New 401k Vendor at Work

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New 401k Vendor at Work

Postby mmmark » Fri May 10, 2013 1:05 pm

We have a new vendor taking over over our 401k plan at work. I have just been asked to be a part of the committee that is meeting with the vendor in a week. What questions should I ask the vendor? Any advice is appreciated.
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Re: New 401k Vendor at Work

Postby greg24 » Fri May 10, 2013 1:20 pm

What are the fees, what are the administrative fees, what are the wrap fees, what are the hidden fees, what are the hidden fees that you didn't disclose when I first asked about hidden fees.
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Re: New 401k Vendor at Work

Postby TRC » Fri May 10, 2013 2:07 pm

What are the low cost index fund options available in the plan? What are the fees?

My guess is that if you're dealing with a "broker", it's going to be all high cost actively managed funds.
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Re: New 401k Vendor at Work

Postby mmmark » Fri May 10, 2013 2:23 pm

We have a third party administrator and then a separate financial consultant group who shopped the vendors for us. I believe the TPA fees are covered by the employer, but the financial consultant group gets .50% off of the employee's assets. The ultimate decision was to go with Transamerica and I believe they will be offering some Vanguard funds, including the Total Stock Market Index Fund at .06%. I presume there is an additional asset charge that Transamerica is going to charge that will be borne by the employee participant, but I'm new to the committee and have not yet learned... hence the need to ask questions.
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Re: New 401k Vendor at Work

Postby livesoft » Fri May 10, 2013 2:33 pm

What are my responsibilities?

Is everyone here a Fiduciary for this plan? We all are, right?

What is our Investing Policy Statement? Are we following it? Should we change our IPS?

Who is keeping minutes of this meeting?
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Re: New 401k Vendor at Work

Postby ciscovp » Fri May 10, 2013 2:51 pm

In addition to the questions already asked regarding cost?

1. Are in-service withdrawals allowed?
2. Do the funds hit all asset classes such as international, small-cap, etc.?
3. Any specialized sector funds such as REITs, TIPs, commodity, health care, etc.?
4. How is the .5% fee taken? -> Is it from returns, monthly charge from account, or taken as part of a reduced dividend?
5. How quickly can we replace ineffective funds?
6. Are there index funds for the various classes such as large cap, small cap, mid cap, total market, international, bonds.? Can the index funds be from Vanguard?
7. Will the option include target funds?
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Re: New 401k Vendor at Work

Postby lawman3966 » Fri May 10, 2013 2:59 pm

greg24 wrote: . . . what are the hidden fees that you didn't disclose when I first asked about hidden fees.


+1

A related and more comprehensive question could simply be: what is the total of asset-based (i.e. AUM) fees assessed on participant assets per year?

The sad part is that some sales people may not know the answer, and simply give you their best guess.

Our firm received many presentations by three-piece suited sales people with glossy brochures describing their plans. While there were some better and worse providers among that crowd, the only good option I could find was Employee Fiduciary, which does not send salesman to customer's offices.

Sadly, if you're dealing with a salesman at all, it is already essentially guaranteed that the fees are higher than they need to be.

Think about it. When you buy mutual funds from Vanguard or Fidelity (if you in fact do that), did you really need a salesman to make a house call to sell you an index fund? No, of course. And, if they'd sent one, your fees would have to go up to pay for it.
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Re: New 401k Vendor at Work

Postby jlawrence01 » Sat May 11, 2013 11:53 am

mmmark wrote:We have a new vendor taking over over our 401k plan at work. I have just been asked to be a part of the committee that is meeting with the vendor in a week. What questions should I ask the vendor? Any advice is appreciated.


I am a Director of Finance and when we were privately held, I was part of the committee that selected the funds that mad up our 401(k) plan. I will take an approach that is a little bit different from some raised here.

First, we always used an INDEPENDENT adviser - someone who billed us a separate HOURLY fee. He would identify and propose funds to include in the plan. We looked at a variety of factors - fees, fund goal, performance against indexes and the like. In general, we would replace one to three funds for under performance. Since the committee consisted of accountants and HR, we were all looking for what was going to benefit us. The company paid most fees.

Second, since most of our employees were factory workers, we spent quite a bit of money annually holding education seminars and actively DISCOURAGING 401(k) loans and encouraging people to save for their retirements. There are limits on advice and the like.

The things that i would ask:

1) How do you select your funds?
2) How do you identify which funds are performing well or not? What is your criteria for replacing funds that are underperforming and how often do you review?
3) What kind of educational programs do you offer to employees?
4) How is the plan designed to avoid restrictions on the Highly Compensated Employees (HCEs)?
5) What is your relationship to the funds you recommend? How are YOU compensated by the funds?

Eventually, our new owners scrapped the company plan in favor of Vanguard which had some benefits and some drawbacks. The fund selections offered with Vanguard were marginally better BUT the tilt was definitely toward Vanguard even when there were better options.

Also, the people provided by Vanguard were English speaking ONLY despite 60%+ of our people speak Spanish as their primary language. Even in English, the presenters were not really all that great at explaining the importance of 401(k)s and retirement planning.

Also, Vanguard streamlined the 401(k) loan process which quickly escalated the number of employees seeking loans.
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Re: New 401k Vendor at Work

Postby dm200 » Sat May 11, 2013 2:23 pm

mmmark wrote:We have a new vendor taking over over our 401k plan at work. I have just been asked to be a part of the committee that is meeting with the vendor in a week. What questions should I ask the vendor? Any advice is appreciated.


Excuse my being a "skeptic", but the time (IMO) for a committee to meet with prospective vendors is BEFORE one is selected. Depending on your position in the company and your role with the 401k, I might consider declining the offer. Someone (well above you, I suspect) has made a deal with this vendor. It might be good or it might be terrible. I suspect it is not the best for participants. Sales folks from this vendor, I suspect, have made the sale, based on lots of promises. I also suspect there are aspects of the 401k plan that the company and vendor do not want to be fully understood by participants. If you ask too many questions and bring out things that are not employee-favorable, then you are the bad guy.

If you want to take the job honestly and seriously, then take lots of notes of what is being promised and exactly who promised those things. Then when/if the promises are not executed, you can go back and point this out. Expect, then, to be attacked by the employer.

I speak from experience. At a former employer, I was not on a committee -- but as a participant, I went to the pitch given by the new 401k vendor and heard lots of promises. I took notes. When the promises were not fulfilled, I went back (with great difficulty in some cases) to the person making the promises, and confronted them. My employer did not like my questions, nor my confronting the company and vendor about broken promises. The HR/accounting person suggested I had some kind of emotional (or mental health) problem of being obsessed about the 401k and, perhaps, I should not have deductions since I always asked too many questions. In every case, as I recall, I was 100% right about the questions I raised and the vendor or employer was wrong. BUT - I was "punished" for asking too many questions. Be warned!

One thing I did was get a copy of the 5500 report to see who got some of the money taken from our 401k accounts. Some sales folks from the company that hooked us up with that vendor got some money, as reported in the 5500 report. I asked our company owner what so and so did to benefit us (the participants). He was a bit taken aback, but then said something like, "They send us (meaning the owner) a nice bottle of wine at the holidays". MY money went for HIS (probably expensive) wine!

Of course, I could be wrong. Actually, I hope so. Let us know how it turns out.
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