Ask me your retirement questions: I got fired before I was hired!

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My post on 401(k) plans generated some spirited comments. Some readers asked what "subsidy" employers get from 401(k) advisors and mutual fund families. Here's the way it works.

Brokers and fund families (with few exceptions) make employers an enticing offer: Let us select the funds available to plan participants, and we will subsidize the record-keeping costs of your plan, sometimes absorbing 100% of these costs.

What kind of funds are chosen for inclusion in the plan? Frequently, high-expense ratio funds that underperform index funds over the long term. Exposing this kind of abuse so incensed one reader that he wanted to fire me, before I was even hired. Here is his comment:

It is so sad that people like you are able to print this garbage while letters to the editor rarely get coverage. You are incompetent and anyone with knowledge of 401k plans would come to the same conclusion. Saving inside employer sponsored 401k type plans, particularly large plans, is by far the most cost effective way for the average individual to save. I would terminate you if you worked for me.

Would "anyone with knowledge of 401(k) plans" disagree with my conclusions?

John Bogle, the founder of the Vanguard Group, recently testified before Congress and stated that "the 401(k) plan is an idea whose time has come" yet "our existing defined contribution system is failing investors" because of high fees, low levels of saving, excess flexibility that permits cashing out and too much borrowing, and inappropriate asset allocation.

William Bernstein, the distinguished author of The Intelligent Asset Allocator and other fine books, stated that the "typical fund company services [401(k) plan] participants in the same way that Baby Face Nelson serviced banks."

Matthew D. Hutcheson, one of the best-known independent pension fiduciaries in the country, wrote that "the workers of America deserve proper protections for the hard earned savings they have set aside in their 401(k) plans -- protections which they are denied in the current state of the industry."

I don't look forward to standing in the unemployment line, but I will be in good company.

Dan Solin is a Registered Investment Advisor and the author ofThe Smartest Investment Book You'll Ever Read andThe Smartest 401(k) Book You'll Ever Read. His new book, The Smartest Retirement Book You'll Ever Read, will be published in the fall 2009. Visit his website at Smartestinvestmentbook.com.

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