401k Benchmarks
401k Benchmarks
I'm involved in yet another struggle to get a better 401k plan at my current employer. I could use some help locating benchmark information to counter some of the unsubstantiated claims that the various TPA's are throwing out.
I found Deloitte's 2012 edition of their Annual 401(k) Benchmarking Survey. I also found some summary information at the 401k Help Center website (http://www.401khelpcenter.com/benchmark ... 1qbkFf0bQ6). I found "The 401k Average Book" (http://www.401ksource.com/), but I'm not sure I want to invest $95 into what is probably a lost cause.
Are there other benchmarking resources I haven't found?
Specifics:
Participants: ~100 growing very rapidly to over 200 employees in the next 12 months.
Plan Assets: ~$1.8M (USD)
Match: Zero
The company is a startup with virtually no revenue. Our current plan is with ADP. The Dir of HR (a SPHR) feels rather strongly that we need a TPA and that the participants (employees) should be excited about paying 50 bps for the privilege of having an advisor and TPA. I feel that these services are fine if the company wants to pay for them. With no
I would like to know specifically:
1. What percentage of 401k plans are administered by a TPA/Advisor (as opposed to the record keeper or the employer)
2. What would a TPA typically charge for their services.
The Vanguard Small-Business plan is the only option I can stomach that is still on the table. She feels that this plan is not "full featured" enough for us. I personally can't see a thing wrong with it.
I need some ammo!
I found Deloitte's 2012 edition of their Annual 401(k) Benchmarking Survey. I also found some summary information at the 401k Help Center website (http://www.401khelpcenter.com/benchmark ... 1qbkFf0bQ6). I found "The 401k Average Book" (http://www.401ksource.com/), but I'm not sure I want to invest $95 into what is probably a lost cause.
Are there other benchmarking resources I haven't found?
Specifics:
Participants: ~100 growing very rapidly to over 200 employees in the next 12 months.
Plan Assets: ~$1.8M (USD)
Match: Zero
The company is a startup with virtually no revenue. Our current plan is with ADP. The Dir of HR (a SPHR) feels rather strongly that we need a TPA and that the participants (employees) should be excited about paying 50 bps for the privilege of having an advisor and TPA. I feel that these services are fine if the company wants to pay for them. With no
I would like to know specifically:
1. What percentage of 401k plans are administered by a TPA/Advisor (as opposed to the record keeper or the employer)
2. What would a TPA typically charge for their services.
The Vanguard Small-Business plan is the only option I can stomach that is still on the table. She feels that this plan is not "full featured" enough for us. I personally can't see a thing wrong with it.
I need some ammo!
Last edited by Alskar on Fri Apr 25, 2014 3:30 pm, edited 1 time in total.
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Re: 401k Benchmarks
Have you looked at Brightscope.com?
What the bold print givith, the fine print taketh away. |
-meowcat
Re: 401k Benchmarks
I did, but I didn't find any benchmark information there. Did I miss something?meowcat wrote:Have you looked at Brightscope.com?
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- ruralavalon
- Posts: 26297
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Re: 401k Benchmarks
Vanguard publishes a report every year or two "How America Saves". But I could not locate a link.
Also, look around at http://www.EBRI.org, for example: "EBRI Databook on Employee Benefits"
Also, look around at http://www.EBRI.org, for example: "EBRI Databook on Employee Benefits"
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: 401k Benchmarks
For smaller companies, unless your HR is willing to go with Online401K or Employee Fiduciary or similar it can be hard to get good low cost options.
Re: 401k Benchmarks
Interesting question, curious what answers you'll get.
My guess is 55 bps for your plan is cheaper than average for a plan of this size.
My guess is 55 bps for your plan is cheaper than average for a plan of this size.
Re: 401k Benchmarks
Employee Fiduciary was on the list of 401(k) providers I gave to HR. She rejected all of the companies on my list except Vanguard. The current candidates are a who's-who of insurance companies and Vanguard.JamesSFO wrote:For smaller companies, unless your HR is willing to go with Online401K or Employee Fiduciary or similar it can be hard to get good low cost options.
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Re: 401k Benchmarks
The 50 bps is just the payment to a TPA to provide "educational services" and "plan administration". Recording-keeping (paid to a different provider) and ER's boost the weighted average "all in" expenses to 122 bps. If we go with Vanguard, they're less than 1/2 of that, but she really wants a TPA for reasons that she isn't disclosing.Blue wrote:Interesting question, curious what answers you'll get.
My guess is 55 bps for your plan is cheaper than average for a plan of this size.
She's using the ol' "Our plan is less expensive than average" argument. Her favorite TPA said that his plans average 150-300 bps. She grabbed onto those numbers even though he had no data to back up these numbers. Based on these numbers she feels entirely justified in having a plan with a weighted average expense of 122 bps. I object to her using confabulated numbers. I'm trying to inject some real data into the discussion, but I'm finding "real data" surprisingly difficult to find.
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- ruralavalon
- Posts: 26297
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- Location: Illinois
Re: 401k Benchmarks
Here are some possibilities:
Deloitte for the ICI,, "Defined Contribution / 401(k) Fee Study", 2009, a survey of 117 employers and 130 defined benefit plans, p. 6, reports "all-in fees" mean = 0.93%, median = 0.72%.
401k Averages Book,
Deloitte for the ICI,, "Defined Contribution / 401(k) Fee Study", 2009, a survey of 117 employers and 130 defined benefit plans, p. 6, reports "all-in fees" mean = 0.93%, median = 0.72%.
401k Averages Book,
"BENCHMARKING: MEASURING FOR SUCCESS".The 401k Averages Book is a must have resource for anyone working with 401(k) plans.
Use the average fee information to:
Compare your plan fees to the benchmarks.
Learn what quartile your plan fees land in.
Help prospects/clients benchmark their fees.
The 401k Averages Book is the only resource book available for non-biased, comparative 401(k) fee information. It was designed to provide professionals with the essential comparative 401(k) fee information they need to see if their plan costs are above or below average.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: 401k Benchmarks
I don't know what the exact figures are, but I suspect that the average 401K plan of that size has extremely high fees. However, the question should be: Why would you want to be average when you can easily be far better?
Re: 401k Benchmarks
This thread is now in the Personal Finance (Not Investing) forum (401(k)).
Re: 401k Benchmarks
Your plan assets are too small to attract direct interest from larger players. Based on the net worth survey here, many posters have more than that much in their personal account.Alskar wrote:Plan Assets: ~$1.8M (USD)
The TPA/Advisor is the indirect sales force for the insurance company. For plans of that size ($2 million), I would say most are sold by a TPA/Advisor. The employer wants a local person to come in for employee meetings. Think reseller in other contexts. I'm guessing Vanguard Small Business isn't going to send a person in 4 times a year. If they do, it will probably cost more than 0.5% of $2 million. In that regard, it's not full-featured. Whether it's a desirable feature or not is another question.Alskar wrote: 1. What percentage of 401k plans are administered by a TPA/Advisor (as opposed to the record keeper or the employer)
2. What would a TPA typically charge for their services.
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Re: 401k Benchmarks
Thanks ruravalon! I listed the other two sources in my OP, but I didn't find this one.ruralavalon wrote:"BENCHMARKING: MEASURING FOR SUCCESS".
BTW, here's a more recent (2012) version of the Deloitte survey (http://www.deloitte.com/view/en_US/us/S ... 0aRCRD.htm)
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Re: 401k Benchmarks
Thanks Harry!tfb wrote:Your plan assets are too small to attract direct interest from larger players. Based on the net worth survey here, many posters have more than that much in their personal account.Alskar wrote:Plan Assets: ~$1.8M (USD)
The TPA/Advisor is the indirect sales force for the insurance company. For plans of that size ($2 million), I would say most are sold by a TPA/Advisor. The employer wants a local person to come in for employee meetings. Think reseller in other contexts. I'm guessing Vanguard Small Business isn't going to send a person in 4 times a year. If they do, it will probably cost more than 0.5% of $2 million. In that regard, it's not full-featured. Whether it's a desirable feature or not is another question.Alskar wrote: 1. What percentage of 401k plans are administered by a TPA/Advisor (as opposed to the record keeper or the employer)
2. What would a TPA typically charge for their services.
Everything is relative: I understand our plan is small in the grand scheme of things, but it is the largest plan I've participated in in about 10 years.
You're spot on: The Dir of HR wants a local person to come in for meetings. What she apparently hasn't figured out yet is that we have 3 offices in the US and probably a 4th on the way. In this context the term "local" becomes ambiguous...local to which is office? The advisor told her he would fly to the other offices, but she apparently didn't hear him say that the company will have to pay all of his travel expenses.
In any case, I am losing the battle very badly. The Dir of HR wants every conceivable service, including face-to-face financial counseling, fiduciary support, annual benchmarking, etc. She feels strongly that these services are required by the ERISA/EBSA regulations and since our employer is unwilling to pay for them, she wants us to foot the bill.
My only hope is that the executive staff says no to her insistence on having every conceivable service.
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Re: 401k Benchmarks
And now you see the problem, the incentives are NOT set up for the director of HR to provide a low cost plan. Have you tried scheduling a screening of the Frontline documentary on 401K expenses? Might shake the HR person to think more carefully about all of these services.Alskar wrote: Everything is relative: I understand our plan is small in the grand scheme of things, but it is the largest plan I've participated in in about 10 years.
You're spot on: The Dir of HR wants a local person to come in for meetings. What she apparently hasn't figured out yet is that we have 3 offices in the US and probably a 4th on the way. In this context the term "local" becomes ambiguous...local to which is office? The advisor told her he would fly to the other offices, but she apparently didn't hear him say that the company will have to pay all of his travel expenses.
In any case, I am losing the battle very badly. The Dir of HR wants every conceivable service, including face-to-face financial counseling, fiduciary support, annual benchmarking, etc. She feels strongly that these services are required by the ERISA/EBSA regulations and since our employer is unwilling to pay for them, she wants us to foot the bill.
My only hope is that the executive staff says no to her insistence on having every conceivable service.
Re: 401k Benchmarks
Agree. If I'm not paying the price I want all the services too. Does Vanguard Small Business contract with a network of education providers? I vaguely remember someone saying they do employee meetings for a provider.JamesSFO wrote:And now you see the problem, the incentives are NOT set up for the director of HR to provide a low cost plan. Have you tried scheduling a screening of the Frontline documentary on 401K expenses? Might shake the HR person to think more carefully about all of these services.
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Re: 401k Benchmarks
Alskar wrote:The Dir of HR wants every conceivable service, including face-to-face financial counseling, fiduciary support, annual benchmarking, etc. She feels strongly that these services are required by the ERISA/EBSA regulations and since our employer is unwilling to pay for them, she wants us to foot the bill.
My only hope is that the executive staff says no to her insistence on having every conceivable service.
We have had this same struggle as I serve on the 401k committee for our organization (being both a part owner in the organization and also having a sizable personal investment in the plan). Similar to your organization, we defaulted towards having face-to-face adviser and TPA to make sure we are fully compliant with ERISA regulations/5500 filings, etc. We defaulted towards having the plan participants pay these fees as well and total cost is about 50 bps in a transparent fashion. My impression is that our rates are competitive for the industry (for plan under $5mm and under 100 participants) and our plan offers a broad array of low cost Vanguard index funds (and much to my chagrin a few actively managed picks by the RIA - again with the thought of trying to avoid any ERISA/issues and offering participants reasonable choices of both index and active).
I am always curious how we compare to others and how others are approaching these dilemmas so curious to see how it develops within your organization.
Re: 401k Benchmarks
There is nothing in ERISA that even arguably requires you to offer actively-managed funds in a retirement plan. That's salesman BS.Blue wrote:Alskar wrote:The Dir of HR wants every conceivable service, including face-to-face financial counseling, fiduciary support, annual benchmarking, etc. She feels strongly that these services are required by the ERISA/EBSA regulations and since our employer is unwilling to pay for them, she wants us to foot the bill.
My only hope is that the executive staff says no to her insistence on having every conceivable service.
We have had this same struggle as I serve on the 401k committee for our organization (being both a part owner in the organization and also having a sizable personal investment in the plan). Similar to your organization, we defaulted towards having face-to-face adviser and TPA to make sure we are fully compliant with ERISA regulations/5500 filings, etc. We defaulted towards having the plan participants pay these fees as well and total cost is about 50 bps in a transparent fashion. My impression is that our rates are competitive for the industry (for plan under $5mm and under 100 participants) and our plan offers a broad array of low cost Vanguard index funds (and much to my chagrin a few actively managed picks by the RIA - again with the thought of trying to avoid any ERISA/issues and offering participants reasonable choices of both index and active).
I am always curious how we compare to others and how others are approaching these dilemmas so curious to see how it develops within your organization.
Re: 401k Benchmarks
Rupert wrote:
There is nothing in ERISA that even arguably requires you to offer actively-managed funds in a retirement plan. That's salesman BS.
http://www.dol.gov/ebsa/publications/fi ... ility.htmlThere are other ways to reduce possible liability. Some plans, such as most 401(k) and profit sharing plans, can be set up to give participants control over the investments in their accounts and limit a fiduciary’s liability for the investment decisions made by the participants. For participants to have control, they must be given the opportunity to choose from a broad range of investment alternatives. Under Labor Department regulations, there must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund, and diversify among the investment alternatives offered. In addition, participants must be given sufficient information to make informed decisions about the options offered under the plan.
Re: 401k Benchmarks
The Vanguard Small Business plan has a rather impressive array of online educational tools including tutorials, presentations and videos. I expected far less. However, the Dir. of HR (aka "Catbert") insists that online tools discriminate against people that are not technically literate.tfb wrote:Agree. If I'm not paying the price I want all the services too. Does Vanguard Small Business contract with a network of education providers? I vaguely remember someone saying they do employee meetings for a provider.JamesSFO wrote:And now you see the problem, the incentives are NOT set up for the director of HR to provide a low cost plan. Have you tried scheduling a screening of the Frontline documentary on 401K expenses? Might shake the HR person to think more carefully about all of these services.
Vanguard Small Business does provide onsite visits once per year to support the annual "benefits fair". However, it's not clear what would happen in our case as we have three sites. We appear to be an outlier in that we have multiple sites, 100+ participants, but <$2M in assets.
In any case, it appears that I've lost the battle. Catbert is going with her preferred plan from Daily Access (the more expensive of the two final proposals). I've been told not to worry because the senior staff will reject it as it increases the cost for the 401k plan for both the sponsor and the participants.
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Re: 401k Benchmarks
Does your plan offer a match? I think the DoL would consider 50 bps "reasonable and prudent" in the context of a company-paid match. However, in our case we have no match so there is nothing to offset the expense.Blue wrote:Alskar wrote:The Dir of HR wants every conceivable service, including face-to-face financial counseling, fiduciary support, annual benchmarking, etc. She feels strongly that these services are required by the ERISA/EBSA regulations and since our employer is unwilling to pay for them, she wants us to foot the bill.
My only hope is that the executive staff says no to her insistence on having every conceivable service.
We have had this same struggle as I serve on the 401k committee for our organization (being both a part owner in the organization and also having a sizable personal investment in the plan). Similar to your organization, we defaulted towards having face-to-face adviser and TPA to make sure we are fully compliant with ERISA regulations/5500 filings, etc. We defaulted towards having the plan participants pay these fees as well and total cost is about 50 bps in a transparent fashion. My impression is that our rates are competitive for the industry (for plan under $5mm and under 100 participants) and our plan offers a broad array of low cost Vanguard index funds (and much to my chagrin a few actively managed picks by the RIA - again with the thought of trying to avoid any ERISA/issues and offering participants reasonable choices of both index and active).
I am always curious how we compare to others and how others are approaching these dilemmas so curious to see how it develops within your organization.
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Re: 401k Benchmarks
I have very mixed feelings about the Frontline documentary. She would probably consider it a hostile act if I scheduled a screening of it. While I agree that 401k fees are too high, the real problem is that people simply aren't saving enough. This is the same problem I have with face-to-face financial counseling services: All the help in the world picking good investments isn't going to overcome a savings rate that is too low.JamesSFO wrote:And now you see the problem, the incentives are NOT set up for the director of HR to provide a low cost plan. Have you tried scheduling a screening of the Frontline documentary on 401K expenses? Might shake the HR person to think more carefully about all of these services.
According to the Deloitte survey I've referenced before, the contribution rate for non-highly compensated employees is about 6%. For highly compensated employees it goes up to about 7%. Our plan is very typical in this regard. That's less than half of what I think it should be.
Personally, I would be far happier if the limits on IRA contributions were the same as 401(k) contributions and I was allowed to contribute to my IRA instead of the 401(k) even though I'm eligible for the 401(k) plan at work. I could then "opt out" of lousy 401(k) plans. This would put employers out of the retirement planning business entirely.
Last edited by Alskar on Wed May 07, 2014 5:20 pm, edited 1 time in total.
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Re: 401k Benchmarks
Perhaps, if you said, hey part of why I'm hounding you like crazy is the type of information in this Frontline documentary, could we watch it together, might be different. Might not.Alskar wrote: I have very mixed feelings about the Frontline documentary. She would probably consider it a hostile act if I scheduled a screening of it. While I agree that 401k fees are too high, the real problem is that people simply aren't saving enough. This is the same problem I have with face-to-face financial counseling services: All the help in the world picking good investments isn't going to overcome a savings rate that is too low.
According to the Deloitte survey I've referenced before, the after contribution rate for non-highly compensated employees is about 6%. For highly compensated employees it goes up to about 7%. Our plan is very typical in this regard. That's less than half of what I think it should be.
Personally, I would be far happier if the limits on IRA contributions were the same as 401(k) contributions and I was allowed to contribute to my IRA instead of the 401(k) even though I'm eligible for the 401(k) plan at work. I could then "opt out" of lousy 401(k) plans. This would put employers out of the retirement planning business entirely.
So we have a 2 employee (soon to be 4) employee plan with a safe harbor match, and it has nearly $1M in assets. Now we offer Vanguard Signal class (soon to be admiral) funds AT the VG expense ratio and cover all fees. Costs us about $2-3K/year at Online 401K. I don't view that as a % as the ER because it's a cost of doing business. But I suppose it is .03% additional on top of the ERs. But we don't have any educational materials or fancy broker claiming to be fiduciary.
The people selling the high cost plans are good at trotting out the risks, but I've yet to see a plan which offers low cost, broadly diversified index funds get hammered. If someone can show me otherwise, I'd love to see it.
Re: 401k Benchmarks
Fixed this for you,
JamesSFO wrote: So we have a 2 employee (soon to be 4) employee plan with a safe harbor match, and it has nearly $1M in assets. Now we offer Vanguard Signal class (soon to be admiral) funds AT the VG expense ratio and cover all fees. Costs us about $2-3K/year at Online 401K. I don't view that as a % as the ER because it's a cost of doing business. But I suppose it is 0.3% additional on top of the ERs. But we don't have any educational materials or fancy broker claiming to be fiduciary.
Re: 401k Benchmarks
ThanksBlue wrote:Fixed this for you,
JamesSFO wrote: So we have a 2 employee (soon to be 4) employee plan with a safe harbor match, and it has nearly $1M in assets. Now we offer Vanguard Signal class (soon to be admiral) funds AT the VG expense ratio and cover all fees. Costs us about $2-3K/year at Online 401K. I don't view that as a % as the ER because it's a cost of doing business. But I suppose it is 0.3% additional on top of the ERs. But we don't have any educational materials or fancy broker claiming to be fiduciary.
Re: 401k Benchmarks
I completely agree. The salespeople from UBS are really great at sowing FUD (Fear, Uncertainty and Doubt). Because of this, the Dir. of HR seems to think every plan without an adviser is a lawsuit in the offing. I had her look at the EBSA's list of "enforcement actions". From what I can tell one has to really do something criminal before the EBSA is going to do a thing. Here's a typical example: http://www.dol.gov/opa/media/press/ebsa ... 140676.htmJamesSFO wrote:The people selling the high cost plans are good at trotting out the risks, but I've yet to see a plan which offers low cost, broadly diversified index funds get hammered. If someone can show me otherwise, I'd love to see it.
I too would like to hear about a low-cost, broadly diversified 401(k) plan getting investigated by the DoL. I don't think it has happened.
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Re: 401k Benchmarks
Alskar wrote:I'm involved in yet another struggle to get a better 401k plan at my current employer. I could use some help locating benchmark information to counter some of the unsubstantiated claims that the various TPA's are throwing out.
Most employees don't know how lucky they are to have an associate like you who is willing to educate the employer on what a truly low cost 401(k) plan looks like. I can't add anything to what has already been said about benchmarks, but I will say this. When educating employers it helps to remember that the people who manage 401(k) plans give themselves reasons to do whatever they want to do at the moment. Yes, if they want want a menu of the low cost index funds, they will take the time to find some benchmarks that support their decision. If they want want a low cost TPA, they will find benchmarks that support their decision to hire one of the low cost TPAs mentioned in this thread. And if they don't want to hire an expert to advise them on the plan or to educate the employees, they will find information that supports their decision not to hire an adviser.
My advice to employees who want to improve their 401(k) plan is simply to do what you are doing, which is to educate the decision makers by dripping on them. Perhaps, over time, the decision makers that they are talking to will see how selecting a menu of low cost index funds and not using managed funds, at all, is a better way of managing the risk of being sued. Perhaps they will finally see that they really can save time in selecting and monitoring the plan's investments when the investments are a menu of low cost index funds. Perhaps they will finally see that their chances of beating the market, long term, by selecting a menu of managed funds are slim and none. And that is why it makes sense match the market's performance by selecting a menu of low cost index funds.
Best wishes,
Frank
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|
"It isn't what we don't know that gives us trouble, it's what we know that ain't so." -- |
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Re: 401k Benchmarks
Thanks Frank! Most of my colleagues just think I'm a pain the behind. Their lives would be easier if I would just stop making a fuss and just go along with the herd. At least two of my colleagues would like to add a brokerage window to our 401k so they can day trade. Apparently having a PhD means you're smarter than the market. Geez...fcirullo wrote:Most employees don't know how lucky they are to have an associate like you who is willing to educate the employer on what a truly low cost 401(k) plan looks like. I can't add anything to what has already been said about benchmarks, but I will say this. When educating employers it helps to remember that the people who manage 401(k) plans give themselves reasons to do whatever they want to do at the moment. Yes, if they want want a menu of the low cost index funds, they will take the time to find some benchmarks that support their decision. If they want want a low cost TPA, they will find benchmarks that support their decision to hire one of the low cost TPAs mentioned in this thread. And if they don't want to hire an expert to advise them on the plan or to educate the employees, they will find information that supports their decision not to hire an adviser.
In any case, you got it exactly right. I presented hard data that shows: 1: That less than 10% of employees use financial counseling services and #2: 1/3 of the companies surveyed by Deloitte were concerned that financial counseling was a potential fiduciary liability. She got kinda upset and said "I just want it". Kinda reminded me of the Mythbusters saying "I reject your reality and substitute my own". In any case, you're right: It's an emotional decision not a rational one.
Regardless, I appear to have won this round. We've selected Vanguard for our 401K provider. It remains to be seen if we're going to adopt the Vanguard TPA option (with the 50 bps added to pay for the adviser and financial counseling) or if we're going to adopt the Vanguard direct plan (with no adviser). I'm fine with either plan as long as the company is picking up the tab for the TPA. I expect our CEO will reject the TPA expense and we'll be back arguing over fees in a few weeks. And so it goes...
FWIW, I recently learned that Vanguard offers Section 3(21) Investment Advice Fiduciary support for 3 bps of AuM through Mesirow Financial. Section 3(38) support is 6 bps of AuM. Here's a link: http://www.401khelpcenter.com/press_201 ... 2prOVf0bks. That's the least expensive fiduciary support I've found. I have a brochure on this program from Vanguard, but I can't seem to find it anywhere on the web.
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