Roll-Over Rip Offs

Because the TAG 401(k) Plan has a bit of money in it, and because a number of Plan participants have big slabs of money that can be rolled over into other accounts, we offer this cautionary tale.

Retirees Suffer as $300 Billion 401(k) Rollover Boom Enriches Brokers

Kathleen Tarr says AT&T Inc. employees looked to her as “their de facto 401(k) expert.” Visiting their homes and offices, she advised them on their retirement plans as they called up balances on computer screens.

Actually, Tarr worked for Royal Alliance Associates, a brokerage firm owned by insurer American International Group Inc. (AIG) She encouraged hundreds of departing AT&T employees to roll over their retirement money into the kind of risky high-commission investments that Wall Street’s self-regulatory agency warns against on its website.

Tarr and her business partner reaped hundreds of thousands of dollars a year in commissions and trips to the Bahamas and Florida resorts. Not all of her clients fared as well, and 37 of them have filed complaints against her, according to Financial Industry Regulatory Authority records reviewed by Bloomberg News. Tarr and Royal Alliance say the investment choices were appropriate. ...

Suurre the investment choices were appropriate. Ms. Tarr was making beaucoup bucks off them. You can't get more appropriate than that.

But here's the small, golden secret about investing for retirement: Park yourself in mixture of low-cost index funds, specimens like Total Market Stock, a pinch of small value stocks, and a nice intermediate bond fund. Sprinkle in an International stock fund, and you're all set. Broad diversification across multiple asset classes, tiny costs, and over time your investments will grow.

You'll want to keep fund expenses down around eight or eighteen basis points, because studies show that the surest way to predict future returns is the costs of your investments. What you don't want to do (in my opinion) is hand your 401(k) money over to brokers like Kathleen Tarr.