Advice for a Vanguard 401(k) plan?

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cutterinnj
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Advice for a Vanguard 401(k) plan?

Post by cutterinnj »

We are in the middle of transitioning from a high cost 401(k) plan to Vanguard via Ascensus.
This will GREATLY decrease our fees.

Some of our employees are a bit concerned, as we no longer have a high priced advisor, and they want to make sure they are "investing appropriately"

Does anyone know a way to handle this? I cant just say, "put it in Target fund 2030". Is there a "per click" advising service that handles 401(k) investments on an on-demand basis? Anyone else have experience with this issue?
Rupert
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Re: Advice for a Vanguard 401(k) plan?

Post by Rupert »

You can offer model portfolios, based on age/expected retirement date and risk tolerance. Or you can hire an hourly-fee advisor to come in periodically to educate the employees about the funds in the plan and make recommendations to them. Or you can just tell them that the employer is not an investment advisor and cannot tell them how to invest their money. That's their responsibility. If they don't know what to do and don't want to use a target retirement fund, they should consult a financial planner -- at their own expense, not at the expense of the plan.
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BTDT
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Re: Advice for a Vanguard 401(k) plan?

Post by BTDT »

When our company changed from John Hancock to Vanguard last winter we chose to pay the extra fee to have a Vanguard representative come in and brief the employees on indexing and fund selecting. We also included some 'active funds' for those who like to 'gamble' or 'pay-more-for-less'. :oops:

John
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Alskar
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Re: Advice for a Vanguard 401(k) plan?

Post by Alskar »

cutterinnj wrote:We are in the middle of transitioning from a high cost 401(k) plan to Vanguard via Ascensus.
This will GREATLY decrease our fees.

Some of our employees are a bit concerned, as we no longer have a high priced advisor, and they want to make sure they are "investing appropriately"

Does anyone know a way to handle this? I cant just say, "put it in Target fund 2030". Is there a "per click" advising service that handles 401(k) investments on an on-demand basis? Anyone else have experience with this issue?
The small-business 401k plan offered by Vanguard/Acensus offers some very good online tutorials and videos. That would be one place to start. You could also refer these participants to an advisor that charges by the hour.

In my experience it is highly unusual for participants to request financial counseling. Surveys by Deloitte and Vanguard are consistent with my experience. The latest How America Saves from Vanguard says that only about 3% of participants actually use financial counseling services. This begs the question, "Are these employees actually going to use the financial counseling services or are they just 'concerned'?"

Personally, I think the default investment option for your plan should be a target date fund appropriate for the participant's age. If the participant cannot muster enough interest or energy to watch a tutorial or read a book, they are unlikely to change the default investment and will likely do okay.

Note: If it isn't obvious I have little patience for people that want their employers or fellow participants to pay for additional services in the 401k plan just because they're too disinterested or unmotivated to educate themselves. In my view, that's what target date funds are for. Making them the default option uses their inertia in their favor.
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uvadk
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Re: Advice for a Vanguard 401(k) plan?

Post by uvadk »

Our practice has gone through a similar change to Vanguard/Ascensus over the past year.

Agree with the previous responses. Ascensus has some valuable online tools for the employees that are motivated to educate themselves on the investing process. As a partner in our group, and a member of our retirement committee, I have heard many of the same concerns from some of our 250+ employees. As part of the transfer to Ascensus, we have sent out a significant amount of information to our employees over the course of the past year. We have also setup the plan to default into their Target Date fund based on their age.

Our retirement committee agreed that it was not in the group's best interest (nor that of the employee's) to pay for a financial advisor out of the plan assets (or as a separate check from the group). I believe that Vanguard/Ascensus do offer advising services for a fee - this is something you could look into if you think it is important enough for your company.

Hope this is helpful. Feel free to PM me if you have specific questions about the change. Congratulations on making a wonderful decision to reduce the costs of your 401k plan and significantly benefit all of your employees in the long run (even if they don't realize it)!
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Alskar
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Re: Advice for a Vanguard 401(k) plan?

Post by Alskar »

uvadk wrote:I believe that Vanguard/Ascensus do offer advising services for a fee - this is something you could look into if you think it is important enough for your company.
This is correct. I just looked up the costs: There is a 0.15% "Annual service facilitation fee" and a 0.30% "Annual fee on assets" for a total of 0.45% for the "Managed by Morningstar" service. It appears that these charges are borne entirely by the participant, but I'm not sure that's the case. The ADV for the Morningstar services can be found here: https://rm.morningstar.com/adv/. It's more than I want to read right now.

The paperwork I have implies that the Vanguard/Acensus plan offers the Morningstar Learning Station (online tools) and the Morning Star "Managed by You" online tools for free.

Summary: If individual participants feel they need help choosing investments, they can get it for 0.45% of AuM with no apparent minimum (read the ADV).
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