High Fees, Poor Choices Vex 401(k) Participants

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High Fees, Poor Choices Vex 401(k) Participants

Postby mickeyd » Sat Jul 27, 2013 11:40 am

Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?


“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.

Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.


http://www.fa-mag.com/news/high-fees--p ... 14964.html
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby chaz » Sat Jul 27, 2013 12:34 pm

Free enterprise at its worst.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby leonard » Sat Jul 27, 2013 2:11 pm

mickeyd wrote:Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?


“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.

Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.


http://www.fa-mag.com/news/high-fees--p ... 14964.html


Let's be a bit more even handed though. Every single person "complaining" about high 401k fees could very easily ask the HR representative "What are your 401k options and what are the expenses for the plan?" BEFORE taking the job.

So, companies are to blame for expensive plans. But, employees are to blame for willful ignorance and taking jobs in spite of that ignorance. Oh, and then complaining afterward. 2 to tango in this case.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby Garco » Sat Jul 27, 2013 2:27 pm

leonard wrote:
mickeyd wrote:Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?

“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.

Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.

http://www.fa-mag.com/news/high-fees--p ... 14964.html

Let's be a bit more even handed though. Every single person "complaining" about high 401k fees could very easily ask the HR representative "What are your 401k options and what are the expenses for the plan?" BEFORE taking the job.

So, companies are to blame for expensive plans. But, employees are to blame for willful ignorance and taking jobs in spite of that ignorance. Oh, and then complaining afterward. 2 to tango in this case.

I've hired a great many employees in my career (and fired a few as well). We have a good plan. It's published on our webpage. Especially for young, newly minted workers, if any prospective employee focuses their interview on the benefits of our retirement plan, they're probably not going to get the job. It gives the impression that they're thinking of ending their career rather than starting it. Especially since the information is on our website, they should have done their homework. We want to hear about their interests and capabilities in the position we're filling. That should always be their priority in an interview. So yes, once you've been offered a position, do confirm what the fringes are. But don't make the mistake of asking about them during your initial interview.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby manwithnoname » Sun Jul 28, 2013 12:29 am

The article referred in the post is inaccurate and does not state that information used in the study is 4 year old.

viewtopic.php?f=10&t=120212#p1756531

Some plans have high fees to cover the cost of plan admin which is not free, since employers are not required to pay for plan admin costs.

The alternative to high fees is not to have a plan at all.

There is no fiduciary requirement that low cost funds be included, only that fees are reasonable for the services provided. It is factitious to claim that high fee cause losses instead of employee ignorance of investing principles.

An employees who thinks fees are too high can avoid paying them by not participating in the plan.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby Garco » Sun Jul 28, 2013 4:05 am

manwithnoname wrote:The article referred in the post is inaccurate and does not state that information used in the study is 4 year old.
viewtopic.php?f=10&t=120212#p1756531

Some plans have high fees to cover the cost of plan admin which is not free, since employers are not required to pay for plan admin costs.

The alternative to high fees is not to have a plan at all.

There is no fiduciary requirement that low cost funds be included, only that fees are reasonable for the services provided. It is factitious to claim that high fee cause losses instead of employee ignorance of investing principles.

An employees who thinks fees are too high can avoid paying them by not participating in the plan.

On the last point, many many employees have mandatory contributions to their 401k. I do. Further, whether or not "employee ignorance of investing principles" causes losses (it often does, from what I've read), it is not logical to imply that therefore high fees are not also a serious problem. Finally, it is also not logical to state that "the alternative to high fees is not to have a plan at all." Many employees participate in plans that have moderate to low fees.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby JoMoney » Sun Jul 28, 2013 4:13 am

Garco wrote:On the last point, many many employees have mandatory contributions to their 401k. I do.


It's not truly "mandatory", employees have to be given the opportunity to elect out of the automatic contribution that many plans are implementing.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby ruralavalon » Sun Jul 28, 2013 5:01 am

mickeyd wrote:Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?
Its news because many people have not absorbed this information yet.

It it is nice that an on-line magazine for RIAs is picking up on this "news".

I do wish they had provided a link to the study, rather than just paraphrased its concludsions.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby Garco » Sun Jul 28, 2013 5:23 am

JoMoney wrote:
Garco wrote:On the last point, many many employees have mandatory contributions to their 401k. I do.


It's not truly "mandatory", employees have to be given the opportunity to elect out of the automatic contribution that many plans are implementing.

I am going to quote from the web page of Human Resources at my employer. Since I don't want to reveal the name of my employer, I'm going to change a few words: "Do I have to participate in the 401(k) retirement plan? Your participation may be mandatory or voluntary, depending on your job class, age, and service duration. Once you're required to participate, you must continue to participate if you remain in a required class." I am in a class of employees who are required to participate in the plan, and have been so for many years. I cannot opt out. If I could opt out, I wouldn't, because my employer's match is larger than my own mandated contribution, and the plan has many low-cost options.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby z3r0c00l » Sun Jul 28, 2013 5:58 am

manwithnoname wrote:The alternative to high fees is not to have a plan at all.

An employees who thinks fees are too high can avoid paying them by not participating in the plan.


The third alternative is that the company offers a good 401K plan with low fees. If my relatively small non-profit company can do it, anyone can.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby ruralavalon » Sun Jul 28, 2013 6:06 am

manwithnoname wrote: The alternative to high fees is not to have a plan at all.

There is no fiduciary requirement that low cost funds be included, only that fees are reasonable for the services provided. It is factitious to claim that high fee cause losses instead of employee ignorance of investing principles.

Nonsense.

The alternative to high fees is not no plan at all, the alternative is low fees. Low fee plans can be and are assembled even for small employers.

High fees are always a problem, always seriously erode net gain, and so always cause losses. Costs matter, and matter a lot. Vanguard, "Stopping the silent killer of returns" ; Demos, "The Retirement Savings Drain: Hidden & Excessive Costs of 401(k)s" ; and buyupside.com, "Investment Fee Calculator - See How Fees Reduce Your Returns" .

There is no upside to offering bad choices to employees. And why blame employees for being ignorant, if no one who is better informed educates them? The employees were hired to build some product or provide some service to customers, not be be investment gurus.



I had to look up the term "facticious",
dictionary.reference.com wrote:1. not spontaneous or natural; artificial; contrived: factitious laughter; factitious enthusiasm.

2. made; manufactured: a decoration of factitious flowers and leaves.
dictionary.reference.com, "facticious" . So I have learned something from this thread, after all.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby mikestorm » Sun Jul 28, 2013 6:34 am

manwithnoname wrote:The article referred in the post is inaccurate and does not state that information used in the study is 4 year old.


Slightly stale perhaps. I disagree with your characterization of inaccurate though. I doubt a lot has changed with the source companies in the past four years.

Besides, lets make a big assumption that you're right and it is inaccurate. It then becomes propaganda designed to help plan participants and scare plan providers into at least thinking about costs. My appreciation for the study is not dimished in the slightest.
manwithnoname wrote:The alternative to high fees is not to have a plan at all.


False dilemma. Not the only two choices.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby mikestorm » Sun Jul 28, 2013 6:54 am

I bet if one were to dig into the analysis, they would find that the most egregious plans in terms of fees employ PEOs. Want to offer a 401k to your employees but don't want to actually do the legwork yourself? Let Wellspring Outsourcing gouge, er handle that for you! The best part is your employees pay so you don't have to. Its win win!

I've had dealings with PEOs on two seperate occasions. One took four months and threat of SEC reporting before they acknowlegded my letters emails and calls for a simple 401k rollover to Vanguard for my wifes old 401k. The other processed the request but did it incorrectly...and charged my mother a large fee for the courtesy.

As you might imagine, I'm not a fan :)
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby manwithnoname » Sun Jul 28, 2013 8:36 am

Garco wrote:
JoMoney wrote:
Garco wrote:On the last point, many many employees have mandatory contributions to their 401k. I do.


It's not truly "mandatory", employees have to be given the opportunity to elect out of the automatic contribution that many plans are implementing.

I am going to quote from the web page of Human Resources at my employer. Since I don't want to reveal the name of my employer, I'm going to change a few words: "Do I have to participate in the 401(k) retirement plan? Your participation may be mandatory or voluntary, depending on your job class, age, and service duration. Once you're required to participate, you must continue to participate if you remain in a required class." I am in a class of employees who are required to participate in the plan, and have been so for many years. I cannot opt out. If I could opt out, I wouldn't, because my employer's match is larger than my own mandated contribution, and the plan has many low-cost options.



IRS reg. 1.401k-1(a)(2) defines a 401k plan as an arrangement under which an eligible employee may make contributions to the plan. Auto enrollment is considered voluntary because the employee can opt out of making contributions.

There are exceptions to the rule that participation in a 401k plan is voluntary; for example members of a union can be required to make contributions under an agreement between the union and the employer. Some partnership agreements require that all partners must contribute to the 401k plan to prevent the partners from working until death because they didn't save for retirement.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby ruralavalon » Sun Jul 28, 2013 10:18 am

manwithnoname wrote:The article referred in the post is inaccurate and does not state that information used in the study is 4 year old.

So, is there a more recent study? Or a study using more recent data? Or is more recent data available anywhere?

Four year old data is better than no data, correct?.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby manwithnoname » Sun Jul 28, 2013 11:30 am

ruralavalon wrote:
manwithnoname wrote:The article referred in the post is inaccurate and does not state that information used in the study is 4 year old.

So, is there a more recent study? Or a study using more recent data? Or is more recent data available anywhere?

Four year old data is better than no data, correct?.


Not exactly. Plans change their investment choices periodically and many plans recently replaced expensive fees with cheaper fees in response to DOL regs. Thats why the author of the study has agreed not to publicly identify the names of plans with expensive fees that used 2009 data. Another question is whether the fees listed in the study for a particular plan are in fact correct. Some plans use a cheaper class of funds (e.g, institutional class instead of retail class) than the funds listed in the study. its not unusual for a fund to have 3 or more classes with different fee%.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby ruralavalon » Sun Jul 28, 2013 1:54 pm

manwithnoname wrote:
ruralavalon wrote:
manwithnoname wrote:The article referred in the post is inaccurate and does not state that information used in the study is 4 year old.

So, is there a more recent study? Or a study using more recent data? Or is more recent data available anywhere?

Four year old data is better than no data, correct?.


Not exactly. Plans change their investment choices periodically and many plans recently replaced expensive fees with cheaper fees in response to DOL regs. Thats why the author of the study has agreed not to publicly identify the names of plans with expensive fees that used 2009 data. Another question is whether the fees listed in the study for a particular plan are in fact correct. Some plans use a cheaper class of funds (e.g, institutional class instead of retail class) than the funds listed in the study. its not unusual for a fund to have 3 or more classes with different fee%.


So there are no more recent studies, or studies using more recent data, or more recent data available?

And, therefore the study using four year old data is the best available starting point to compare your plan with the universe of other plans, the next step being -- to find out if your plan has gone to lower expense funds in the last four years, and/or is using less expensive institutional class shares?
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby leonard » Sun Jul 28, 2013 3:45 pm

Garco wrote:
leonard wrote:
mickeyd wrote:Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?

“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.

Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.

http://www.fa-mag.com/news/high-fees--p ... 14964.html

Let's be a bit more even handed though. Every single person "complaining" about high 401k fees could very easily ask the HR representative "What are your 401k options and what are the expenses for the plan?" BEFORE taking the job.

So, companies are to blame for expensive plans. But, employees are to blame for willful ignorance and taking jobs in spite of that ignorance. Oh, and then complaining afterward. 2 to tango in this case.

I've hired a great many employees in my career (and fired a few as well). We have a good plan. It's published on our webpage. Especially for young, newly minted workers, if any prospective employee focuses their interview on the benefits of our retirement plan, they're probably not going to get the job. It gives the impression that they're thinking of ending their career rather than starting it. Especially since the information is on our website, they should have done their homework. We want to hear about their interests and capabilities in the position we're filling. That should always be their priority in an interview. So yes, once you've been offered a position, do confirm what the fringes are. But don't make the mistake of asking about them during your initial interview.


First - most companies of any size do not publish the details of the 401k plan - plan design, specific investment funds, and specific fund and plan expenses - online. Congratulations in your case - but your company is by far the exception. So, at the end at the interview, after all job related questions are asked and your HR representative asks the question "Do you have any questions for me?" - it is perfectly reasonable in 99% of the cases for the candidate to ask about ALL the benefits - including 401k.

Second - it is impossible - IMPOSSIBLE - for a candidate to assess a job offer without knowing the financial terms being offered - including the 401k. So, the candidate in general needs that information and most companies do not provide that info online.

Third, obviously, this is a discussion to be had at the Job Offer stage in the hiring process. I am not saying this is a question that should be first from a candidate. However, I am saying that a candidate should ask this before accepting a job - or you are simply hiring someone that is choosing to be willfully ignorant as to the terms of their employment.

Finally, are you seriously saying you participate on the Bogleheads website - but you would penalize someone for safeguarding their retirement as they assess a job interview? Seriously?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby leonard » Sun Jul 28, 2013 3:50 pm

leonard wrote:
Garco wrote:
leonard wrote:
mickeyd wrote:Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?

“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.

Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.

http://www.fa-mag.com/news/high-fees--p ... 14964.html

Let's be a bit more even handed though. Every single person "complaining" about high 401k fees could very easily ask the HR representative "What are your 401k options and what are the expenses for the plan?" BEFORE taking the job.

So, companies are to blame for expensive plans. But, employees are to blame for willful ignorance and taking jobs in spite of that ignorance. Oh, and then complaining afterward. 2 to tango in this case.

I've hired a great many employees in my career (and fired a few as well). We have a good plan. It's published on our webpage. Especially for young, newly minted workers, if any prospective employee focuses their interview on the benefits of our retirement plan, they're probably not going to get the job. It gives the impression that they're thinking of ending their career rather than starting it. Especially since the information is on our website, they should have done their homework. We want to hear about their interests and capabilities in the position we're filling. That should always be their priority in an interview. So yes, once you've been offered a position, do confirm what the fringes are. But don't make the mistake of asking about them during your initial interview.


First - most companies of any size do not publish the details of the 401k plan - plan design, specific investment funds, and specific fund and plan expenses - online. Congratulations in your case - but your company is by far the exception. So, at the end at the interview, after all job related questions are asked and your HR representative asks the question "Do you have any questions for me?" - it is perfectly reasonable in 99% of the cases for the candidate to ask about ALL the benefits - including 401k.

Second - it is impossible - IMPOSSIBLE - for a candidate to assess a job offer without knowing the financial terms being offered - including the 401k. So, the candidate in general needs that information and most companies do not provide that info online.

Third, obviously, this is a discussion to be had at the Job Offer stage in the hiring process. I am not saying this is a question that should be first from a candidate. However, I am saying that a candidate should ask this before accepting a job - or you are simply hiring someone that is choosing to be willfully ignorant as to the terms of their employment.

Finally, are you seriously saying you participate on the Bogleheads website - but you would penalize someone for safeguarding their retirement as they assess a job interview? Seriously?


BTW - if I read your website and the plan has 3% admin fees, you better believe I am going to ask about it in the initial interview. Bad 401k plans are a great way to screen out bad employers.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby manwithnoname » Sun Jul 28, 2013 5:06 pm

In this anemic economy with low jobs growth in jobs that have 401k plans candidates are not going to turn down a job offer because of high 401k plan fees. The will take the job and contribute to the plan because they will be gone one way or the other in less than 5 years.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby biturbo » Sun Jul 28, 2013 5:08 pm

leonard wrote:
mickeyd wrote:Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?


“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.

Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.


http://www.fa-mag.com/news/high-fees--p ... 14964.html


Let's be a bit more even handed though. Every single person "complaining" about high 401k fees could very easily ask the HR representative "What are your 401k options and what are the expenses for the plan?" BEFORE taking the job.

So, companies are to blame for expensive plans. But, employees are to blame for willful ignorance and taking jobs in spite of that ignorance. Oh, and then complaining afterward. 2 to tango in this case.


The problem is that in all but the most egregious cases, 401k fees are going to basically be noise unless you plan on staying at the same company for over a decade. Other parts of the compensation package, such as cash compensation, bonuses, 401k matching percent, medical benefits, and other perks will be far more noticeable. My employer's 401k plan is pretty bad (Nationwide is most definitely not on your side, at least when it comes to retirement), but even comparing it to fees I pay for my Vanguard IRA, it would take about 12 years before the annual fee difference would equal 1% of my annual compensation - negotiating an extra 1% of compensation is going to be far easier than getting an employer to switch administrators or finding a job that was comparable in all other areas but had better 401k fees.

And, even if you do plan on sticking around for a while, other events in the intervening years can change the 401k plan for better or worse - the company being acquired by another company, the company going out of business, the plan being worsened to cut costs, the plan being improved as its assets grow, etc.

Wasted money is wasted money, but I generally don't think 401k fees are going to be a big enough factor when considering jobs. Better to push employers to look for better plans and hopefully, in the process, push providers to be more competitive. Or find a way to decouple the administration of 401ks from employers.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby leonard » Wed Jul 31, 2013 4:05 pm

manwithnoname wrote:In this anemic economy with low jobs growth in jobs that have 401k plans candidates are not going to turn down a job offer because of high 401k plan fees. The will take the job and contribute to the plan because they will be gone one way or the other in less than 5 years.


So, high fees are worth complaining about but not worth actually doing anything about? Makes sense.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby leonard » Wed Jul 31, 2013 4:09 pm

biturbo wrote:
leonard wrote:
mickeyd wrote:Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?


“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.

Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.


http://www.fa-mag.com/news/high-fees--p ... 14964.html


Let's be a bit more even handed though. Every single person "complaining" about high 401k fees could very easily ask the HR representative "What are your 401k options and what are the expenses for the plan?" BEFORE taking the job.

So, companies are to blame for expensive plans. But, employees are to blame for willful ignorance and taking jobs in spite of that ignorance. Oh, and then complaining afterward. 2 to tango in this case.


The problem is that in all but the most egregious cases, 401k fees are going to basically be noise unless you plan on staying at the same company for over a decade. Other parts of the compensation package, such as cash compensation, bonuses, 401k matching percent, medical benefits, and other perks will be far more noticeable. My employer's 401k plan is pretty bad (Nationwide is most definitely not on your side, at least when it comes to retirement), but even comparing it to fees I pay for my Vanguard IRA, it would take about 12 years before the annual fee difference would equal 1% of my annual compensation - negotiating an extra 1% of compensation is going to be far easier than getting an employer to switch administrators or finding a job that was comparable in all other areas but had better 401k fees.

And, even if you do plan on sticking around for a while, other events in the intervening years can change the 401k plan for better or worse - the company being acquired by another company, the company going out of business, the plan being worsened to cut costs, the plan being improved as its assets grow, etc.

Wasted money is wasted money, but I generally don't think 401k fees are going to be a big enough factor when considering jobs. Better to push employers to look for better plans and hopefully, in the process, push providers to be more competitive. Or find a way to decouple the administration of 401ks from employers.


So, this stuff is worth spending time on, enough to come to this website and learn about low cost investing - but as to taking actual action...

If employers get the "Hire" they simply are not motivated to take action.

BTW - that only "1%" you talk about above can equate to a portfolio in 25 years of 1/3 smaller than without the fee. This is not insignificant money - as you seem to want to characterize it. It's a substantial transfer of wealth.

Finally, employers that are not smart enough watch out for even their own interests by having a high expense 401k - are definitely not looking out for your best interests on decisions other than the 401k. Decisions you simply don't see. That's not the employer I am going to bet on - personally.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby biturbo » Wed Jul 31, 2013 9:44 pm

leonard wrote:
biturbo wrote:
leonard wrote:
mickeyd wrote:Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?


“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.

Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.


http://www.fa-mag.com/news/high-fees--p ... 14964.html


Let's be a bit more even handed though. Every single person "complaining" about high 401k fees could very easily ask the HR representative "What are your 401k options and what are the expenses for the plan?" BEFORE taking the job.

So, companies are to blame for expensive plans. But, employees are to blame for willful ignorance and taking jobs in spite of that ignorance. Oh, and then complaining afterward. 2 to tango in this case.


The problem is that in all but the most egregious cases, 401k fees are going to basically be noise unless you plan on staying at the same company for over a decade. Other parts of the compensation package, such as cash compensation, bonuses, 401k matching percent, medical benefits, and other perks will be far more noticeable. My employer's 401k plan is pretty bad (Nationwide is most definitely not on your side, at least when it comes to retirement), but even comparing it to fees I pay for my Vanguard IRA, it would take about 12 years before the annual fee difference would equal 1% of my annual compensation - negotiating an extra 1% of compensation is going to be far easier than getting an employer to switch administrators or finding a job that was comparable in all other areas but had better 401k fees.

And, even if you do plan on sticking around for a while, other events in the intervening years can change the 401k plan for better or worse - the company being acquired by another company, the company going out of business, the plan being worsened to cut costs, the plan being improved as its assets grow, etc.

Wasted money is wasted money, but I generally don't think 401k fees are going to be a big enough factor when considering jobs. Better to push employers to look for better plans and hopefully, in the process, push providers to be more competitive. Or find a way to decouple the administration of 401ks from employers.


So, this stuff is worth spending time on, enough to come to this website and learn about low cost investing - but as to taking actual action...

If employers get the "Hire" they simply are not motivated to take action.


I don't think it is useful to fixate on one aspect of a compensation package in the pursuit of following a puristic "low cost" investing strategy. I've yet to see any examples in my career of a case where I'd be best off taking the job with the lowest 401k fees.

BTW - that only "1%" you talk about above can equate to a portfolio in 25 years of 1/3 smaller than without the fee. This is not insignificant money - as you seem to want to characterize it. It's a substantial transfer of wealth.


Let's use an example.

Annual Salary: $100k
401k contribution: 10%
401k matching contribution: 5%
7% annual return
Job A's 401k fees: 0.2%
Job B's 401k fees: 1.2%

At 5 years (slightly more than the average employee tenure, according to the BLS):
Job A's 401k balance: $89,050
Job B's 401k balance: $86,842

This is a difference of $2,208, which averages out to $441 per year - less than 0.5% of your annual compensation.

At 10 years:
Job A's 401k balance: $212,785
Job B's 401k balance: $201,965

This is a difference of $10,820, which averages out to $1,082 per year - just over 1% of your annual compensation.

At 20 years:
Job A's 401k balance: $623,607
Job B's 401k balance: $556,887

This is a difference of $66,720, which averages out to $3,336 per year - almost 3.5% of your annual compensation.

My point isn't that this is an insignificant amount of money, but rather:

1) Statistically, you aren't very likely to be at your job long enough for the difference to be that big.

2) Even after 20 years, it only amounts to ~3.5% of your compensation. While this isn't a trivial amount, other factors that I mentioned (cash compensation, insurance, the 401k matching amount, other perks) can still eclipse that difference.

Most people don't have the luxury of considering a wide enough array of jobs that they can actually find cases where two offers only differ on 401k fees, and so, for most cases, 401k fees are somewhat far down on the list when it comes to comparing offers. If you feel like you'll hold the same job long enough for fees to start having a material impact on your compensation and can get enough offers to actually find a job with low fees without sacrificing on other aspects of employment/compensation, then it probably makes sense to do so, but I don't feel like it is reasonable to expect employees to fix the problem of high 401k fees by simply refusing to work at places with bad plans.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby leonard » Wed Jul 31, 2013 9:56 pm

biturbo

With all the bad plans - it's very possible a person would have sequence of bad 401k's. Thus, the bad performance could persist across jobs. your example ignores this. Yes, partly mitigated by rollover's to low cost IRA's, but still could be a persistant drag on performance if someone doesn't make decisions based on it.

And, you are putting up a bit of a straw man. I am not saying people shouldn't consider other aspects of comp. Nor am I suggesting that 401k overrides every other consideration. I am saying that people should take in to account and at least ask about 401k fees. I am also saying that people should not complain about 401k fees if they are going to accept a job with a high fee 401k. Finally, people shouldn't be surprised that employers do nothing about them - when people take jobs anyway. 401k is part of a recruiting package and if people say "yes" the employer sees no problems with their package or the 401k.

Another aspect to this is that it's plain poor management. If owners and execs of companies are not able to watch out for their own interests or an employees interest - they simply are not good managers. Picking a good 401k is easy compared to actually making more complex business decisions. If they can't pick a 401k - how are they going to do the heavy lifting. Does it make sense to link one's future to that?

Tell me - why participate on this forum if low costs don't matter?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby biturbo » Wed Jul 31, 2013 10:17 pm

leonard wrote:And, you are putting up a bit of a straw man. I am not saying people shouldn't consider other aspects of comp. Nor am I suggesting that 401k overrides every other consideration. I am saying that people should take in to account and at least ask about 401k fees. I am also saying that people should not complain about 401k fees if they are going to accept a job with a high fee 401k. Finally, people shouldn't be surprised that employers do nothing about them - when people take jobs anyway. 401k is part of a recruiting package and if people say "yes" the employer sees no problems with their package or the 401k.


No, I'm not. You ask why employees take jobs with high 401k fees. My answer is that the cost of high fees in a 401k are usually less significant than other aspects of compensation.

Another aspect to this is that it's plain poor management. If owners and execs of companies are not able to watch out for their own interests or an employees interest - they simply are not good managers. Picking a good 401k is easy compared to actually making more complex business decisions. If they can't pick a 401k - how are they going to do the heavy lifting. Does it make sense to link one's future to that?


I have not observed this correlation.

Tell me - why participate on this forum if low costs don't matter?


I don't think costs are irrelevant, I just don't think they usually make a difference when considering a job offer. You can consider the performance/cost of active vs managed funds somewhat in isolation, so it is easier to have a strong preference for fees there, but there are many, many more factors when considering a job.
biturbo
 
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Re: High Fees, Poor Choices Vex 401(k) Participants

Postby leonard » Thu Aug 01, 2013 4:50 pm

biturbo wrote:
leonard wrote:And, you are putting up a bit of a straw man. I am not saying people shouldn't consider other aspects of comp. Nor am I suggesting that 401k overrides every other consideration. I am saying that people should take in to account and at least ask about 401k fees. I am also saying that people should not complain about 401k fees if they are going to accept a job with a high fee 401k. Finally, people shouldn't be surprised that employers do nothing about them - when people take jobs anyway. 401k is part of a recruiting package and if people say "yes" the employer sees no problems with their package or the 401k.


No, I'm not. You ask why employees take jobs with high 401k fees. My answer is that the cost of high fees in a 401k are usually less significant than other aspects of compensation.

Another aspect to this is that it's plain poor management. If owners and execs of companies are not able to watch out for their own interests or an employees interest - they simply are not good managers. Picking a good 401k is easy compared to actually making more complex business decisions. If they can't pick a 401k - how are they going to do the heavy lifting. Does it make sense to link one's future to that?


I have not observed this correlation.

Tell me - why participate on this forum if low costs don't matter?


I don't think costs are irrelevant, I just don't think they usually make a difference when considering a job offer. You can consider the performance/cost of active vs managed funds somewhat in isolation, so it is easier to have a strong preference for fees there, but there are many, many more factors when considering a job.


I figure the correlation is self evident. Not smart enough to pick a good 401k - an easy decision - definitely not smart enough for the hard ones - business strategy, M&A, NPV Analysis, Market analysis, etc. 401k is easy compared to any of those.

So, definitely prioritize low cost investing, unless it gets inconvenient. Got it.

Good talk.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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