Has anyone dealt with Vanguard Small Business?

[JimB]

I managed to get myself on the new 401(k) committe at work.

So far, I have seen two presentations from 401(k) providers. I have learned a lot about how 401(k) plans work and I almost wish I didn't know how they work. They have a captive audience and take advantage of it.

The legal issues involved also add costs to the plan administration. I didn't know beforehand that I could be sued for being on the committee. I would have volunteered anyway because I want a better plan for everybody in the company. And if you have a good plan, you aren't likely to be sued.

They really push the funds that provide more "revenue sharing" and "higher fund returns". In fact one company said the amount of "revenue sharing" is one of the factors used in the fund screener. I'm pretty sure they won't have any funds I would be interested in owning. Unfortunately, they are the best we have seen so far. They would cut participant costs by 50% of what we are being charged now and are tied to the payroll company we are switching to.

We have a presentation tomorrow that Fidelity is doing and I am hopeful that it is better than what I have seen so far.

We only have a little more than 40 people and about $2.6 Million in the current plan. We have only had a 401(k) for about 6 years and our current plan has very high advisor fees. Small plans like ours often have to pay high fees.

If you contacted Vanguard about your plan, did they seem a little slow to respond? About a week after we called, they emailed the standard glossy info you can get from the website, but no information specific enough to make a decision about the plan. Another week has passed and we can not get a response from them. Is this typical? It has some committee members thinking that they will not give us good service.

If you are using them, is your service good?

Personally, I have been pushing the committee in the direction of Vanguard and am very surprised that they have not been more responsive. I understand that this time of year employees are "burning" vacation time, but shouldn't the company still provide good service?

[tj]

Vanguard responded right away when I asked for information. Unfortunately, Vanguard doesn't handle small accounts directly, they farm it out to Ascensus....

[mack123]

Not all small accounts are outsourced to Ascensus. It sounds like you may have already, but if you havent, call the general participant services #, 800-523-1188. Tell them your current assets and that you want to talk to someone. They should either connect you or have a sales rep call you back in a a couple business days max.

[JimB]

Of the two we have seen so far; one uses Ascensus and the other uses Callan Associates for product-level oversight. I believe they also take care of the compliance reporting.

Both use Mesirow for co-fiduciary and indemnification purposes as well as ERISA Section 3(38) Investment Manager services.

Both of these levels are sold, mostly, as fund selection entities.

Both plans stress "Professionally Managed", "Top Quartile" funds. I'm sure that low-cost Index funds will never make it past their screeners.

[2retire]

Your company sounds much like mine (about same # of employees and same assets under management (AUM) 2.7M). I contacted Vanguard without my company knowing. I managed to get a sample plan from them. There were some days where they were slow in responding to my requests, but the other days where they were fine. The longest wait was for them to get me the plan; I had to actually remind them. The dates on the plan seem to indicate it was generated right away, but they forgot to mail it to me.

Either way, the sales response might not be indicative of the management side.

Here is the basic breakdown on what they proposed:

1. There was a base fee plus a fee for each employee. Unfortunately, they didn't spell the fees out in in hard numbers. Instead, they quoted it at 26 basis points (bp). Which came out to about $7,250 a year. My guess is these fees are probably some fixed dollar values what just happened to come out to 26bp for our AUM. I would have preferred to see real numbers. My guess is that the more AUM you have, the lower the basis point value goes.

2. They then give you a discount (10bp) on #1 for each Vanguard Investor class fund you have in your plan. The way I interpreted it, they are more of less saying, we are making money off of you on our funds so we don't want to double fee you. If we decided to put nothing but Vanguard investor class shares in our plan, then that would reduce the fees by $2,700 (2.7M * 0.001) . So the company would end up still having to pay $4,550 (7250-2700) for the plan. They said there is a way to make your employees pay all or part of that $4,550, but they didn't go into how that would work.

Of course, if you chose to have some non-Vangaurd funds in the plan, you'd lose some of this discount. The 10bp was applied to each fund balance that was an Investor class share fund, then the discounts are added up and subtracted from #1.

3. An onsite enrollment meeting was an extra $1,000.

4. Onsite educational services are offered through a third party at no more that $1,000 per day.

5. The expense ratios (ER) on the Vanguard funds appeared to be the same ERs that you'd pay if you bought the fund directly from Vanguard.

The package didn't contain information on additional fees like what employees would have to pay if they wanted to take a loan, etc.

I hope that helps.

[JamesSFO]

Just a nomenclature thing you need to get Vanguard Institutional on the line, small business (smallbiz.vanguard.com) won't handle a "full blown" 401K, just the I401K/Solo 401K type products. Call and they will help. I got a price quote for a sub-$1M plan with only 4 participants of about $3.5K/year in <48 hours and now need to see what I want to do. They also suggested Employee Fiduciary and Online401K.com as cheaper options.

Very Vanguard-ish of them to not want to overcharge.

[rustymutt]

I opened 401k accounts for my business, and have not had any issues. Service was great. You might ask to speak to a customer service managers if you're having issues.

[JimB]

Thanks everyone for the replies. They are very helpful. I want to help get a good plan for everybody and it feels like an uphill battle.

I am thankful for the things I have learned here on the forum. Several years ago I would not have even known a good plan from a bad one. Now, I am the only non-management member of the 401(k) committee.

[livesoft]

In 2009 we switched to Fidelity and they did payroll as well, so we switched payroll to Fidelity, too. From your post, it appears you have already decided on a new payroll company, but I would suggest that you give Fidelity a look.

Now in Fidelity's presentation to us, they had a CFA charterholder tells how great they were with picking funds blah-blah-blah, but if you insist they will add index funds to your line-up.

[JimB]

Thanks, I was not aware that Fidelity had a payroll service.

Yes, the payroll decision has already been finalized by HR. It was an insurance rate hike that prompted that move.