Employer is letting me decide which 401k plan to choose

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Employer is letting me decide which 401k plan to choose

Postby mikeportfolio » Thu May 09, 2013 10:21 pm

My employer is letting me help decide between two 401k plans they can choose from. In fact he's basically leaving it up to me to make the decision, which I am happy to do, but to me there isn't a clear-cut winner, so I'd like to hear what others think. I'd really appreciate if anyone can chime in. Here are the two options, with my own thoughts below that:

Plan A - Planright
$40 annual fee + 0.80% asset fee (asset fee goes down as plan size grows past $350,000, but we only have a few employees so would take a number of years)

Vanguard Total Int Stock Index - 0.20
Vanguard Small Cap Index - 0.12
Vanguard Mid Cap Index - 0.12
Vanguard Total Stock Index - 0.06
Fidelity Spartan 500 Index - 0.07
Vanguard Total Bond Market Index - 0.11
Vanguard Short Term Bond Index - 0.11
Vanguard Short Term Fed - 0.22
Vanguard Inflation Protected Securities - 0.22
Vanguard REIT Index - 0.12
Vanguard Money Market - 0.28

Plan B - Transamerica
$36 annual fee + 0.46% asset fee (regardless of total plan size)

PIMCO Total Return Ret Acct - 0.85
SSgA U.S. Bond Index Ret Acct - 0.31
Vanguard Target Retirement 20xx - ranges from 0.41 for 2010 up to 0.43 for 2055
RidgeWorth Large Cap Value Equity Ret Acct - 0.89
American Century Mid Cap Value Ret Acct - 1.01
Transamerica Partners Stock Index Ret Acct - 0.27
SSgA S&P Mid Cap Index Ret Acct - 0.33
Morgan Stanley Growth Ret Acct - 0.55
Goldman Sachs Mid-Cap Opportunities Ret Acct - 0.85
Franklin Small Cap Value Ret Acct - 1.07
SSgA Russell Small Cap Index Ret Acct - 0.33
Alger Small Cap Growth Ret Acct - 1.09
American Funds New Perspective Ret Acct - 0.70
Invesco International Growth Ret Acct - 0.90
SSgA International Index Ret Acct - 0.40
Thornburg International Value Ret Acct - 0.99
Vanguard REIT Index Ret Acct - 0.35

It goes without saying that Plan A has amazing funds to choose from. However the asset charge is pretty ridiculous (0.80%). That's because it's a Single Employer Plan. Eventually that asset charge comes down to 0.60% (and lower) as the plan grows large enough, but that will take quite a while.

Plan B I have mixed feelings about. There are a few decently priced funds (highlighted), but the rest are too expensive. The asset charge is less than the first plan (0.46%), but the funds are more expensive, so it's not a big net win.

Personally, I already invest in a 3-fund portfolio using Vanguard Total U.S., Int'l and Bond in other accounts. So Plan A fits very nicely with that, and has a few other nice options for additional diversifiers if I choose to use them later on. With Plan B, I could use the VG target retirement 2050 fund, but with a cost of 0.43, it isn't exactly cheap when added to the asset charge. Plus I purposely just got out of the target retirement fund in my other accounts for better control, so I am not thrilled about going back to it. Or I could mimic the 3-fund portfolio using the SSgA funds + Transamerica Partners Stock Index (tracks S&P 500).

Summary of my options:
Plan A - 0.90 total cost (0.10 weighted VG fund cost + 0.8 asset charge)
Plan B - 0.89 total cost (0.43 Target Retirement cost + 0.46 asset charge)
Plan B - 0.78 total cost (0.32 weighted SSgA fund cost + 0.46 asset charge)

What are your thoughts? I'm unhappy that the fees are so high no matter which option, but that's what I'm stuck with. Is Plan B the best just because it's slightly cheaper? I really prefer using the Vanguard funds; it simplifies my overall portfolio, and well, it's Vanguard :) But is that reason enough to pay extra on the expenses?
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Re: Employer is letting me decide which 401k plan to choose

Postby LadyGeek » Thu May 09, 2013 10:33 pm

This thread is now in the Personal Finance (Not Investing) forum (401(k) plan).
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Re: Employer is letting me decide which 401k plan to choose

Postby tfb » Thu May 09, 2013 10:38 pm

mikeportfolio wrote:Summary of my options:
Plan A - 0.90 total cost (0.10 weighted VG fund cost + 0.8 asset charge)
Plan B - 0.89 total cost (0.43 Target Retirement cost + 0.46 asset charge)
Plan B - 0.78 total cost (0.32 weighted SSgA fund cost + 0.46 asset charge)

What are your thoughts? I'm unhappy that the fees are so high no matter which option, but that's what I'm stuck with. Is Plan B the best just because it's slightly cheaper? I really prefer using the Vanguard funds; it simplifies my overall portfolio, and well, it's Vanguard :) But is that reason enough to pay extra on the expenses?

You should think about other employees too. You are able to pick the best of Transamerica options but others can't necessarily do that. They may very well pick the other options. I would choose Plan A.
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Re: Employer is letting me decide which 401k plan to choose

Postby Duckie » Thu May 09, 2013 10:39 pm

mikeportfolio, Plan A is a little more expensive in total but all of its options are good and cheap. Plan B's options are all more expensive (and some a lot more expensive). The other employees who may not be as financially educated as you would be better off in Plan A because there are no bad choices.
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Re: Employer is letting me decide which 401k plan to choose

Postby lawman3966 » Thu May 09, 2013 10:45 pm

If you really have no options beyond those listed, I'd go with plan A.

If your employer is willing to consider further options, take a look at Employee Fiduciary's web site.
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Re: Employer is letting me decide which 401k plan to choose

Postby Random Musings » Thu May 09, 2013 10:47 pm

Will Planright budge on the 0.80%? Even if they went down to 0.70, you would already be on equal footing and only upside after that. Have you mentioned to them you would do it for 0.60 right now?

It never hurts to ask.

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Re: Employer is letting me decide which 401k plan to choose

Postby mikeportfolio » Thu May 09, 2013 11:35 pm

Thanks everyone for your thoughts. It's an excellent point that for other employees who are less knowledgeable, their choices will on average be more expensive with the worse fund choices, even if there is a single "best" choice that is actually cheaper (and again, only slightly). That alone is convincing. I will recommend Plan A (PlanRight).

Random Musings wrote:Will Planright budge on the 0.80%? Even if they went down to 0.70, you would already be on equal footing and only upside after that. Have you mentioned to them you would do it for 0.60 right now?

It never hurts to ask.

RM


That's a good question and something I thought of as well. I'm going to raise that with my boss tomorrow. I imagine we don't have enough assets or # of employees for them to care, but it's worth a shot.
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Re: Employer is letting me decide which 401k plan to choose

Postby JamesSFO » Fri May 10, 2013 1:18 am

One thought I've used w/ 401K plans is to get the CEO or a few others to agree to roll some IRAs or older 401Ks into the plan to up the AUM. It can help in negotiating. Also if it is isn't too late look at the online 401K or employer fiduciary, you can do better than Plan A, but that likely is the best plan choice of the two.
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Re: Employer is letting me decide which 401k plan to choose

Postby inbox788 » Fri May 10, 2013 3:01 am

Would the Costco referred plan make any sense?

http://www.theonline401k.com/d401k/ecs/ ... index.html

Appears to have some funds with low expense ratio funds, but many fees. Do the considered plans have similar fees to the company? Employee? Could see employers being cheap, avoiding nominal monthly fees for the program, sticking the employees with higher fees on their investment accounts. 0.5% of 10,000 is $50, increasing proportionally.
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Re: Employer is letting me decide which 401k plan to choose

Postby nisiprius » Fri May 10, 2013 7:17 am

What a truly difficult, horns-of-the-dilemma situation. Thinking about other employees, the problem is that Plan A doesn't have any target retirement options and some will just go down the table and pick the biggest return number, some will try to market-time the asset classes, and some will contribute 9% to each of the eleven funds in order to "be diversified." And I have to say that I don't know what the point of including any bond funds at all if there's an 0.80% wrap fees. And some of the investment expert types may be concerned about not having any five-Morningstar-star fund choices, etc. In plan B, at least there are the Vanguard Target Retirement funds... BUT, BUT, BUT...

...but why are the expense ratios so high? "Vanguard Target Retirement 20xx - ranges from 0.41 for 2010 up to 0.43 for 2055" The ordinary retail Investor class shares are only 0.16% for 2010 and 0.18% for 2055. There must be some hidden fee somewhere?

Ugh. Flip a coin.

If I were really in your situation yeah, I'd let my Vanguard bias tip toward A, and reason that even if it's all about level when you add in the fees, rationalizing that Plan A people must like straight shooters. It sure looks to me as if the Plan B people are claiming and 0.46 fee and hiding another 0.2% somewhere. If I were concerned about other employees, I'd at least ask whether it was possible to include the Target Retirement funds, though.
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Re: Employer is letting me decide which 401k plan to choose

Postby avalpert » Fri May 10, 2013 7:28 am

Having just gone through an evaluation for what seems like a slightly larger firm I found Employee Fiduciary and Online 401K to have the best offering when balancing cost, fund selection and usability. You might also want to loo at Daily Access Corporation given your firm size.
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Re: Employer is letting me decide which 401k plan to choose

Postby avalpert » Fri May 10, 2013 7:32 am

nisiprius wrote:What a truly difficult, horns-of-the-dilemma situation. Thinking about other employees, the problem is that Plan A doesn't have any target retirement options and some will just go down the table and pick the biggest return number,


This is actually a very good and important point. You need an appropriate balanced fund option in there if you want to protect yourself from fiduciary risk (if they are letting you pre-define model portfolios for employees to choose that could work as well).
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Re: Employer is letting me decide which 401k plan to choose

Postby 2retire » Fri May 10, 2013 10:00 am

Another thing to keep in mind is employees often hate when they can't look up a fund's performance in something like Morningstar. The SSgA funds have this problem. It is weird that the Vanguard funds in Plan A don't have the actual ERs of the corresponding Vanguard funds. They are close, but off by a little. I'm not sure what is going on there, but people can at least look up those funds for their performance.

Although you and I would know how to create a Target Date fund out of the funds in Plan A, most people wouldn't know what to do. I agree with nisi that this may be a problem as most people these days just put their money in Target Date funds.

Personally, I would choose plan A.
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Re: Employer is letting me decide which 401k plan to choose

Postby Strevlac » Fri May 10, 2013 2:21 pm

Keep in mind that the asset charge is often offset by "revenue sharing" which comes out of the fund expense ratio and goes to the 401K provider. My company uses Transamerica and as far s I can tell from the plan documents, that's the case with them.
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Re: Employer is letting me decide which 401k plan to choose

Postby leonard » Fri May 10, 2013 5:45 pm

If it is truly your choice - I would choose "Plan C" with Employee Fiduciary as the TPA. Both of the plans you outlined above are more expensive than need be. Personally, I would target a fully loaded expense ratio (100% of plan costs, including company paid fees, employee paid fees AND average fund expense ratios) for the plan of .5% or less averaged over the first 5 years.
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Re: Employer is letting me decide which 401k plan to choose

Postby mikeportfolio » Sat May 11, 2013 10:55 am

Thanks everyone for the comments. It sounds like Plan A (planright) is best, but "Plan C" (Employee Fiduciary) would be much better. Does anyone know how difficult/costly it is to set that up? The reason the above 2 plans are viable is because they are already integrated with our HR services company (Trinet).
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Re: Employer is letting me decide which 401k plan to choose

Postby avalpert » Sat May 11, 2013 11:00 am

mikeportfolio wrote:Thanks everyone for the comments. It sounds like Plan A (planright) is best, but "Plan C" (Employee Fiduciary) would be much better. Does anyone know how difficult/costly it is to set that up? The reason the above 2 plans are viable is because they are already integrated with our HR services company (Trinet).


Very easy to set up, they hand hold through the process but it isn't all that difficult in any case. The cost is $500 for a new plan or $1000 to transition an existing plan to them.
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