything is ok? (we don’t think it is, but wanted to pass the liability offer to you, the plan sponsor).
  5. The higher the gross expenses the better, particularly if not completely disclosed (and no plan has complete disclosure—at least none that I have seen, including mine). Do not distinguish the recipient of the fees—joint and several liability is a good thing.
  6. Delay in Employer/Employee Contributions—someone is sitting on the money—an objective fact, look at the calendar.

IMPORTANT: Submitting this form does not create an attorney/client relationship.


Name *
What did you tell the broker about the kind of investment you wanted to make?
What did you buy?
What did your broker tell you about each investment?
What do you think the broker did wrong?