A Financial Predator’s Pinata

The little guy always seems to get screwed.

This is the case regarding 401(k) plans for small businesses, compared to their larger company counterparts.

Darla Mercado points out this disturbing fact:

“However, small businesses generally don’t have the same bargaining power as employers with large retirement plans. In 2014, plans with less than $10 million in assets cost 1.02 percent, while plans with over $1 billion in assets cost 0.30 percent, according to the ICI and Brightscope.”

Overburdened small business owners are easy marks for financial predators.

Small business owners often provide a company match and are generally looking to do the right thing for their employees. In addition, they are trying to attract talented workers. They are rewarded for their good intentions by financial salespeople posing as advisors. Workers’ funds are deposited in expensive and exploitative products.

Sometimes the choices are so bad, it pays for younger employees to bypass their 401(k) plans and instead contribute to their own Roth IRAs.

“‘If you’re putting in $4,000 to $5,000 a year, don’t buy this crappy variable annuity [at work], put your money in a Roth IRA,’ said Anthony Isola, a financial advisor at Ritholtz Wealth Management in New York.”

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