Wife's 401k - Bond Fund without interest?

[NYBoglehead]

My wife and I keep our IRAs at Vanguard, and one day that I always enjoy is watching the quarterly dividends re-invested.

My wife's 401k provider is Prudential, and she contributes to the Dryden S&P 500 Index Fund and the Core Plus Bond / PIMCO Fund. No ticker symbols for either fund. Neither fund paid any sort of interest or dividend throughout the year and I figured that perhaps they just paid at the end of the calendar year. That came and passed and today I called Prudential to inquire about the lack of dividends and interest.

The completely unhelpful person informed me that dividends are the discretion of the fund manager. I politely replied that I had never heard of a 500 Index fund that did not pay dividends. Similarly, I inquired as to what the point of contributing to a Bond fund would be if we didn't receive interest. She replied that while dividends may not show up in the transaction history, perhaps dividends were still distributed and that is why the NAV was higher. I couldn't believe my ears. After speaking in circles I ended the conversation and informed my wife that she should contact her HR office to see what the heck is going on.

Any other Bogleheads out there that have had this happen to them? Am I off base in being outraged that no dividends or interest were paid from these funds?

[livesoft]

You have a unit investment trust instead of a mutual fund. These are usually an annuity wrapped around the fund. There are no dividends and no distributions. The unit values change to reflect any internal bookkeeping (and fees) hidden from participants like you.

And since you asked, YES, you are off-base. It is probably all explained in the plan documents somewhere. Did you read them?

[Barry Barnitz]

My wife and I keep our IRAs at Vanguard, and one day that I always enjoy is watching the quarterly dividends re-invested.

My wife's 401k provider is Prudential, and she contributes to the Dryden S&P 500 Index Fund and the Core Plus Bond / PIMCO Fund. No ticker symbols for either fund. Neither fund paid any sort of interest or dividend throughout the year and I figured that perhaps they just paid at the end of the calendar year. That came and passed and today I called Prudential to inquire about the lack of dividends and interest.

The completely unhelpful person informed me that dividends are the discretion of the fund manager. I politely replied that I had never heard of a 500 Index fund that did not pay dividends. Similarly, I inquired as to what the point of contributing to a Bond fund would be if we didn't receive interest. She replied that while dividends may not show up in the transaction history, perhaps dividends were still distributed and that is why the NAV was higher. I couldn't believe my ears. After speaking in circles I ended the conversation and informed my wife that she should contact her HR office to see what the heck is going on.

Any other Bogleheads out there that have had this happen to them? Am I off base in being outraged that no dividends or interest were paid from these funds?

If the plan is an annuity, the annuity subaccounts accumulate dividends and capital gains in the subaccount accumulation value. There are no distributions. See Variable Annuity - Bogleheads for the terminology used by variable annuities.

Many employer provided plans use Collective Investment Trusts (CITs) as investment mediums as opposed to using mutual funds or exchange traded funds. With CITs there are no dividend or capital gains distributions; these are retained and are accumulated in the net asset value. Check and see if your plan is using CITs. See Collective Investment Trusts - Bogleheads for further information (the external links will take you to Vanguard's Collective Trusts if you wish to examine this medium from a familiar investment management company.)

regards,

[john94549]

The default "balanced fund" in my wife's 401K menu is such a CIT, has an expense ratio of 2%* (!) and has never paid a dividend. Ever. It is supposedly a balanced fund, but nobody at the parent company (which, curiously, is in the same building as the plan admin) will explain what it invests in, other than generically. It took me a month of trying, without success, to find out what it was before I recommended to my wife that she swap into 60% SWPPX and 40% Vanguard Total Bond, which were the best options in the plan. She kept a few shares in the mystery fund (as I called it) just so I could track its performance against VBIAX. No contest.

*Not a typo.

[Default User BR]

The only fund in the MyMegaCorp plan that has dividends is the company stock fund. For some reason you can take those as an in-service distribution if you wish.


Brian

[NYBoglehead]

I see I left one major component out - previous to consolidating into the 2 funds, there were other funds within the plan that DID pay dividends. We changed them because of the higher expense ratios. So do the CIT comments still apply?

[2retire]

Yes. However, the only way to be 100% sure is to read the fund information provided by the fund manager. It should be spelled out in there.

[skylar]

I've got CITs in my 457b as well. I use the S&P 500 fund, which for the most part doesn't pay out dividends (they go straight to NAV) but every quarter there's always a dividend of around $0.20. I'm not sure why, but that's the way it is.

Skylar

[Watty]

The S&P 500 fund literature should have a table that compares the funds performance for 1,3,5 and 10 years so you can see how closely it tracks the index. You can also compare that to the same table for the Vanguard S&P 500 index fund literature to make sure that the numbers match. If everything matches then you should be Ok with it.