Please help me make the case for a change in 401(k) options

[bUU]

I've read the advice regarding how to campaign for a better 401(k) plan. The strongest tool in the arsenal appears to be showing that the plan as it is currently instantiated is non-compliant. However, what appears to be the case in my company is that one crap index fund has been thrown in to refute claims that the plan is non-compliant on investment type diversity grounds and with regard to ERs (all the rest of which are > 1.0%, except for the stable value fund). So I'm convinced that I'm going to have to address this on an emotional level, appealing to their sense of (?) decency to not resort to a plan that achieves compliance in what appears to be such a cynical manner.

The problem is that I don't see how to make the point. I started reviewing other 401(k)s I have insights into and other than high ERs and the fact that they're managed, I cannot find a way to cast our current choices in a negative light by comparison.

For example, ARWRX American Century Target Date 2025 is in our plan. Comparing it to VTTVX Vanguard Target Date 2025 yields obvious advantages for VTTVX in terms of ER (1.36% versus 0.18%), but it doesn't excel on many other metrics (unless I'm reading things wrong):

Historical Return (which folks will point out includes the effect of ER) is inconsistent in the comparison:
ARWRX 8.74 -25.39 20.63 12.01 1.26 11.57
VTTVX 7.59 -30.05 24.81 13.84 -0.37 13.29

If I understand these things correctly, VTTVX is riskier (beta of 0.89 versus 0.66), and with lower return for the risk (0.74 versus 1.62).

Another example is PTTRX PIMCO Total Return (ER 0.46%), comparing it to VBTIX Vanguard Total Bond Market Index I (0.04%).

PTTRX 9.07 4.82 13.83 8.83 4.16 10.36
VBTIX 7.05 5.19 6.09 6.58 7.72 4.18

And again, the Vanguard choice is riskier (0.72 versus 1.05) and provides lower returns for the risk (1.45 versus -0.31). (Again, assuming I know what these numbers mean.)

Short of getting folks to buy-into the efficient-market hypothesis (because that's already failed in at least one case), how the heck would I convince anyone to make such a switch? Heck... given my research, my confidence in this approach is shaken.

[BL]

I've read the advice regarding how to campaign for a better 401(k) plan. The strongest tool in the arsenal appears to be showing that the plan as it is currently instantiated is non-compliant. However, what appears to be the case in my company is that one crap index fund has been thrown in to refute claims that the plan is non-compliant on investment type diversity grounds and with regard to ERs (all the rest of which are > 1.0%, except for the stable value fund). So I'm convinced that I'm going to have to address this on an emotional level, appealing to their sense of (?) decency to not resort to a plan that achieves compliance in what appears to be such a cynical manner.

The problem is that I don't see how to make the point. I started reviewing other 401(k)s I have insights into and other than high ERs and the fact that they're managed, I cannot find a way to cast our current choices in a negative light by comparison.

For example, ARWRX American Century Target Date 2025 is in our plan. Comparing it to VTTVX Vanguard Target Date 2025 yields obvious advantages for VTTVX in terms of ER (1.36% versus 0.18%), but it doesn't excel on many other metrics (unless I'm reading things wrong):

Historical Return (which folks will point out includes the effect of ER) is inconsistent in the comparison:
ARWRX 8.74 -25.39 20.63 12.01 1.26 11.57
VTTVX 7.59 -30.05 24.81 13.84 -0.37 13.29

If I understand these things correctly, VTTVX is riskier (beta of 0.89 versus 0.66), and with lower return for the risk (0.74 versus 1.62).

Another example is PTTRX PIMCO Total Return (ER 0.46%), comparing it to VBTIX Vanguard Total Bond Market Index I (0.04%).

PTTRX 9.07 4.82 13.83 8.83 4.16 10.36
VBTIX 7.05 5.19 6.09 6.58 7.72 4.18

And again, the Vanguard choice is riskier (0.72 versus 1.05) and provides lower returns for the risk (1.45 versus -0.31). (Again, assuming I know what these numbers mean.)

Short of getting folks to buy-into the efficient-market hypothesis (because that's already failed in at least one case), how the heck would I convince anyone to make such a switch? Heck... given my research, my confidence in this approach is shaken.

Are the funds highlighted in blue two different funds, both with ERs below 1% ? If so, perhaps you don't have so much to complain about. Of course it would be nice if you had lots of low-cost Vanguard index funds, but lots of 401ks are worse.

[bUU]

Sorry, that was a typo. PTRRX PIMCO Total Return has ER of 1.10%.


The two ER under 1.0% options we have are
BlackRock S&P 500 Index A (MDSRX) - 0.57%
Retirement Reserves(7dayYield:0.0%) (MLIKX) - 0.68%

[bUU]

I figure I should do a comparison involving the one index fund:

BlackRock S&P 500 Index A (MDSRX)
against
Both the Vanguard S&P 500 Index Fund (VFINX) and the Vanguard Total Market Fund (VTSMX)

Historical Returns
MDSRX 4.97 -37.36 25.92 14.42 1.58 15.31
VFINX 5.39 -37.02 26.49 14.91 1.97 15.82
VTSMX 5.49 -37.04 28.70 17.09 0.96 16.25

Risk and Reward
MDSRX 1.00 -0.58
VFINX 0.75 1.77
VTSMX 1.00 -0.03

So that one comparison makes the plan look bad. But it is only one comparison.

[downshiftme]

One possible argument that may gain traction, is to compute the expenses for a "typical" account holder. Suggest someone who has been at the company for 5 years and may have a significant balance. Show the expenses in the current 401k vs the expenses in a hypothetical 401k with a lower ER. Once the difference reaches $1000 annually, you can suggest that savvy employees will have incentive to leave the company to avoid paying that extra annual expense. Company can offer everyone raises to compensate, or fix the plan, or deal with increased turnover of experienced employees.

[bUU]

One possible argument that may gain traction, is to compute the expenses for a "typical" account holder. Suggest someone who has been at the company for 5 years and may have a significant balance. Show the expenses in the current 401k vs the expenses in a hypothetical 401k with a lower ER.

But I don't see how to convince them to look at ER instead of returns? It is hard to make that argument when people are looking at 1yr 3yr 5yr and 10yr returns numbers across the board favoring the higher ER funds.

[nisiprius]

Just saying what I actually did and what actually happened.

I used to work for a mid-sized company (250 people) with a Fidelity-managed 401(k) plan. It had a choice of maybe thirty funds, of which most were high-ER actively-managed Fidelity stock funds. There was a money market fund, the quite decent Fidelity Spartan U. S. Index Fund (FUSEX, now called the Spartan S&P 500 fund), the Freedom target-date series (ER about 0.7%). But there was no bond index fund, indeed there was NO intermediate-term investment-grade core bond fund.

I just wrote a letter to HR. I did not say anything in it about the superiority of indexing. I said, simply, that I personally was an indexer, that I preferred to make my own stock/bond mixture, and that there wasn't currently any bond fund in the plan that I could. I requested that they add a bond fund--on no other basis but that I personally wanted one. In order to make it as easy as possible, I made two specific suggestions, and because Fidelity was managing the plan I named Fidelity funds. One was Fidelity U. S. Bond Index (FBIDX), and the other was some very popular Fidelity actively-managed intermediate-term investment-grade bond fund, I forget which. I noted of course that my preference was for FBIDX. And I think I did say something about low costs.

Next year, FBIDX was added to the list of available funds.

So, I would say, don't go in assuming there will be a fight and that you will need to be a crusader. You could at least try just asking for it. "Our employees have asked for it" is something HR can understand.

[john94549]

A few of the "over-60" folks in my wife's company not-so-subtly began nosing around about how to do in-service 401K-to-(Vanguard) IRA transfers. My wife actually obtained her "package" for the transfer.

In a month or so, like magic, a couple of very nice, low-cost, index funds appeared on the menu.

[hoppy08520]

bUU, speaking as someone who works at a company that did improve its 401(k) plan last fall, which lowered my account ER from 0.9% ER to 0.5% ER , here are a few insights that might be able to help you in your situation.

First, I can't claim credit for the change. Maybe a little credit, though. I did politely request a number of times to the CFO and our plan broker that I would like low-expense index funds, and even wrote up a detailed explanation of why. Maybe my reasoned persistence helped in some way. I felt like they listened to me and tried to consider my requests.

Part of why our plan improved is:

• Our company grew significantly since the last time we changed providers, which results in more assets under management (AUM), which means our company has more leverage in negotiating a good deal with 401(k) plan providers. Money talks. And, as companies stick around, the balances tend to grow as people contribute more and compounding kicks in.
• Part of the reason the assets grew is because several years ago the company started a matching program, which obviously encouraged many more people to contribute, hence more AUM.
• We got a reformer CEO a couple of years ago who wanted to fix things and cut costs, and this was one of many items on his list. As I understand it, with the switch in 401(k) providers, not only did the participants get a better deal, but the company is paying less too.

The point I'm making is that if your company is staying the same or declining, then your company might not have the clout to negotiate much with your current provider, or shop around for a new provider. But if your company is growing, and employees are sticking around and amassing more balances, then the opportunity to improve the plan might be there.

Another thing you really need to do is asses just what your plan expenses should be, based on the average plan at a comparable company. Browsing this forum, you see people posting plans with ER's under 0.1% and you feel jealous. I know I do. But they probably work at big companies that can negotiate those rates.

See this report on what participants' all-in costs (fund expenses plus any other participant expenses) are, depending on the size of the plan as measured by AUM:

http://www.ici.org/pdf/rpt_11_dc_401k_fee_study.pdf

Page 24 has the information. Now, you might not know what the AUM is for your company. I'm not sure if you are entitled to know this (I doubt it) but you can make a guess by multiplying the number of employees * $75,000 (?) or whatever you think the average 401(k) balance might be (I got $75,000 from this article), then cut that by a third (?) (because not all employees are enrolled). That's really just a WAG. If your company has a lot of long-time employees, maybe bump the number up. If it's a 3-year-old dot-com where the average age is 28, then bump it down significantly. Finally, take that number and see where it stacks up in the chart on p. 24.

You'll also need to know what your all-in expenses are. Are they bundled into your fund expenses? Or do you pay something on top of fund expenses?

If your all-in expenses are on the low end, then be happy about that, and be aware that your company might not be able to do much better unless they are really intent on doing so. If your all-in expenses are on the high end, then you might be able to make a stronger case.

For more reference here's an article talking about average all-in 401k plan expenses, relative to the size of the company. Larger companies with more participants and assets tend to have better and cheaper plans because of economies of scale (admin costs spread out over more employees) and more negotiating leverage.

http://money.cnn.com/2012/07/25/retirem ... /index.htm

I was a bit surprised that even the biggest plans, with an average of 50,000+ employees, still have a total all-in of 0.35% in average. Plans with under 1,000 employees have an average of 0.85% total all-in.

The key thing I'm trying to say here, is know the details and context before you just say, "I want cheaper index funds."

Finally, I know this is frustrating, but having a 500-index fund at 0.57% ER isn't all that bad--unless you work at a huge company. My current plan has one at 0.53% (all-in). The previous plan was 0.93%. Hence my joy when we switched plans. For reference, I work at a ~200 person company in a metro area (i.e. larger salaries) that's been around 15+ years.

[hoppy08520]

bUU, I read one of your earlier posts, and you mentioned that your company might be acquired by a larger one? If that's the case, then there probably isn't much chance of anything happening until all that dust settles.

[LadyGeek]

This thread is now in the Personal Finance (Not Investing) forum (employer plan discussions).

It's also referenced in the wiki (thanks to hoppy08520): How to Campaign for a Better 401(k) Plan

[lindisfarne]

Thanks to hoppy08520 & nispirius. I recently requested my 403b (through T-C) add Vanguard options & included documentation from another institute's T-C options which included some Vanguard very low-cost funds (in case they weren't aware this was available). I had asked in a separate thread what factors influence what is offered in a 401k; the replies in this thread are helpful.

[bUU]

See this report on what participants' all-in costs (fund expenses plus any other participant expenses) are, depending on the size of the plan as measured by AUM:
http://www.ici.org/pdf/rpt_11_dc_401k_fee_study.pdf

Ouch. We're 30 people - max - and probably less than 15 of us actually are in the 401(k). (We have some interns, some H1-Bs, and at least one over-59 1/2 VP who proudly declares he's $660k in debt after using everything he had to open a smoothie shop on the side.) So based on this document, we're probably getting what we would expect to be offered.

bUU, I read one of your earlier posts, and you mentioned that your company might be acquired by a larger one? If that's the case, then there probably isn't much chance of anything happening until all that dust settles.

There is no guarantee that the company that acquired us will make us their employees. Even if they do plan to do so, my boss speculates that it is at least two years away.

Thanks for all the insights!

[nirvines88]

Ouch. We're 30 people - max - and probably less than 15 of us actually are in the 401(k). (We have some interns, some H1-Bs, and at least one over-59 1/2 VP who proudly declares he's $660k in debt after using everything he had to open a smoothie shop on the side.) So based on this document, we're probably getting what we would expect to be offered.

I was in the same situation. I petitioned for a better 401k but it wasn't realistic given the size of our company and our plan assets. However, I was successful in getting my employer to switch to a SIMPLE IRA. Here's the wiki: http://www.bogleheads.org/wiki/SIMPLE_IRA

Lower deferral amount (12,000/yr for a SIMPLE IRA vs. 17,500/yr for a 401k) but I do get to keep my SIMPLE IRA wherever I want now (Form 5304 gives you freedom to choose financial institution, 5305 does not!). The vast majority of people at my job can't afford to max a 401k anyway, so I think it worked out for everyone. The higher match doesn't hurt either!

On the plus side for employers, it will save them some money compared to having a 401k plan. My employer saved about 6k in administrative fees by switching from a 401k to a SIMPLE IRA (doesn't take into account a slightly higher match though).

[bUU]

Wiki article link: SIMPLE IRA
Interesting. Thanks for your insights.

When it says, "Employers who maintain a SIMPLE IRA cannot contribute to any other employer-sponsored retirement plan in the same year," it means calendar year I suspect. Which would mean we're too late for this year.

The terminology, "salary reduction," is quite unfortunate. I wonder how many of my co-workers will be unable to get past the term before going off the deep-end forming a negative impression of the suggestion of such a change.

I would need a lot of help, it seems, understanding how to translate any cost savings the company would encounter from ending the 401(k) and (presumably) converting that savings into a company match (something we haven't had for over a decade), minus the costs associated with the SIMPLE IRA. Personally, if the cost reduction isn't significant, or if after filtered through our company's lackluster desire to offer matching, I wouldn't think that the $5,500 loss in the ability to contribute would be worthwhile. ($6k divided by 15 doesn't sound like enough of a savings to make up for the loss of the ability to save $5,500 more, even in crappy funds.)

Also, does contributing to a SIMPLE IRA preclude contributing to a Roth IRA in any way?

[matjen]

bUU, speaking as someone who works at a company that did improve its 401(k) plan last fall, which lowered my account ER from 0.9% ER to 0.5% ER , here are a few insights that might be able to help you in your situation...

Thank you for this post. I want to start exploring this for my employer as well. We are about a 225 person company and almost all our choices have a 1.25 ER or more. The cheapest being an Index 500 at .78

Hope to get this all down and your post is a great starting point Hoppy.

[Jeff7]

The strongest tool in the arsenal appears to be showing that the plan as it is currently instantiated is non-compliant.

What I've seen at the DOL's site struck me as kind of vague on this, something to the effect that the fees can't be "high," without any specific numbers provided. For example, it was suggested in my thread that my plan appears to be lawsuit-worthy out-of-compliance, as the lowest fee is 1.38% (excluding the money market fund option; even that costs us 0.66%), all the way up to nearly 1.9%.
Is there any way to know what is "excessive" as far as the DOL would be concerned? With all these stories of high ERs floating around, it seems like the DOL is not being too terribly aggressive about this.

I just don't know how that would go over, in either of our situations. Saying "The Department of Labor could potentially sue us for a non-compliant 401k plan" could possibly be misinterpreted as "I'm going to get you in trouble with the government." I don't want to find that, a week from then, my "position has been eliminated while the company is pursuing other markets, so your services can no longer be utilized here." I don't know if that's how it'd be taken, or if they'd be appreciative of me helping to keep the government off our backs.


Edit: I'm checking with our 401k rep to see if a brokerage window is an option. The term "self-directed 401k" probably got him thinking I wanted to completely go it alone. I don't know what kind of fees they might want though, if it's even something I could do.

Edit2: What a surprise. The answer to a brokerage window is "no."

[bUU]

Yeah the advice is clear about being non-confrontational about this.

I think the best approaches would hinge on making management think about how this might adversely affect them in terms of retention and attracting new staff they want.

[hoppy08520]

Yeah the advice is clear about being non-confrontational about this.

I think the best approaches would hinge on making management think about how this might adversely affect them in terms of retention and attracting new staff they want.

Agree with that.

As I lobbied my own CFO, I was very sensitive about not being too annoying about this. I certainly didn't start off by talking about DOL and lawsuits, that's for sure. I didn't start a petition either. Every company has its own culture and you just need to use common sens to figure out how to make it work at your own company.

One way to pitch this is to make it into a win for the company. Your biggest obstacle is overcoming inertia and apathy. Most CFOs are NOT going to want to deal with the hassle of switching 401(k) providers. It's a PITA and they probably have bigger things to worry about, and saving some peon $100 a year in fee expenses isn't one of them.

So you need to find a way to pitch it like this:

• The company can save money by lowering its own fees (independent of participant fees)
• While many participants might not even see the difference, bringing fees down will get the attention of other employees who will see this as a nice benefit
• Many senior company people might have long tenures at the company, and they have higher salaries and naturally they'll have the biggest balances in the plan. Pitch it to them on a personal level. Show them one of those charts that shows how an ER increase of X percent results in losing XX% of their overall portfolio to fees.

[nirvines88]

Also, does contributing to a SIMPLE IRA preclude contributing to a Roth IRA in any way?

Nope. I've already maxed out my Roth IRA this year and will max my SIMPLE IRA by May.

I would need a lot of help, it seems, understanding how to translate any cost savings the company would encounter from ending the 401(k) and (presumably) converting that savings into a company match (something we haven't had for over a decade), minus the costs associated with the SIMPLE IRA. Personally, if the cost reduction isn't significant, or if after filtered through our company's lackluster desire to offer matching, I wouldn't think that the $5,500 loss in the ability to contribute would be worthwhile. ($6k divided by 15 doesn't sound like enough of a savings to make up for the loss of the ability to save $5,500 more, even in crappy funds.)

If you are in a higher tax bracket and also a big saver, then yes, the $17,500 of space in a 401k with lousy funds is probably better than $12,000 of space in a SIMPLE IRA with great funds (although this could also depend on your timeline...funds with high ERs are awful over time, check out this link: http://www.longtermreturns.com/2010/12/ ... eally.html ).

This was my situation: SIMPLE IRA = Less tax advantaged space + great funds + a better match VS. 401k = more tax advantaged space (that I might not completely use) + lousy funds + lower match.

As you can see, the SIMPLE IRA was the better choice for my situation since the lowest ER in my 401k fund selection was 1.7% and I probably wouldn't be able to afford to contribute $17,500 to my 401k anyway, more like $12-13,000. I can't crunch the numbers for you, since situations vary based on expenses, tax bracket, time to retirement, etc.

As a last note, my employer is definitely saving money by using the SIMPLE IRA. It's a bit more paper work for the secretary sending off our contributions to various brokerages, but my employer saves money by avoiding paying yearly 401k administrative fees for testing, etc. The Hartford charged yearly fees in the $6,000 range. My employer did keep her financial adviser on to help employees with SIMPLE IRA paperwork though, and some employees still use their expensive products out of choice.

[lindisfarne]

• The company can save money by lowering its own fees (independent of participant fees)

If our employer charges a fee, is that listed out separately somewhere? Aside from the expense ratio per fund, I haven't seen any additional fees in my plan (I did look at the annual "fee" letter we got which didn't mention a "company" fee?

[bUU]

I haven't made much head-way on this. Management keeps putting the discussion off, and there's no way to confront them about that without getting overly confrontational. (Management is in the office four days out a month, and generally has a cavalcade of directors and managers and accountants scheduled for every second, so ducking my head in to steal what really does need to be a half hour at least to make some points isn't viable. Management does know I want to talk, though.)

I'm preparing something to help management see how high our ERs are, aiming to assert that the profit sharing aspect of the plan more a matter of sharing profits with the fund managers rather than the plan participants. The problem I have making the point is that the option offered to IBS Profit Sharing Plan participants is not generally the highest-cost class within the fund, even though it is often is substantially higher in cost than some other classes within the fund. How would I respond to the point made that there are generally higher cost classes - i.e., the implication that it could be worse?

By the way: Where a plan option shows two ERs (the second ER in parentheses), the first is as reported by the plan website, the second is what the ER should be according to Morningstar. I don’t know why there would be a difference, but perhaps the plan website is simply not maintaining the information in a timely manner; I hope it isn’t because they’re bumping the ER to collect a secondary fee.

So having said all that, any advice for better making this point with the information I have to work with?

PIMCO Total Return R PTRRX 1.10%
PTTRX PIMCO Total Return Instl 0.46% no-load

BlackRock Eqty Dividend R MRDVX 1.32% (currently 1.30%?) [Lipper 34541]
MADVX BlackRock Equity Dividend Instl 0.7% no-load

BlackRock S&P 500 Index A MDSRX 0.57% (currently 0.56%?) [Lipper 33533]
MASRX BlackRock S&P 500 Index Instl 0.3% no-load
(Vanguard has even more cost-effective S&P 500 Index funds)

Goldman Sachs Growth Opp Svc GGOSX 1.51% (currently 1.45%?) [Lipper 43311]
GGOIX Goldman Sachs Growth Opportunities Instl 0.95%
GGOTX Goldman Sachs Growth Opportunities IR 1.1% no-load

Delaware Small Cap Value R DVLRX 1.72% (currently 1.57%?) [Lipper 55431]
DEVIX Delaware Small Cap Value Instl 1.07% no-load

Goldman Sachs Mid Cap Value Svc GSMSX 1.25% [Lipper 34431]
GSMCX Goldman Sachs Mid Cap Value Instl 0.75% no-load

Oppenheimer Developing Markets Fund N ODVNX 1.87% (currently 1.70%?) [Lipper 55221] back-load 1.00%
ODVIX Oppenheimer Developing Markets I 0.88% no-load
ODVYX Oppenheimer Developing Markets Y 1.03% no-load

Thornburg International Value Fund R3 TGVRX 1.6% (currently 1.45%?) [Lipper 22342]
TGIRX Thornburg International Value R6 0.76% no-load
TGVIX Thornburg International Value I 0.88% no-load

BlackRock Global Allocation R MRLOX 1.49% (currently 1.43%?) [Lipper 33332]
MALOX BlackRock Global Allocation Instl 0.79%

Invesco Charter R CHRRX 1.37% (currently 1.35%?) [Lipper 32551]
CHFTX Invesco Charter R6 0.6% no-load
CHTVX Invesco Charter R5 0.68% no-load
CHTYX Invesco Charter Y 0.85% no-load
CHRSX Invesco Charter S 1% no-load

Delaware Limited-Term Divrs Income R DLTRX 1.27% (currently 1.17%?) [Lipper 11541]
DTINX Delaware Limited-Term Diversified Inc I 0.67% no-load

Ivy Small Cap Growth R WSGRX 1.67% (currently 1.66%?) [Lipper 44331]
WSCYX Ivy Small Cap Growth Y 1.32% no-load

Lord Abbett Alpha Strategy Fund R2 ALFQX 2.04% (currently 1.99%? ) [Lipper 22331]
ALFYX Lord Abbett Alpha Strategy I 1.39%
ALFRX Lord Abbett Alpha Strategy R3 1.89% (currently 0.05%) no-load

American Century LIVESTRONG 2015 R ARFRX 1.3% (currently 0.71%?) [Lipper 42455]
ARNIX American Century LIVESTRONG 2015 Instl 0.6% (currently 0.01%) no-load
ARFIX American Century LIVESTRONG 2015 Inv 0.8% (currently 0.21%) no-load

American Century LIVESTRONG 2025 R ARWRX 1.36% (currently 0.71%?) [Lipper 41455]
Similar alternatives to 2015 fund, above, and Income fund, below

American Century LIVESTRONG 2035 R ARYRX 1.41% (currently 0.71%?) [Lipper 42354]
Similar alternatives to 2015 fund, above, and Income fund, below

American Century LIVESTRONG 2045 R ARORX 1.48% (currently 0.71%?) [Lipper 42254]
Similar alternatives to 2015 fund, above, and Income fund, below

AC Asset Alloc Ports LVSTR Income Port R ARSRX 1.27% (currently 0.71%?) [Lipper 44555]
ATTIX American Century LIVESTRONG Inc Instl 0.57% (currently 0.01%) no-load
ARTOX American Century LIVESTRONG Inc Inv 0.77% (currently 0.21%) no-load

Retirement Reserves (7dayYield:0.0%) MRRXX or MBIXX 0.68% (currently 0.26^%?)
MRAXX BlackRock Ready Assets Prime Money 0.26% no-load
(This one was particularly egregious, charging 0.68% for a guaranteed zero yield.)

Prudential Short-Term Corporate Bond R JDTRX 1.27% (currently 1.02%?) [Lipper 33521]
PIFZX Prudential Short-Term Corporate Bd Z 0.52% no-load

Pioneer Strategic Income R STIRX 1.44% [Lipper 33331]
STRYX Pioneer Strategic Income Y 0.73% no-load
STIZX Pioneer Strategic Income Z 0.83% no-load

PIMCO Real Return R PRRRX 1.12% [Lipper 55221]
PRRIX PIMCO Real Return Instl 0.45% (currently 0.47%) no-load
PRTPX PIMCO Real Return Asset P 0.55% (currently 0.65%) no-load
PRLPX PIMCO Real Return P 0.55% (currently 0.57%) no-load
PARRX PIMCO Real Return Admin 0.72% no-load

Templeton Global Bond R FGBRX 1.16% (currently 1.14%?)
TGBAX Templeton Global Bond Adv 0.64% no-load

Wells Fargo Adv Large Cap Growth Fd R STMFX 1.51% (currently 1.32%?)
STNFX Wells Fargo Advantage Large Cap Gr I 0.75% no-load
STDFX Wells Fargo Advantage Large Cap Gr Adm 0.95% no-load
STRFX Wells Fargo Advantage Large Cap Gr Inv 1.18% no-load

[bdpb]

BlackRock S&P 500 Index A MDSRX 0.57% (0.56%)
MASRX BlackRock S&P 500 Index Instl 0.3%
(Vanguard has even more cost-effective S&P 500 Index funds)

I would put the focus of my argument right here. These three funds (including VG SP500) are essentially identical in every way except for ER costs. Why is it that they have different costs and why can't I invest in the lowest cost one?

[bUU]

Well, true, though putting so much money in just equities isn't a good idea, I don't think. I think I have to push for at least one total market bond index fund too.

[bdpb]

Well, true, though putting so much money in just equities isn't a good idea, I don't think. I think I have to push for at least one total market bond index fund too.

Agreed, but if they understand the argument made for the lowest cost index fund available then it shouldn't be too hard to see the value in low cost index funds across all asset classes.

[bdpb]

PIMCO Total Return R PTRRX 1.1%
PTTRX PIMCO Total Return Instl 0.46%
PTTAX PIMCO Total Return A 0.85%
PTTCX PIMCO Total Return C 0.75%

Are they actually charging loads on these funds? If not, why should anyone choose anything but the lowest cost fund of these four? The four funds are essentially identical in every other way except for ER and loads. Another obvious point that you should point out (the provider is ploying on the lack of knowledge of the customer). This might fail the lack of fiduciary responsibility of both the provider and the employer.

You need to position your argument such that you are helping the employer and the employee.

[bUU]

If not, why should anyone choose anything but the lowest cost fund of these four? The four funds are essentially identical in every other way except for ER and loads.

I should have explained what I posted a bit better.

The item in BOLD is the option we're offered.

The items below that are the lower-cost classes of the same fund that exist. They are not being offered.

Sorry for the confusion.

Another obvious point that you should point out (the provider is ploying on the lack of knowledge of the customer). This might fail the lack of fiduciary responsibility of both the provider and the employer.

I saw this in the FAQ and pursued it a bit, but from what I've read, as long as they have some diversification and have at least one "low-cost" (in my reading, this is generally taken to mean ER < 1.0%) option (which, in this case, is an overpriced class of a S&P 500 Index fund), the fiduciary responsibility argument is going to fall flat, and its only effect will be to antagonize (which is, of course, something that needs to be avoided in this circumstance). If the plan truly was non-compliant, that's when it would be appropriate to raise the issue; otherwise, I would be an idiot to do so.

You need to position your argument such that you are helping the employer and the employee.

Definitely but I don't see how to do that. Their marginal compliance shows that they made the decision based on the dual prongs of keeping cost to the company as low as possible and the lack of concern about how that would affect retention and attraction of talent. Does anyone have any other, specific suggestions for painting that picture, given those limitations?

[nisiprius]

With regard to fees, perhaps you could use Morningstar, a name they will probably have heard of, as an impartial authority for the fees being "high:"



Now, Morningstar uses a proprietary methodology for assessing fees, there aren't simple percentage cutoffs, so you'd have to look 'em up fund by fund. And Morningstar is pretty generous with investors' money--ERs of 0.6 and 0.7 often clock in as "low."

But, while someone might argue that the Lady Bountiful Pan-Galactic All-Asset All-Authority Strategic Spondulix Maximizer fund is well worth 2.04% because of its six-star rating, I don't see how anyone can justify choosing a plain-vanilla 2045 target-date fund with a high fee level. Not when there are plenty of low-fee alternatives. And, no, not just Vanguard.



Although they certainly could choose the 0.18% "low" fee in preference to the 0.79% "low" fee!

[bUU]

PIMCO Total Return R PTRRX 1.1%
PTTRX PIMCO Total Return Instl 0.46%
PTTAX PIMCO Total Return A 0.85%
PTTCX PIMCO Total Return C 0.75%

Are they actually charging loads on these funds? If not, why should anyone choose anything but the lowest cost fund of these four?

As I mentioned before, only the fund class in bold is being offered by the plan. The other options are other classes of the fund, available elsewhere, but not within the plan.

I learned something interesting yesterday that sheds some light on why our 401(k) is so crappy: My own personal holdings in the 401(k) represent over 14% of the entire plan.

[ohiost90]

PIMCO Total Return R PTRRX 1.1%
PTTRX PIMCO Total Return Instl 0.46%
PTTAX PIMCO Total Return A 0.85%
PTTCX PIMCO Total Return C 0.75%

Are they actually charging loads on these funds? If not, why should anyone choose anything but the lowest cost fund of these four?

As I mentioned before, only the fund class in bold is being offered by the plan. The other options are other classes of the fund, available elsewhere, but not within the plan.

I learned something interesting yesterday that sheds some light on why our 401(k) is so crappy: My own personal holdings in the 401(k) represent over 14% of the entire plan.

I believe the lower cost share classes is due to high loads upon purchase or redemtion. And of course the INSTL share class will be for only those with investors able to sink millions into the fund. I should look this up before I posted, but I'll leave that research up to you.
If you truely do have 14% of the entire plan, then maybe mgmt should you a larger voice in the process?

Good luck to ya.

[bUU]

I believe the lower cost share classes is due to high loads upon purchase or redemtion.

Some of the listed share classes don't have loads.

PTRRX
Front load 0.00%
Deferred load 0.00%
Max. redemption fee 0.00%
Total expense ratio 0.46%

If you truely do have 14% of the entire plan, then maybe mgmt should you a larger voice in the process?

It isn't the process, per se, but the cost that is of-issue I suspect. With the plan having so little assets under investment, the cost of administration have to be paid from somewhere. I suspect that if the company wanted to offer lower ER funds, then the custodian would charge the company a higher administration fee, or insist on charging each employee a quarterly fee on top of their kickbacks from the ERs. Essentially (from their perspective), I'm asking for a back-door pay increase for everyone in the plan.

Good luck to ya.

Thanks!

[ohiost90]

I believe the lower cost share classes is due to high loads upon purchase or redemtion.

None of the listed share classes have loads.

PTRRX
Front load 0.00%
Deferred load 0.00%
Max. redemption fee 0.00%
Total expense ratio 0.46%

That isn't what I found for PTTAX

Code: Select all

PIMCO Total Return Fund Class A
MUTF: PTTAX - NAV as of Mar 7, 2013
Front Load 3.75%
Expense Ratio 0.85%

http://financials.morningstar.com/fund/expense.html?t=PTTAX&region=USA&culture=en-us


PTTCX has a 1% defferred

For all classes:
http://financials.morningstar.com/fund/purchase-info.html?t=PTRRX&region=USA&culture=en-us

[bUU]

Thanks for the pointer... that would have been real embarrassing, bringing that set of data to the 401k salesperson and having him refute most of it by pointing out loads that I didn't note.

I've updated the articles above to reflect this. It thinned out the number of alternatives for each fund class, but every single option had something better somewhere, though in many (but not all) of the cases, the alternative is an institutional fund class. Perhaps I can use that to raise the priority, in the minds of management, to switch us to the 401k plan of the extremely large company that just bought our company, as soon as practicable.

[bUU]

Just updating this, in case the details are ever of interest to anyone in the future. I've been generally delayed, pushed off, ignored, and my concerns otherwise marginalized. As a matter of fact, without even a warning, our paychecks last week had an insert proudly announcing the introduction of six new funds into the plan, each one even [worse --admin LadyGeek] than the ones already in the plan. The powers-that-be still claim that they'll eventually sit down with me, but that seems disingenuous, since they've already announced the changes they're making for the next plan year, starting April 28.

I essentially gave up, and sat down with my direct manager and mentioned how I feel treated like dirt by the whole process. He was moderately concerned about that, but far more concerned about what I was saying about the plan itself. He listened to my complaining politely, but seemed very distracted by a sheet of paper I gave him with screen-shots from fundmojo.com, reviewing the six new funds. He told me he wanted whatever information I've provided the powers-that-be previously, so I gave him those the next morning. I just poked him again, this time with a comparison to my spouse's 401k, and a reference to Employee Fiduciary.

I doubt he's going to get much further than I did: Even though he's one level below the CEO, I'm only two levels below the CEO, so it isn't that big of a difference. But heck, it's nice to share the pain a little, I suppose.