Maybe you are the person who eagerly devours benefit booklets and paperwork first thing when you get a new job. Or perhaps you’ve been at your office for 10+ years and you just realized that you should probably start saving for retirement. Regardless, at some point, you are likely to be faced with the task of navigating your employer-sponsored retirement plan.

Some small businesses may offer something like a Simplified Employee Pension (SEP IRA), or Savings Incentive Match Plan for Employees (SIMPLE IRA). Others might have nothing at all. Overall, though, you’ll find that most employers with retirement plans will be offering a 401(k).

So what if, after looking through the paperwork you received from accounting or HR, you find yourself facing a harsh reality? You figure out the good news: your employer does offer a retirement plan. But the bad news? Well, the plan they offer is terrible. Nevertheless, you want (and need) to start saving for retirement.

So, the question becomes: what do you do when your employer’s retirement plan sucks?

Take the free money (at least they offer a contribution match… right?)

This strategy is pretty straightforward. You should contribute to your employer-sponsored retirement plan, but only enough to get the full employer match. Then, contribute any additional retirement savings to your own IRA.

Regardless of whether your employer’s retirement plan is awesome or awful, the same rule applies. Conventional wisdom states that you should contribute enough to your employer’s retirement plan to get every penny of the employer match. This is true whether the match is a token 1%, the more standard 6%, or anything else. You should always max out the benefit.

An employer match is essentially free money, which you’ll get just for setting aside your own cash for retirement. Loosely speaking, it’s like an immediate 100% return on your savings! You contribute $X, they contribute $X. It’s nothing to scoff at.

The 2016 contribution limit for a 401(k) is $18,000, and it’s increasing to $19,000 for 2019. So, chances are that even if you are contributing 6% of your salary (to take full advantage of a relatively generous 6% employer match), you won’t be maxing out your 401(k). This means that if you still have money you want to set aside for retirement, you will have to use another retirement vehicle. This is where a traditional (or Roth) IRA comes into play.

For most people, this plan will be more than adequate for setting aside the level of retirement savings they can afford. For the most extreme retirement savers, or those individuals seeking Financial Independence, the some in the 401(k), then max out the IRA plan just might not be enough. What’s a super saver to do?

Make the best of it

Okay, so maybe the fund choices aren’t the best. They’ve got high expense ratios, they are highly managed, or whatever. At the end of the day, the 401(k) is a tax advantaged retirement account, and the tax advantages are where these accounts really shine.

For a lot of people, it isn’t the high fees that are keeping them from hitting their retirement goals. It is the lack of adequate retirement savings. At the end of the day, saving more will take you further than saving less. And it’s definitely better than not saving at all, simply because you were afraid of fees.

Pitch an alternative

There are a lot of reasons why your employer might have a less-than-stellar retirement plan.

Believe it or not, one reason is that your employer just doesn’t know any better. If you are working in finance or for a large corporate employer, this probably doesn’t apply. But for everyone else, chances are that the person, or people, in charge of setting up your employer’s retirement option probably don’t know much about plans, fund choices, or fees. It’s unlikely that a crappy retirement plan was intentional, in most cases.

If you’re taking the time to read an article like this, you are likely among the more financially tuned-in people at your workplace. You may even know more about retirement plans than your employer does! So, why not take some initiative, muster some courage, and share that knowledge?

If you’re lucky, your employer will see the light and implement some (or all) of your suggestions. They might even switch to a low-cost provider like Fidelity, or Charles Schwab! (Then, you won’t have to read articles about retirement plans that suck.)

At the very least, you will know that you’ve done your best to bring the issues to your employer’s attention. Your company will realize that they’ve got an employee with good financial sense, who is willing to take initiative and solve problems. Wins all around.

Contribute to your spouse’s plan instead

Maybe your employer’s retirement plan is just plain awful. Despite your ever-so-well-thought-out suggestions on ways they could improve the plan, they won’t change it. And you know it won’t get better on its own. Now what?

Cases like this are tough. Sure, if it’s the tax advantages you’re after, you can contribute to an IRA (as mentioned above). On the other hand, you might like the 401(k) for other reasons — such as the creditor protections, higher contribution limits, and easy psychology of saving (they take the money before you get your hands on it, i.e. out of sight out of mind). In that case, an IRA just won’t cut it.

In situations like this, there is often a Plan B. The easiest is that you can contribute to your spouse’s plan instead.

If you’re married and your spouse has a job that offers a retirement plan, you now have access to two different plans with two different sets of funds to choose from. Hopefully, one of the two is decent enough to make contributing worthwhile.

Of course, this plan has drawbacks of its own. For example, if you wanted to contribute more than $18,000 between the two of you, maxing out one spouse’s plan won’t get you there. Also, contributing solely to one spouse’s plan can make for a messy situation in the (hopefully unlikely) event of a divorce.

Also, there is the possibility that both plans are terrible, and you really, really, don’t want to contribute to either one. Now normally, I’d suggest that you consider picking the lesser of two evils. But considering we’re coming down from election season, I’m guessing you’re probably tired of hearing that phrase right about now. So…

Take matters into your own hands and side hustle your way to retirement

This is kind of radical but stay with me here. Most people (who care about retirement savings) know that the annual employee contribution limit for a 401(k) is $18,000. But what you might not know is that the $18,000 limit is per person across all 401(k) accounts.

Yes, that means what you think it means. You can contribute to more than one 401(k) in a given year, as long as you don’t exceed $18,000 of total contributions.

While you might not have two full-time jobs offering 401(k)s, there are ways to open a second 401(k). If you’ve got your own small business or a side hustle, you can likely set up your own employer-sponsored retirement plan, such as a SEP IRA or Solo 401(k).

It used to be that setting up a 401(k) was an insanely expensive undertaking. (Think six figures expensive.) However, this is no longer the case, especially with Solo 401(k)s. Some providers are offering Solo 401(k)s for just $20 per fund, per year!

The specific requirements for setting up and funding Solo 401(k)s are a bit outside the scope of this article. Generally speaking, though, they work pretty similarly to regular 401(k)s.

For instance, say you’ve got a lucrative side business making $20,000 per year as a freelance interior designer. Instead of maxing out the stinker of a 401(k) offered by your employer, you could set up a Solo 401(k) and max that out instead!

Remember, in this scenario, you set up the account and you picked the fund choices. Is this retirement savings nirvana?

For the side hustling rock stars among us, it can get even better. With a Solo 401(k), you can potentially contribute way more than the employee contribution limit of $18,000 because you can make contributions as the employer as well!

Closing thoughts

In a perfect world, we might all have employer-sponsored retirement accounts with an amazing employer match, super low fees, and diverse fund choices. In reality, you might not be so lucky. That doesn’t mean that you have to let a bad employer-sponsored retirement plan hold you back from hitting your retirement savings goals. Make efforts to change the system, if you can. If you can’t? Well, you have a few options laid out here for skipping around and making the smartest retirement savings choices that you can.

Have you been stuck in a subpar retirement plan through your company? What has been your solution?


  • Evan Gautier

    Evan is an attorney licensed in California and Oregon. Though his legal practice is mainly focused on civil litigation, Evan has a passion for tax, retirement planning, and personal finance. When not in court or at the office, Evan can be found hiking around Southern California or tending his suburban backyard farm with his wife and daughter. Evan earned his J.D. from Western State College of Law, and an LL.M. in Taxation from Chapman University.