Open Letter to John Mackey

I admire your commitment to conscious capitalism and your ability to effectively articulate the principles and virtues of the free market.  I agree that our healthcare system, for example, as you have stated, would be much more innovative and competitive without burdensome government regulations.

However, you may not be aware of the stifling regulations in the 401(k) plan industry.  As a result, we have a far less flexible and transparent retirement plan system that benefits the politically connected retirement plan providers at the expense of the participants and embodies the very crony capitalism you have decried.  This lack of transparency prevents companies like yours from applying the same level of scrutiny to your 401(k) plan costs and design as you have applied to your health insurance plan.

To illustrate, you have written in your Wall Street Journal op-ed that Whole Foods Market has established a combination of high deductible health insurance plans and health savings accounts in order to create an incentive for your team members to spend their money more carefully.  Similarly, becoming more informed about the inner workings of the 401(k) plan industry will help you develop innovative methods to encourage your team members to invest their money more carefully.

You have also written that you allow your team members to vote on what benefits they most want the company to fund.  Unfortunately, however, most plan participants have little if any understanding of the costs and benefits of their plan and how almost all plans are set up for them to fail.  Consequently, by learning how to more effectively set up your plan and communicate its features to your team members, you can help them make more informed decisions.

For example, two of the largest holdings in your plan are target date funds through Vanguard.  While Vanguard does offer competitive target date funds, were you aware you could have offered risk-based portfolio models (i.e. conservative, moderate, aggressive) with the same holdings at approximately half the cost?  And are your participants aware that because the target date funds are meant to be stand-alone options, they may be unwittingly creating unnecessary additional costs and redundancy by choosing additional funds?

As a second example, you have 18 additional fund choices, most of which are likely highly correlated meaning they move in the same direction.  Consequently, while you may have the appearance of a diversified investment offering, your plan simply has too many choices, which not only create needless investment costs, complexity, and duplication, but also serves to make participants less likely to contribute because of the confusion that this vast array of choices creates.  As evidence to support this claim, Brightscope, an independent retirement plan rating service, has graded your participants’ salary deferrals and account balances as below average and poor compared to other companies in your peer group.

The Vanguard Total Stock Market Index Fund, on the other hand, which is the main component of each Vanguard target date fund, actually contains 3,644 securities, so you can clearly offer a diversified and comprehensive array of investment options without offering so many.  In fact, the federal government employee’s Thrift Savings Plan (which has over $400 billion) does just that, offering a total of 10 options including 5 Lifecyle (target date) funds.  In a free market, consumers would be more aware of these issues and would therefore have far more simple and lower cost plans.

In summary, I am writing you because I believe that together we have the power to vastly improve and expose the true nature of the 401(k) plan industry by spreading the message of voluntary and mutually beneficial exchange.  I have written a research paper entitled The Retirement Plan Racket that focuses on the issues I described above and that I believe will help you provide the best possible benefits to your team members.

Please consider reading my research paper and joining me in promoting conscious capitalism in the 401(k) plan industry.


Paul D. Sippil, CPA


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