What do you do when your company 401k has awful funds?

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What do you do when your company 401k has awful funds?

Postby xpat73 » Fri Dec 28, 2012 3:29 pm

I just looked at the fund options:

1. No index funds
2. All high expenses ratios from 0.7 to above 1.5 !!
3. All have load fees

I would not choose any of these funds. They violate so many Bogle rules it's unbelieveable.

I am just gutted about this?

What should I do instead?

I have the classic problem : I have a 401k that has awful fund options. Now if it had a match that would be one thing - but it doeasn't even have that!

Here are the options:


Conservative Allocation
Goldman Sachs Balanced Strategic Portfolio Exp Ratio: .59, Front load - max 5.5%

Health
Eaton Vance Worldwide Health Fund Exp ratio: 1.57 Front load - max 5.75%

Intermediate-Term Bond
Calvert Income Fund Exp ratio 1.3% Front load - max 3.75%
Delaware Corporate Bond Exp ratio .94 - Front load - max load 4.75%

Large Growth
Managers Cadence Capital Apprec R Exp ratio 1.11 Level load 0%
American Funds Growth Fund of America A Exp ratio .71%, Front load - max load 5.75%

Large Value
BlackRock Large Cap Value Exp ratio 1.56, Load: Institutional : 0%
American Funds Wash Mutual Invs A . Exp ratio .62%, Front load - max load 5.75%
Invesco Comstock A

Mid-Cap Growth
Columbia Acorn Fund - Class A Exp ratio 1.06%, front load - max load 5.75%

Mid-Cap Value
Franklin Balance Sheet Exp ratio .94, front load, 5.75%

Moderate Allocation
Invesco Equity and Income A Exp ratio .8, front load - max load 5.5%

Money Market
American Funds Cash Management N/A

Real Estate
Delaware REIT Exp ratio 1.51%, front oad - max load 5.75%

Short Government
Oppenheimer Limited Term Government Bond Exp ratio 1.1%, Load: institutional, max load 0%

Technology
Columbia Seligman Comms & Info A Exp ratio 1.35%, front load - max load 5.75%

World Stock
American Funds Capital World Growth & Income A exp ratio .79%, front load - max load 5.75%
Oppenheimer Global Opportunities exp ratios 1.57%, Institutional load 0%
Last edited by xpat73 on Fri Dec 28, 2012 4:01 pm, edited 1 time in total.
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Re: What do you do when your company 401k has awful funds?

Postby Wagnerjb » Fri Dec 28, 2012 3:43 pm

Can you kindly list the ER and load next to each fund you listed?

I would seriously consider not contributing to the 401k plan since there is no match. The main issue is how long you believe you will work for that employer, since you can roll over the 401k to an IRA (with very low fees at Vanguard) if you leave the employer. By contributing each year, you are creating tax-advantaged space that you can never go back and retrieve. Thus, the benefit of contributing. But if you stay with your employer for 25 years, the high costs will likely erode any of the tax benefits you may have achieved.

Best wishes.
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Re: What do you do when your company 401k has awful funds?

Postby livesoft » Fri Dec 28, 2012 3:48 pm

Your plan looks better than all the plans that my spouse has had in her career. She always contributed the maximum allowed and then when she switched jobs she rolled over to an IRA. At one point, she took out the maximum possible 401(k) loan because it was cheaper to do so than to keep that money in the plan.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: What do you do when your company 401k has awful funds?

Postby xpat73 » Fri Dec 28, 2012 3:49 pm

Wagnerjb wrote:Can you kindly list the ER and load next to each fund you listed?

I would seriously consider not contributing to the 401k plan since there is no match. The main issue is how long you believe you will work for that employer, since you can roll over the 401k to an IRA (with very low fees at Vanguard) if you leave the employer. By contributing each year, you are creating tax-advantaged space that you can never go back and retrieve. Thus, the benefit of contributing. But if you stay with your employer for 25 years, the high costs will likely erode any of the tax benefits you may have achieved.

Best wishes.


Thanks Andy - I will edit to give X ratio load of these real stinker funds.
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Re: What do you do when your company 401k has awful funds?

Postby ofcmetz » Fri Dec 28, 2012 3:51 pm

Fund choices don't look as bad as some. List your tax bracket an each funds expense ratio. Unless you are very low income then I would pick the best funds and still put all I could into it.
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Re: What do you do when your company 401k has awful funds?

Postby tyrion » Fri Dec 28, 2012 3:52 pm

You don't need all good choices. One or two adequate ones will do the trick.

And for loads, they are usually waived for a 401k, so definitely ask about that.

Is there a match of some sort?
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Re: What do you do when your company 401k has awful funds?

Postby DaleMaley » Fri Dec 28, 2012 3:53 pm

Does your company offer a self-managed option where you can pick about any fund you, like Vanguard, for a nominal fee each year?
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett
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Re: What do you do when your company 401k has awful funds?

Postby xpat73 » Fri Dec 28, 2012 4:02 pm

tyrion wrote:You don't need all good choices. One or two adequate ones will do the trick.

And for loads, they are usually waived for a 401k, so definitely ask about that.

Is there a match of some sort?



No match!
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Re: What do you do when your company 401k has awful funds?

Postby englishgirl » Fri Dec 28, 2012 4:21 pm

What's your tax bracket? Are you maxing out all other sources of tax advantaged investing (IRA, HSA, I-bonds)? Did you double-triple check about the loads not being waived?

If the loads are not waived, AND you are maxing out other tax advantaged accounts, then I would put all the money in:

Oppenheimer Limited Term Government Bond Exp ratio 1.1%, Load: institutional, max load 0%

1.1% isn't the end of the world to gain $17 .5k tax advantaged space. And you can roll it over to an IRA or your new employer's 401k when you change jobs. Figure out the rest of your AA around this fund.

ALSO send a politely worded request to the HR person that administers the 401k to have at least one low cost, no-load index fund included. It probably won't get immediate results, so send the same request every year that you work at the company. It might sink in eventually.
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Re: What do you do when your company 401k has awful funds?

Postby rob » Fri Dec 28, 2012 4:36 pm

Double check on the loads... A lot of the 401K plans avoid the load charges, so they look better then they first appear.... not good mind, just better.

EDIT: Sorry... Sarah's response was not on the screen when I responded.... busted post.
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Re: What do you do when your company 401k has awful funds?

Postby xpat73 » Fri Dec 28, 2012 4:49 pm

OK - Loads are waived for 401k apparently.

I am maxing out my contribution: $17500 for 2013.

$1458 per month.

What should I put them in giving the no-load status?
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Re: What do you do when your company 401k has awful funds?

Postby BillyG » Fri Dec 28, 2012 4:54 pm

To echo another poster, do you have a brokerage option that lets you buy funds not listed here?

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Re: What do you do when your company 401k has awful funds?

Postby xpat73 » Fri Dec 28, 2012 4:55 pm

BillyG wrote:To echo another poster, do you have a brokerage option that lets you buy funds not listed here?

Billy


I have a Roth IRA with Fidelity as follows:

Vehicle: Roth IRA
Company: Fidelity
Age: 39
Single
Income: $107,000
Portfolio Total: $27,317

Stock

Fidelity Spartan 500 Index Fund (Advantage Class) - FUSVX, Expense Ratio .07: $14,000;
Fidelity Spartan Extended Market Index Fund (Investor Class) - FSEMX, Expense Ratio .1: $5,546

Bonds

Fidelity Total Bond Fund, FTBFX , Expense Ratio .45, $5000
Fidelity Capital & Income, FAGIX, Expenses Ratio .77, $3251

Bonds: 30%
Stock: 70%
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Re: What do you do when your company 401k has awful funds?

Postby BillyG » Fri Dec 28, 2012 4:58 pm

xpat73 wrote:I have a Roth IRA with Fidelity as follows:


Should we take this to mean there is no brokerage option in your 401(k)?

Not that it's very relevant, but what institution administers your 401(k)?

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Re: What do you do when your company 401k has awful funds?

Postby xpat73 » Fri Dec 28, 2012 5:02 pm

BillyG wrote:
xpat73 wrote:I have a Roth IRA with Fidelity as follows:


Should we take this to mean there is no brokerage option in your 401(k)?

Not that it's very relevant, but what institution administers your 401(k)?

Billy


There is no brokerage option in my 401k plan.

The funds are what they are and that is it.

I have my own separate roth IRA with fidelity as I did not have a 401k available to me before now.
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Re: What do you do when your company 401k has awful funds?

Postby tadamsmar » Fri Dec 28, 2012 5:03 pm

Your bond fund choices are particularly bad.

Does your wife have a 401K? Are you funding a Roth?

If you need some bond fund allocation, you might want to get it elsewhere if you can.
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Re: What do you do when your company 401k has awful funds?

Postby centrifuge41 » Fri Dec 28, 2012 5:17 pm

Maybe the Goldman Sachs Balanced Strategic Portfolio will do. Then, if you want more stock and less bond, you can use some Growth fund of America. Not tooo different from an S&P 500 index fund.
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Re: What do you do when your company 401k has awful funds?

Postby CABob » Fri Dec 28, 2012 5:27 pm

As the gambler said, "The game may be crooked, but, its the only game in town."
Like a good Boglehead you are looking at expenses, but, a 401k plan has some advantages even with them.
- Tax deferral
- "Painless" contribution by payroll deduction.
- Ability to roll over to an IRA of your choice if you leave your employer.

I would say hold your nose and contribute the max to the best of the choices available.
Bob | An investment in knowledge pays the best interest. -- Benjamin Franklin
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Re: What do you do when your company 401k has awful funds?

Postby xpat73 » Fri Dec 28, 2012 5:29 pm

centrifuge41 wrote:Maybe the Goldman Sachs Balanced Strategic Portfolio will do. Then, if you want more stock and less bond, you can use some Growth fund of America. Not tooo different from an S&P 500 index fund.


How about this idea? I just use the 401k for stock- investing $17,500 per year in a couple of funds.

Then I invest in the Fidelity Massachusetts muni bond fund (exp ratio .4) for my bonds in a Fidelity account.

Advantage is I do not pay federal or state taxes on the muni bonds - although it is after tax money of course.

Good idea?
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Re: What do you do when your company 401k has awful funds?

Postby letsgobobby » Fri Dec 28, 2012 6:06 pm

Almost. And good research to find out the loads are waived. See, your plan isn't so bad after all. We've seen much worse.

Really, American funds is a perfectly acceptable actively managed fund family.

I'd max your your 401k = $17,500 next year, plus the $5500 Roth IRA = $23,000 of your $107,000 income and now you are cooking.

$12,000 into American Funds Washington Mutual A (ER 0.62%) - has historically tracked the S&P500 just fine
$5500 into American Funds Capital World Growth and Income A (ER 0.79%) - has historically tracked EAFE just fine
$5500 Roth IRA into Vanguard Total Bond Market (don't use munis in an IRA, and don't use taxable before claiming your Roth IRA space)

Your total ER will average around 0.7. It could be so much worse.
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Re: What do you do when your company 401k has awful funds?

Postby Qtman » Sat Dec 29, 2012 4:40 am

Some 401ks allow "in-service" withdrawals, where you can roll a percentage into a rollover IRA which you can manage. Just be sure you totally understand all the details and talk to your tax person.
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Re: What do you do when your company 401k has awful funds?

Postby DaleMaley » Sat Dec 29, 2012 7:42 am

xpat73 wrote:
BillyG wrote:
xpat73 wrote:I have a Roth IRA with Fidelity as follows:


Should we take this to mean there is no brokerage option in your 401(k)?

Not that it's very relevant, but what institution administers your 401(k)?

Billy


There is no brokerage option in my 401k plan.


I would double-check this with whomever at your company is the reliable info source on your 401K. My experience with other companies is that the brokerage option is not even discussed, or shown on their 401K web sites......and most employees don't even know the option exists.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett
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Re: What do you do when your company 401k has awful funds?

Postby rustymutt » Sat Dec 29, 2012 7:51 am

Change jobs, quit, or retire. You might write them a letter first asking them why it's so.
At the Very Least, Work Hard, Do Your Best, Know the Truth and the Facts and Always Be Honest!
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Re: What do you do when your company 401k has awful funds?

Postby soaring » Sat Dec 29, 2012 8:26 am

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Re: What do you do when your company 401k has awful funds?

Postby Trev H » Sat Dec 29, 2012 8:46 am

Yes... that is sure a stinker of a plan...

But as others have stated... you can move it anywhere you want (to Vanguard)... when you leave.

I would suggest you consider investing 20% each into the funds below... (the no load options).

It would be a decent mix (could be worse).

And if you can invest in a Roth... do that each year at Vanguard.

Best of Luck !

Trev H

==

Large Growth
Managers Cadence Capital Apprec R Exp ratio 1.11 Level load 0%

Large Value
BlackRock Large Cap Value Exp ratio 1.56, Load: Institutional : 0%

World Stock
Oppenheimer Global Opportunities exp ratios 1.57%, Institutional load 0%

Short Government
Oppenheimer Limited Term Government Bond Exp ratio 1.1%, Load: institutional, max load 0%

Money Market
American Funds Cash Management N/A
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Re: What do you do when your company 401k has awful funds?

Postby JW Nearly Retired » Sat Dec 29, 2012 10:53 am

xpat73 wrote:
centrifuge41 wrote:Maybe the Goldman Sachs Balanced Strategic Portfolio will do. Then, if you want more stock and less bond, you can use some Growth fund of America. Not tooo different from an S&P 500 index fund.


How about this idea? I just use the 401k for stock- investing $17,500 per year in a couple of funds.

Then I invest in the Fidelity Massachusetts muni bond fund (exp ratio .4) for my bonds in a Fidelity account.

Advantage is I do not pay federal or state taxes on the muni bonds - although it is after tax money of course.

Good idea?

Yes, along with bonds in your IRA. I would use the American Funds Growth Fund of America ER=0.71 for most of the 401k. That looks like a large growth closet index fund that tracks the SP500 total return pretty well. As everyone has pointed out, this 401k could be much worse.
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Re: What do you do when your company 401k has awful funds?

Postby Default User BR » Sat Dec 29, 2012 1:18 pm

Qtman wrote:Some 401ks allow "in-service" withdrawals, where you can roll a percentage into a rollover IRA which you can manage. Just be sure you totally understand all the details and talk to your tax person.

Employee elective deferrals or designated Roth contributions (typical contributions that you make) generally can't be rolled over in-service unless you've reached age 59-1/2. That's by law. Whether employer contributions can be rolled over or not is plan discretionary. More obscure options involve employee after-tax non-Roth contributions.


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Re: What do you do when your company 401k has awful funds?

Postby peppers » Sat Dec 29, 2012 1:41 pm

Default User BR wrote:
Qtman wrote:Some 401ks allow "in-service" withdrawals, where you can roll a percentage into a rollover IRA which you can manage. Just be sure you totally understand all the details and talk to your tax person.

Employee elective deferrals or designated Roth contributions (typical contributions that you make) generally can't be rolled over in-service unless you've reached age 59-1/2. That's by law. Whether employer contributions can be rolled over or not is plan discretionary. More obscure options involve employee after-tax non-Roth contributions.


Brian


Perhaps this might help

From globalmegacorp SPD

Company Match Withdrawal

A Company Match Withdrawal of up to 100 percent of your vested Company Match is available for any purpose. You must be at least 55 during the same year you request a Company Match Withdrawal. Only one Company Match Withdrawal is allowed each calender year.
"..the cavalry ain't comin' kid, you're on your own..."
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Re: What do you do when your company 401k has awful funds?

Postby zvez » Sat Dec 29, 2012 1:58 pm

self managed is a great option, I did some years ago at our hospital,I can have 50% of my 401k in this account which is at tdameritrade.

I also spent quite some trying to get the fund selections changed, but was pretty much stonewalled - "a special committee at synovus securities meets every year and makes the fund selections" blah blah blah.......

DaleMaley wrote:Does your company offer a self-managed option where you can pick about any fund you, like Vanguard, for a nominal fee each year?
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Re: What do you do when your company 401k has awful funds?

Postby englishgirl » Sat Dec 29, 2012 2:31 pm

I'm just going to reiterate my suggestion to ask them for a better option or two.

It never hurts to shoot a quick email (as long as it is worded nicely). They may not even know how bad the choices are (or may not care, but there's not much you can do about that). A short couple of paragraph email explaining why lower cost funds are better for participants, and a request for one or two good funds that would help round out the company's offering COULD plant a tiny seed in the mind of the person that reads it. Not being antagonistic. Not demanding anything. Not asking that they change the advisors or anything major. Just a couple of better offerings.

I asked for a low cost TIPs fund and (IIRC) more index offerings in my 401k. I got a standard email back saying that fund selection is left to the advisory committee, blah blah blah. Nothing happened. I thought I'd failed. But after a couple more years, lo and behold, we got a TIPs (ish) fund and Vanguard Balanced Index. Now, was it me alone that caused the change? No. Would they have introduced these funds without me? Probably. But could I in some small way been a voice in the back of someone's mind that "hey, didn't one of the employees ask for this a while back?" Maybe. Maybe it helped them to vote in the change.

At the very least, it made me feel better that I asked for a change. Most participants don't have a clue and will never ask, so don't think that because it's a big company that your voice will never stand out. Just go into it expecting that you will be stonewalled. Expect that you won't have any impact, and have a lot of patience.
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Re: What do you do when your company 401k has awful funds?

Postby Default User BR » Sat Dec 29, 2012 5:30 pm

peppers wrote:From globalmegacorp SPD

Company Match Withdrawal

A Company Match Withdrawal of up to 100 percent of your vested Company Match is available for any purpose. You must be at least 55 during the same year you request a Company Match Withdrawal. Only one Company Match Withdrawal is allowed each calender year.

Note that this reflects one company plan's policies. Another might have different restrictions, no restrictions, or not allow distribution of employer contributions at all. MyMegaCorp has no age restrictions, but suspends matching for six months if any matching funds are withdrawn. They also state that Federal regulations say that one has to have been employed for five years before this type of withdrawal is permitted.

Moot for the specific case as the OP doesn't get a match.


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Re: What do you do when your company 401k has awful funds?

Postby peppers » Sat Dec 29, 2012 5:35 pm

Mymegacorp vs globalmegacorp. I like it. :wink:
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Re: What do you do when your company 401k has awful funds?

Postby ruralavalon » Sat Dec 29, 2012 5:57 pm

xpat73 wrote:OK - Loads are waived for 401k apparently.

I am maxing out my contribution: $17500 for 2013.

$1458 per month.

What should I put them in giving the no-load status?


With loads waived in the 401k, do max out your contribution in spite of there being no match. As others have suggested use "American Funds Growth Fund of America A Exp ratio .71%", a good managed fund to cover the domestic U.S. equity market.

Don't try to cover all the bases in the 401k, use your IRA for the rest of your desired asset allocation.

Then use your Roth IRA at Fidelity for a good bond fund like "Spartan U.S. Bond Index Fund - Investor Class(FBIDX)", and if you have enough money in the IRA also a good international fund like "Spartan Global ex U.S. Index Fund - Investor Class(FSGUX)".

Also, I like englishgirl's idea of a short polite email, requesting a few addtions to the 401k such as -- a total stock market indexfund, a total bond market index fund, and a total international stock market index fund.
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Re: What do you do when your company 401k has awful funds?

Postby Valuethinker » Sat Dec 29, 2012 6:18 pm

xpat73 wrote:I just looked at the fund options:

1. No index funds
2. All high expenses ratios from 0.7 to above 1.5 !!
3. All have load fees



As others have suggested the Goldman fund looks the best of a bad lot, subject to having the tax optimal balance between 401k and other savings vehicles.

and the suggestion of a polite email or letter to HR, noting your concerns re absence of low cost funds and suggesting they add:

- a low cost US index fund (S&P500 or total market)
- a low cost balanced fund (50/50 equities/ bonds or 60/40 a la Vanguard Balanced)
- a low cost bond fund (or at least the Pimco Total Return fund, which is active, but has relatively low costs I believe-- it's also the biggest bond fund in the world-- can't get fired for buying IBM right?)
- an international stock index fund

Basic idea being you want to make suggestions which are relatively low risk to them.
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