# Worked Example — 401k Plan Decoder

A gold-standard run of this skill: a "pretty good plan, I think" decoded into one urgent fix (below the match), one six-figure finding (fee drag), and one quiet trap (per-paycheck match with no true-up).

## The brief

Dana, 31, earns $95,000 and contributes 4% to her 401k. Her plan documents show: match "100% of the first 3%, 50% of the next 2%" computed **per pay period**, no true-up mentioned; vesting: match vests 100% after 2 years (she's at 3 years — vested); the fee disclosure lists a $42/year per-participant admin fee and a lineup where her entire balance ($68,000) sits in the plan's "Growth Fund" at **0.87%** expense ratio, while the same lineup contains a total-market index at **0.04%** and target-date funds at 0.12%. She plans to max her bonus contribution in December. Roth 401k: offered. She expects to stay "a few more years."

## The output

### 401k Decode: [employer plan]

**1. The verdict** — Three findings: you're leaving match money on the table at 4% (the formula pays through 5%), your fund choice costs ~$196,000 over a career versus the index sitting in the same lineup, and your December bonus plan may **forfeit match** because the plan computes per-paycheck with no true-up. The one change this week: contribution 4% → 5%.

**2. The fee decode** — Growth Fund 0.87% vs. total-market index 0.04% = **0.83%/year fee delta**. On $68,000 + $4,750/year contributions, compounded at an assumed 6% gross for 34 years (to ~65): ending balance ≈ $597,000 in the cheap fund vs. ≈ $401,000 in the current one — a **~$196,000 difference**, from fees alone, assumptions labeled (6% is an illustration, not a forecast; the *delta* is what compounds). The $42 admin fee is ordinary at this balance. 🟢 on the admin fee, 🔴 on the lineup placement.

**3. Match & vesting math** — Formula: 100% × 3% + 50% × 2% = **4% of salary available = $3,800/year**. At her 4% contribution she collects 3.5% ($3,325) — **$475/year of free money declined**; fixing it costs 1% of salary. Vesting: fully vested at 3 years — no forfeiture risk. **The true-up trap:** matching runs per pay period; the document is silent on an annual true-up. If she front-loads (the December-bonus max-out pattern), pay periods after hitting the annual cap have zero contributions → **zero match those periods**. Question for HR before December, in writing: "Does the plan true-up match annually?" If no: spread contributions evenly instead.

**4. Fund lineup triage**

| Fund | Expense ratio | Cost tier | Note |
|---|---|---|---|
| Growth Fund (current, 100%) | 0.87% | 🔴 expensive | Near-identical exposure available at 1/20th the cost below |
| Total-market index | 0.04% | 🟢 | The cheap neighbor |
| Target-date 2060 | 0.12% | 🟢 | The one-decision alternative |

**5. Feature decode** — Roth 401k offered: at 31 with decades of growth ahead, worth understanding (tax treatment is personal — `[to confirm with a professional]`). Loans/brokerage window: not in the provided documents — `[to confirm]`.

**6. Questions for HR** — the true-up question (in writing, before December) · the full fee disclosure (404a-5) if not already in hand · Roth details.

*"This is a plain-language reading, not legal/financial advice — laws vary by jurisdiction; confirm anything load-bearing with a qualified professional."*

## Why it's shaped this way

- **The below-the-match finding leads the verdict** despite being the smallest number — per the framework, declining guaranteed 50–100% returns is the headline whatever its size; it's also the only same-week fix.
- **The fee delta was compounded into dollars-over-career with labeled assumptions** — 0.83% reads like nothing and ~$196,000 does not; the framework's fee-drag arithmetic (both-paths compounding, assumptions stated as illustration) is the skill's signature move.
- **The true-up check earned its 🔴** — Dana's own stated plan (December max-out) collides with per-paycheck matching; the decode caught the collision because the framework demands the per-paycheck-vs-true-up distinction be checked against *behavior*, not just quoted.
- **The triage compared within her lineup** — the index at 0.04% is her actual alternative, not a market abstraction; per the quality checks, cost tiers are relative to what the plan offers.
- **No fund was recommended** — the decode names cost tiers and leaves the picking to her (or her advisor), per the anti-patterns; cost is decodable fact, allocation is advice.
- **The silent features became `[to confirm]`, not assumptions** — loans and the brokerage window weren't in her documents, so they're questions; the missing-document honesty rule.