Creating a 401k for my company through Employee Fiduciary

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Topic Author
jdasch9
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Creating a 401k for my company through Employee Fiduciary

Post by jdasch9 »

Hi Bogleheads,

I am looking for some advice on what funds to offer my employees as I create the menu with Employee Fiduciary. I am just beginning the process, so I'm not completely clear on the course of action, but I believe I am able to select any combination of funds, up to 30. I definitely do not want 30, but want to make sure my menu is reasonably thorough so as to fulfill my obligations as the fiduciary/plan sponsor. For this exercise I'm using investor shares as I'm not sure if we will have access to signal/admiral shares. Our plan is very small, so definitely no institutional shares.

Here is my list so far:

Vanguard Total Stock Market (VTSMX)
Vanguard Total International Stock Index Fund (VGTSX)
Vanguard Total Bond Market Index Fund (VBMFX)
Vanguard Total International Bond Market Index Fund (VTIBX)
Vanguard Prime Money Market Fund (VMMXX)
Vanguard Target Retirement Funds

It is bare, but obviously good enough to do the job. My question is whether or not to include others such as REIT, TIPS, small/medium/large cap, or any others (Vanguard or not) you may find worthwhile. My reasoning for NOT including these is to keep the plan simple, but please advise if you believe these options are worthwhile to include.

Also, I am unclear what my responsibilities and/or restrictions are with this new setup with Employee Fiduciary in terms of advising/educating my employees. I'm sure Employee Fiduciary will make clear what is required of me, but I am open to any advice or anecdotes about working with Employee Fiduciary or a similar setup. I am no expert, but I'm working tirelessly to educate myself and I KNOW that this new plan will be leaps and bounds better than our current one. Our current plan is through John Hancock and comes with an investment adviser for an additional 100 bps. The average fund is over 100bps baseline, so we are eating about 200bps currently. I am ashamed I was duped, but I was led to him by my trusted accountant, who is also a very close family member. It wasn't too costly, as our plan has only been active for 9 months, so I'm extremely happy to have stopped the heist early, largely thanks to this forum.

Thanks for any input!
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Duckie
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Re: Creating a 401k for my company through Employee Fiduciar

Post by Duckie »

jdasch9 wrote:My question is whether or not to include others such as REIT, TIPS, small/medium/large cap, or any others (Vanguard or not) you may find worthwhile. My reasoning for NOT including these is to keep the plan simple, but please advise if you believe these options are worthwhile to include.
I would definitely add TIPS and possibly REIT as options. I would also drop both international bond and prime money market. I don't think either one is necessary.
Laura
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Re: Creating a 401k for my company through Employee Fiduciar

Post by Laura »

I would stick with Total Stock Market and not use large/medium/small. Your other choices are excellent. REIT and TIPS are fine additions. The problem is that many employees don't know what they are investing in and are likely to put equal amounts in each fund. You wouldn't want them putting it all in REIT or TIPS unless part of a broader asset allocation strategy which relatively few people actually have. At a minimum, I would make sure the default option is the proper Target Retirement fund. How often can you change your selection? If annually or something like that I would start with your list of funds then consider adding other options in one year.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
avalpert
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Re: Creating a 401k for my company through Employee Fiduciar

Post by avalpert »

Here are what we included in the plan we built last year and using them to manage:

Vanguard Total Intl Stk Idx Admiral
Vanguard Infla.Protected Sec Adm
Vanguard Total Bond Mk Index Adm
Vanguard Total Stock Mrkt Idx Adm
Vanguard Value Idx Adm
Vanguard LT Treasury ADM
Vanguard Mid Cap Value Admiral
Vanguard Prime Money Market
Vanguard Short-Term Bond Idx Adm
Vanguard Sm Cap Val Index Adm
Vanguard US REIT Index Adm
Vanguard Target Retirement 2015
Vanguard Target Retirement 2025
Vanguard Target Retirement 2035
Vanguard Target Retirement 2045
Vanguard Target Retirement 2055

Qualification for Admiral shares is based on total dollars in the fund in the plan.
Also, I am unclear what my responsibilities and/or restrictions are with this new setup with Employee Fiduciary in terms of advising/educating my employees
EF doesn't provide this service as part of their plan. If you (and your attorneys) are comfortable with it you can do it yourself but you have to be very clear on your qualifications and the non-expert nature of the advice. You could also find a local fee-only advisor who could come in to do a session for a small cost (or for free if they think work may come out of it).
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

Laura wrote:At a minimum, I would make sure the default option is the proper Target Retirement fund. How often can you change your selection? If annually or something like that I would start with your list of funds then consider adding other options in one year.
I definitely plan to default them into the appropriate target fund. If they never touch it, they will do just fine. I am unsure how often I can change my selections.
avalpert wrote:Qualification for Admiral shares is based on total dollars in the fund in the plan.
Is it $10,00.00 like the IRA qualification, or some other figure entirely?
avalpert wrote:EF doesn't provide this service as part of their plan. If you (and your attorneys) are comfortable with it you can do it yourself but you have to be very clear on your qualifications and the non-expert nature of the advice. You could also find a local fee-only advisor who could come in to do a session for a small cost (or for free if they think work may come out of it).
Fortunately we did receive an introductory session at the beginning of our plan with John Hancock, so they are educated on the basics. I am willing to provide a basic educational introduction when they enroll, but I obviously want to avoid as much liability as possible. I want to avoid outside advisory, as I feel it's a waste of their money, but maybe they would find it worthwhile. Thanks for your input!
avalpert
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Re: Creating a 401k for my company through Employee Fiduciar

Post by avalpert »

jdasch9 wrote:
avalpert wrote:Qualification for Admiral shares is based on total dollars in the fund in the plan.
Is it $10,00.00 like the IRA qualification, or some other figure entirely?
It is Vanguard's standard requirements for any individual fund holder - they just treat the plan as the individual.
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

avalpert wrote:
jdasch9 wrote:
avalpert wrote:Qualification for Admiral shares is based on total dollars in the fund in the plan.
Is it $10,00.00 like the IRA qualification, or some other figure entirely?
It is Vanguard's standard requirements for any individual fund holder - they just treat the plan as the individual.
Good to know. Do you know if the switch from investor to admiral shares is automatic? Our plan is tiny ($20k in assets!), as we are a very small company (5 employees, 3 participants) and just started the 401k plan this year. I guess the size of our plan is another reason to limit the choices and add more later. I don't want to be accused of providing inadequate options, but I'd love to have only a few funds initially so we can reach admiral shares as quickly as possible.
Laura
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Re: Creating a 401k for my company through Employee Fiduciar

Post by Laura »

Since you are so small I would stick with the basics to being with. Your reasoning about getting to the $10k as quickly as possible is right on target.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
avalpert
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Re: Creating a 401k for my company through Employee Fiduciar

Post by avalpert »

jdasch9 wrote:
avalpert wrote:
jdasch9 wrote:
avalpert wrote:Qualification for Admiral shares is based on total dollars in the fund in the plan.
Is it $10,00.00 like the IRA qualification, or some other figure entirely?
It is Vanguard's standard requirements for any individual fund holder - they just treat the plan as the individual.
Good to know. Do you know if the switch from investor to admiral shares is automatic? Our plan is tiny ($20k in assets!), as we are a very small company (5 employees, 3 participants) and just started the 401k plan this year. I guess the size of our plan is another reason to limit the choices and add more later. I don't want to be accused of providing inadequate options, but I'd love to have only a few funds initially so we can reach admiral shares as quickly as possible.
It should be automatic to the same degree it is for individuals buy you might have to prod them to get it done.
sologuy
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Re: Creating a 401k for my company through Employee Fiduciar

Post by sologuy »

I am in the process of setup through EF as well. For what it is worth, this is what I included. My intention was to mimic the TSP and then offer an alternative for each fund I thought it would be reasonable to offer an alternative for:

G Fund Vanguard Prime Money Market VMMXX 0.17%
F Fund Vanguard Total Bond Market Index Adm VBTLX 0.08%
C Fund Vanguard 500 Index Adm VFIAX 0.05%
S Fund Vanguard Extended Market Index Adm VEXAX 0.10%
I Fund Vanguard Developed Markets Int adm VTMGX 0.09%
Vanguard Inflation Protected Sec Adm VAIPX 0.10%
Vanguard Total Stock Market Index adm VTSAX 0.05%
Vanguard Small Cap Value Index adm VSIAX 0.09%
Vanguard Total Int’l Stock index Adm VTIAX 0.14%
Target Retirement Funds 2020-2060

I did initially plan to include REIT for myself so I would have access, but decided this was too risky for someone who didn't think about what they were doing. Trying to play the good fiduciary. I plan to use Roth IRA for REIT if I decide I want it.

When employees become eligible to participate, I plan to give them a copy of The Bogleheads Guide to Investing. I am also planning to bring a fee-only advisor in for an hour once or twice a year. My staff is currently 2 and will probably be a max of 5.
Default is currently into money market. I am still debating this choice and trying to decide if this is a good or bad choice. No, it is not a good long-term investment choice. However, it is unlikely for employees to see a sudden change in value. I think that is my greater concern. People do not like losing money. I am planning to give them paperwork when they become eligible that re-states that VMMXX may not meet their investment goals and that they may consider looking at the TR funds depending on their risk tolerance and retirement investing goals.

I was told by my account setup person that minimums for admiral shares did not apply to 401k through EF, and that these only applied to "retail" shares through IRA or brokerage. Interestingly, they said that the same was not true for institutional shares and that these would not be available to me. If you have heard differently, please let me know and if you wouldn't mind, PM the name of your rep so I can confirm with them. This would obviously change my list as we are also brand spanking new and do not have any plan assets.

I am certainly open to critiques on this setup. Big thanks to those who came before me in discussing their plan setup as they were invaluable in designing mine.
avalpert
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Re: Creating a 401k for my company through Employee Fiduciar

Post by avalpert »

sologuy wrote: I was told by my account setup person that minimums for admiral shares did not apply to 401k through EF, and that these only applied to "retail" shares through IRA or brokerage. Interestingly, they said that the same was not true for institutional shares and that these would not be available to me. If you have heard differently, please let me know and if you wouldn't mind, PM the name of your rep so I can confirm with them.
Though it was a year and a half ago, when establishing the plan (so after we chose them going through the establishment process) they checked to make sure we would meet the minimum of Admiral funds in our plan before initiating the funds.
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celia
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Re: Creating a 401k for my company through Employee Fiduciar

Post by celia »

OP, I would KEEP the Money Market fund, opposite of what another poster suggested. My reasoning is that if the market gets volatile, a scared participant can use that as a safe haven rather than pulling the money out of the 401k altogether. Also if they did not have enough to meet a fund's minimum, they can accumulate their money here.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
avalpert
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Re: Creating a 401k for my company through Employee Fiduciar

Post by avalpert »

celia wrote:OP, I would KEEP the Money Market fund, opposite of what another poster suggested. My reasoning is that if the market gets volatile, a scared participant can use that as a safe haven rather than pulling the money out of the 401k altogether. Also if they did not have enough to meet a fund's minimum, they can accumulate their money here.
Fund minimum's don't apply to individuals in a 401k.

If you keep the money market make sure it isn't the default investment (choose the appropriate target date fund instead).
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

sologuy wrote:I was told by my account setup person that minimums for admiral shares did not apply to 401k through EF, and that these only applied to "retail" shares through IRA or brokerage. Interestingly, they said that the same was not true for institutional shares and that these would not be available to me. If you have heard differently, please let me know and if you wouldn't mind, PM the name of your rep so I can confirm with them. This would obviously change my list as we are also brand spanking new and do not have any plan assets.
Just to clarify, you were told Admiral shares would be available regardless of plan assets, but institutional shares would not be? I have not been told anything as I'm still in the very early stages and haven't spoken directly to a rep besides a few emails.
celia wrote:OP, I would KEEP the Money Market fund, opposite of what another poster suggested. My reasoning is that if the market gets volatile, a scared participant can use that as a safe haven rather than pulling the money out of the 401k altogether. Also if they did not have enough to meet a fund's minimum, they can accumulate their money here.
That is my reasoning for offering the money market. I will do all I can to encourage participants to not leave their assets there unnecessarily, but I think it's necessary for those that want that panic button. Thank you for your opinion.
avalpert wrote:If you keep the money market make sure it isn't the default investment (choose the appropriate target date fund instead).
I will default them into the appropriate target date fund. Definitely.
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MossySF
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Re: Creating a 401k for my company through Employee Fiduciar

Post by MossySF »

Admiral shares no longer have minimums for 401k plans. This is due to the recent Vanguard change to eliminate Signal shares and roll all existing Signal shareholders into Admiral. Institutional classes keep their minimums and will be nearly impossible to reach for small plans.

If you previously started with Investor class way in the past, EF/Vanguard will not automatically switch you to Admiral. This is because you have to provide notice to your plan participants beforehand saying the share class/symbol will change as of X date.
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

MossySF wrote:Admiral shares no longer have minimums for 401k plans. This is due to the recent Vanguard change to eliminate Signal shares and roll all existing Signal shareholders into Admiral. Institutional classes keep their minimums and will be nearly impossible to reach for small plans.

If you previously started with Investor class way in the past, EF/Vanguard will not automatically switch you to Admiral. This is because you have to provide notice to your plan participants beforehand saying the share class/symbol will change as of X date.
Great, thanks! That's wonderful news.
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neutics
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Re: Creating a 401k for my company through Employee Fiduciar

Post by neutics »

Be forewarned that Employee Fiduciary is notoriously slow on the customer service side. They simply have too many plans to oversee per administrator...hence the very low costs!

In terms of funds I have two suggestions based on our 401(k) with them:
1) Why not add a couple DFA funds in the mix? Yes, higher fees but they are a great option to have normally not available to the common investor.
2) You will need to select a 'default' fund for the inevitable overlap between enrollment and deductions/contributions. We used the Vanguard Wellesley, though there is effectively a 60-day wash rule for this and other funds which makes it difficult to get out due to dividends. Again, this is only relevant when the employee has not entered their allocations.
avalpert
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Re: Creating a 401k for my company through Employee Fiduciar

Post by avalpert »

neutics wrote:Be forewarned that Employee Fiduciary is notoriously slow on the customer service side. They simply have too many plans to oversee per administrator...hence the very low costs!
This has not been our experience - customer service has been very reasonable for us.
In terms of funds I have two suggestions based on our 401(k) with them:
1) Why not add a couple DFA funds in the mix? Yes, higher fees but they are a great option to have normally not available to the common investor.
You would need a DFA advisor to be able to have access to DFA funds in the plan - can't get around that cost.
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neutics
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Re: Creating a 401k for my company through Employee Fiduciar

Post by neutics »

avalpert wrote: This has not been our experience - customer service has been very reasonable for us.
It completely depends on your plan's administrator...at the moment ours is good but they do seem to have high turnover. A company with ~50 total employees can only do so much.

avalpert wrote: You would need a DFA advisor to be able to have access to DFA funds in the plan - can't get around that cost.
Good point. We have them in ours due to a unique relationship.
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MossySF
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Re: Creating a 401k for my company through Employee Fiduciar

Post by MossySF »

Employee Fiduciary has a plan advisor option. It costs an extra 0.10% or 0.15% depending on the level of service you want. This is their advisor subsidiary:

http://www.frugalfinancial.com/
sologuy
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Re: Creating a 401k for my company through Employee Fiduciar

Post by sologuy »

jdasch9 wrote:
sologuy wrote:I was told by my account setup person that minimums for admiral shares did not apply to 401k through EF, and that these only applied to "retail" shares through IRA or brokerage. Interestingly, they said that the same was not true for institutional shares and that these would not be available to me. If you have heard differently, please let me know and if you wouldn't mind, PM the name of your rep so I can confirm with them. This would obviously change my list as we are also brand spanking new and do not have any plan assets.
Just to clarify, you were told Admiral shares would be available regardless of plan assets, but institutional shares would not be? I have not been told anything as I'm still in the very early stages and haven't spoken directly to a rep besides a few emails.
That is correct, they told me that admiral shares would be available regardless of plan assets but institutional shares would not be unless we could hit the standard minimums. This was revealed to me on the 1st conversation I had with them when I asked if we had access to admiral shares. The sales rep I spoke with said we had access to admiral and investor shares. When I asked why anyone would choose investor shares, she said, "Good question!"
surveyor
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Re: Creating a 401k for my company through Employee Fiduciar

Post by surveyor »

OP - what is your experience in getting away from John Hancock? We have a 4 yearish plan with them and I am investigating ending it and moving to Vanguard or EF. The current plan seems to be wrapped in some type of insurance annuity contract and the literature isn't exactly simple reading. Not to mention the salesman isn't particularly interested in helping.
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

surveyor wrote:OP - what is your experience in getting away from John Hancock? We have a 4 yearish plan with them and I am investigating ending it and moving to Vanguard or EF. The current plan seems to be wrapped in some type of insurance annuity contract and the literature isn't exactly simple reading. Not to mention the salesman isn't particularly interested in helping.
I read through all the contracts and plan documents and did not notice any stipulation that we could not terminate the contract. I have heard they do one last cash grab with some sort of AuM % transfer fee, but I could not find that exact figure in my contract. I could be very wrong, as, like you said, it is not simple reading. I do not expect it to be a seamless process, but I'm hoping it is. I have read about people transferring from John Hancock to Employee Fiduciary, so I know it IS possible! I am trying to get a little more information about the process through the EF rep that responded to my request for proposal before I contact JH.
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

Read through the contract again, and the language leads me to believe that we cannot be charged for transferring our assets. Under "Discontinuance Charge Scale", it lists a "Discontinuance Charge as a % of Assets" of "0.000%" when "Discontinuance Occurs in Contract Year 1-3." It also lists years "4-5" and "6-7" as "0.000%". It then says "The amount of charge calculated in accordance with this scale will be deducted proportionately from all accounts maintained under the Contract at the earlier of the time contributions are withdrawn or discontinued or the Contract is terminated."

I believe that is all the language I need to see to suggest we will be let go without a last time cash grab. Could be wrong, of course.
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

MossySF wrote:Employee Fiduciary has a plan advisor option. It costs an extra 0.10% or 0.15% depending on the level of service you want. This is their advisor subsidiary:

http://www.frugalfinancial.com/
Quoting from the Frugal Financial FAQ page under "Do you offer participants personal investment advice?":

"We offer participants three options for allocating their 401k assets – choose a single Target Date Fund (TDF) based on an estimated retirement date, select an asset allocation mix themselves or let a personal financial advisor do it for them.

We do not offer personal participant advice. We have found that more than 50% of participants will choose (or default into) their retirement date appropriate TDF when given the chance.

We provide participants with access to a tool developed by The Vanguard Group, Inc. that provides custom portfolio recommendations based on how long they are planning to invest and their risk tolerance. All portfolios recommended by the Vanguard tool are available under the Frugal Financial fund line-up.

We refer participants that want professional investing help to their personal advisor. That way, they can receive advice regarding all of their investments (including brokerage accounts, IRAs, insurance, etc)."

So they are not an advisor, but simply lead them to the Vanguard AA tool or tell them to invest in the appropriate TDF. I'm not completely sure what services I am obtaining for the extra 10bps. I suppose I am shedding some fiduciary liability by retaining them, but I am still the plan sponsor and a fiduciary.
surveyor
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Re: Creating a 401k for my company through Employee Fiduciar

Post by surveyor »

Thank you for responding. If you could take the time to update this thread until your transfer is complete I would certainly appreciate it.
leonard
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Re: Creating a 401k for my company through Employee Fiduciar

Post by leonard »

jdasch9 wrote:Hi Bogleheads,

I am looking for some advice on what funds to offer my employees as I create the menu with Employee Fiduciary. I am just beginning the process, so I'm not completely clear on the course of action, but I believe I am able to select any combination of funds, up to 30. I definitely do not want 30, but want to make sure my menu is reasonably thorough so as to fulfill my obligations as the fiduciary/plan sponsor. For this exercise I'm using investor shares as I'm not sure if we will have access to signal/admiral shares. Our plan is very small, so definitely no institutional shares.

Here is my list so far:

Vanguard Total Stock Market (VTSMX)
Vanguard Total International Stock Index Fund (VGTSX)
Vanguard Total Bond Market Index Fund (VBMFX)
Vanguard Total International Bond Market Index Fund (VTIBX)
Vanguard Prime Money Market Fund (VMMXX)
Vanguard Target Retirement Funds

It is bare, but obviously good enough to do the job. My question is whether or not to include others such as REIT, TIPS, small/medium/large cap, or any others (Vanguard or not) you may find worthwhile. My reasoning for NOT including these is to keep the plan simple, but please advise if you believe these options are worthwhile to include.

Also, I am unclear what my responsibilities and/or restrictions are with this new setup with Employee Fiduciary in terms of advising/educating my employees. I'm sure Employee Fiduciary will make clear what is required of me, but I am open to any advice or anecdotes about working with Employee Fiduciary or a similar setup. I am no expert, but I'm working tirelessly to educate myself and I KNOW that this new plan will be leaps and bounds better than our current one. Our current plan is through John Hancock and comes with an investment adviser for an additional 100 bps. The average fund is over 100bps baseline, so we are eating about 200bps currently. I am ashamed I was duped, but I was led to him by my trusted accountant, who is also a very close family member. It wasn't too costly, as our plan has only been active for 9 months, so I'm extremely happy to have stopped the heist early, largely thanks to this forum.

Thanks for any input!
I do audits of a 401k. It is clear to me that people do not take a methodical approach to investing in their 401k. So, I am now pretty well convinced that simple is better. Fewer, good low cost is better.

Administratively - fewer options are also better, easier to manage, and easier to reconcile. Basically, fewer options make auditing 401k payroll contributions, rollovers, dividends in, and payments out - much easier to audit and manage.

So, in that light, here are my suggestions:

1. I would consider Eliminating the Int'l Bond fund. The reason: people will buy it and have no idea what they are investing in.
2. I would consider replacing the TR funds with the Lifestrategy funds. I don't think people understand how to choose a tr fund based on AA. They also don't get the glide path (in general). The lifestrategy still provide one stop shopping. Employee can choose their AA risk level and choose the right lifestrategy fund. In the future - since they are tax advantaged - they can change to a more conservative LS fund. Administratively - there are fewer LS funds - so easier to manage, reconcile, and track the 401k trust.

Sure, TIPS, REITs, Value, and small cap funds are great for boglehead type slicer and dicer. But, the reality is most people will invest in them based on the name and with minimal research. I'm not 100% there yet - but I am coming to believe that as simple as possible in the 401k is the way to go for fund options.
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.
Jeff7
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Re: Creating a 401k for my company through Employee Fiduciar

Post by Jeff7 »

leonard wrote:I do audits of a 401k. It is clear to me that people do not take a methodical approach to investing in their 401k. So, I am now pretty well convinced that simple is better. Fewer, good low cost is better.

Administratively - fewer options are also better, easier to manage, and easier to reconcile. Basically, fewer options make auditing 401k payroll contributions, rollovers, dividends in, and payments out - much easier to audit and manage.

So, in that light, here are my suggestions:

1. I would consider Eliminating the Int'l Bond fund. The reason: people will buy it and have no idea what they are investing in.
2. I would consider replacing the TR funds with the Lifestrategy funds. I don't think people understand how to choose a tr fund based on AA. They also don't get the glide path (in general). The lifestrategy still provide one stop shopping. Employee can choose their AA risk level and choose the right lifestrategy fund. In the future - since they are tax advantaged - they can change to a more conservative LS fund. Administratively - there are fewer LS funds - so easier to manage, reconcile, and track the 401k trust.

Sure, TIPS, REITs, Value, and small cap funds are great for boglehead type slicer and dicer. But, the reality is most people will invest in them based on the name and with minimal research. I'm not 100% there yet - but I am coming to believe that as simple as possible in the 401k is the way to go for fund options.
With respect to the Target Retirement versus LifeStrategy funds: I'd think it the other way around.

The TR glide path is automatic. Example:
I don't know what 'stocks and bonds' really means. I've heard of stocks and I know that stuff. Bonds? Aren't those the government things they sold in wars? What do they do?
So these LifeStrategy funds have different bond amounts. Which one is good? Am I going to have to keep changing it? What does 'asset allocation' mean? Do I have to buy one?
Wait, you said that the Target Retirement funds do all that stock and bond stuff automatically? I want that.
The only thing then to be sure people know is that "Target Retirement 2035" doesn't mean that the thing cuts off in the year 2035. I didn't understand those things initially either. ("So does it just stop gaining value in 2035? What if I don't retire exactly in that year? Then what? Is there a penalty?")


You start throwing in things with names like "large cap" and "small cap" and "REIT," and most people will get even more confused.
leonard
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Re: Creating a 401k for my company through Employee Fiduciar

Post by leonard »

Jeff7 wrote:
leonard wrote:I do audits of a 401k. It is clear to me that people do not take a methodical approach to investing in their 401k. So, I am now pretty well convinced that simple is better. Fewer, good low cost is better.

Administratively - fewer options are also better, easier to manage, and easier to reconcile. Basically, fewer options make auditing 401k payroll contributions, rollovers, dividends in, and payments out - much easier to audit and manage.

So, in that light, here are my suggestions:

1. I would consider Eliminating the Int'l Bond fund. The reason: people will buy it and have no idea what they are investing in.
2. I would consider replacing the TR funds with the Lifestrategy funds. I don't think people understand how to choose a tr fund based on AA. They also don't get the glide path (in general). The lifestrategy still provide one stop shopping. Employee can choose their AA risk level and choose the right lifestrategy fund. In the future - since they are tax advantaged - they can change to a more conservative LS fund. Administratively - there are fewer LS funds - so easier to manage, reconcile, and track the 401k trust.

Sure, TIPS, REITs, Value, and small cap funds are great for boglehead type slicer and dicer. But, the reality is most people will invest in them based on the name and with minimal research. I'm not 100% there yet - but I am coming to believe that as simple as possible in the 401k is the way to go for fund options.
With respect to the Target Retirement versus LifeStrategy funds: I'd think it the other way around.

The TR glide path is automatic. Example:
I don't know what 'stocks and bonds' really means. I've heard of stocks and I know that stuff. Bonds? Aren't those the government things they sold in wars? What do they do?
So these LifeStrategy funds have different bond amounts. Which one is good? Am I going to have to keep changing it? What does 'asset allocation' mean? Do I have to buy one?
Wait, you said that the Target Retirement funds do all that stock and bond stuff automatically? I want that.
The only thing then to be sure people know is that "Target Retirement 2035" doesn't mean that the thing cuts off in the year 2035. I didn't understand those things initially either. ("So does it just stop gaining value in 2035? What if I don't retire exactly in that year? Then what? Is there a penalty?")


You start throwing in things with names like "large cap" and "small cap" and "REIT," and most people will get even more confused.
But, the glide path shouldn't be "automatic" or black boxed by the investor.

With the lifestrategy funds - the big education items are stocks, bonds, and asset allocation. Once someone understands AA - they can choose a life strategy.

To get to TR funds - you have to do further education on (1) glide path, then (2) overcome the fact that TR funds come with a retirement date that doesn't necessarily equate to the AA risk profile of the investor.

So, TR funds have 2 additional, non-trivial education items that aren't required in Lifestrategy. 2 additional points on which the investor can get it wrong. From the viewpoint of a fiduciary providing 401k options, that's more of a chance to get it wrong.
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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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

leonard wrote: But, the glide path shouldn't be "automatic" or black boxed by the investor.

With the lifestrategy funds - the big education items are stocks, bonds, and asset allocation. Once someone understands AA - they can choose a life strategy.

To get to TR funds - you have to do further education on (1) glide path, then (2) overcome the fact that TR funds come with a retirement date that doesn't necessarily equate to the AA risk profile of the investor.

So, TR funds have 2 additional, non-trivial education items that aren't required in Lifestrategy. 2 additional points on which the investor can get it wrong. From the viewpoint of a fiduciary providing 401k options, that's more of a chance to get it wrong.
Am I wrong to the do stock, bond, asset allocation education (planning to use Vanguard's tool for this) and recommend creating their own mix with the admiral shares instead of dumping into a Lifestrategy/TR fund? Essentially mimic the mix they would have in those funds, but with admiral instead of investor? I suppose the worry is they will set it and forget it and never rebalance as they age, but I'd hate for them to not take advantage of the admiral ERs.

Also, do you find it disingenuous to NOT offer Vanguard Total International Bond Index Fund separately, which a few posters have recommended, even when it is in the mix of the Target Retirement and Lifestrategy funds I will offer? Maybe I'm over thinking that point a bit and it's worth omitting to avoid too large of a percentage allocation.
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Re: Creating a 401k for my company through Employee Fiduciar

Post by leonard »

jdasch9 wrote:
leonard wrote: But, the glide path shouldn't be "automatic" or black boxed by the investor.

With the lifestrategy funds - the big education items are stocks, bonds, and asset allocation. Once someone understands AA - they can choose a life strategy.

To get to TR funds - you have to do further education on (1) glide path, then (2) overcome the fact that TR funds come with a retirement date that doesn't necessarily equate to the AA risk profile of the investor.

So, TR funds have 2 additional, non-trivial education items that aren't required in Lifestrategy. 2 additional points on which the investor can get it wrong. From the viewpoint of a fiduciary providing 401k options, that's more of a chance to get it wrong.
Am I wrong to the do stock, bond, asset allocation education (planning to use Vanguard's tool for this) and recommend creating their own mix with the admiral shares instead of dumping into a Lifestrategy/TR fund? Essentially mimic the mix they would have in those funds, but with admiral instead of investor? I suppose the worry is they will set it and forget it and never rebalance as they age, but I'd hate for them to not take advantage of the admiral ERs.

Also, do you find it disingenuous to NOT offer Vanguard Total International Bond Index Fund separately, which a few posters have recommended, even when it is in the mix of the Target Retirement and Lifestrategy funds I will offer? Maybe I'm over thinking that point a bit and it's worth omitting to avoid too large of a percentage allocation.
I actually like the Lifestrategy or TR included. The primary reason is that if the participant does the absolute minimum to understand AA - they will make a reasonable choice.

Honestly - though admiral share are better from a cost perspective - I think the reality is people want a set it and forget it option. I think the Life strategy and-or TR provide that.

A lot of what is in the 401k is a judgment call - just as their are many, many variations on the a Boglehead portfolio. I think it is fine to offer Int'l Bonds. In fact - you can make a strong argument for diversification benefit in bonds (as you could for TIPS as well). But, my experience to date is that having more options seems to just increase the possibility that participants will pick the inappropriate choice. It's a judgment call and I don't believe including or excluding has a stictly "wrong" answer. Just remember that - for whatever reason you decide to include or exclude - make sure to document those choices - as documenting "reasons" is one of the requirements of 401k set up.

Also, keep in mind part of the implementation plan for a new 401k includes planning for who will own auditing the 401k, do the payroll contribution reconciliation each pay period, do the trust balance roll forward each month and in general. Also, how is the person going to ensure that Employee Fidcuiary (and the trust company) are actually transacting at the end of day closing market price for each security, each day a transaction happens. Is the EF and the trust reporting detailed enough to audit for accuracy? Are the reports easily available and timely? Every time you add a fund or set of funds to the administration of the plan - it increases complexity by a factor. Just one fund isn't much - but when you add an entire set of TR or LS (or other funds) it becomes much more complex. And, complexity is prone to error. So, in this process, I would challenge you to make sure someone is thinking about the rows and columns of every spreadsheet report that needs to be generated to ensure accuracy of the plan. Anyway - all of this administration is made easier and more accurate by having fewer funds in the plan. Keep in mind that employees also benefit from that accuracy.

BTW - the decisions we are talking about now are really on the margin of a phenomenal list of fund options you have compiled. You probably won't hear it from plan participants so I'll say it - great job. Plan participants should thank you.
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: Creating a 401k for my company through Employee Fiduciar

Post by sologuy »

jdasch9 wrote: Am I wrong to the do stock, bond, asset allocation education (planning to use Vanguard's tool for this) and recommend creating their own mix with the admiral shares instead of dumping into a Lifestrategy/TR fund? Essentially mimic the mix they would have in those funds, but with admiral instead of investor? I suppose the worry is they will set it and forget it and never rebalance as they age, but I'd hate for them to not take advantage of the admiral ERs.

Also, do you find it disingenuous to NOT offer Vanguard Total International Bond Index Fund separately, which a few posters have recommended, even when it is in the mix of the Target Retirement and Lifestrategy funds I will offer? Maybe I'm over thinking that point a bit and it's worth omitting to avoid too large of a percentage allocation.
I would be wary of doing the education yourself, personally...if they mishear you or misinterpret what you say, that in my mind is a concern for breach of fiduciary duty in providing adequate education, particularly as a sponsor and educator. I would want to have someone with some letters after their name doing that. Of course, I don't know your background -- perhaps you are a CFA, etc. I am sure you are as capable or more capable than many with those degrees, but unfortunately it is the perception and not the reality that guides people's (legal) actions. I would also be wary of advising people to skip the auto-pilot and do it themselves. Again, a lot of room for error... This is why I plan to bring in an outside fee-based advisor. I am not sure 3(38) is much of an isolator in terms of fiduciary duty, so I am not looking for this.

As to not offering Vanguard Total Int'l Bond, I debated this as well and for the same reason -- wanting everything in the TR funds, etc, to be available as individual funds. I ended up excluding it because I also felt it would be too confusing for most people and was concerned they would misuse it. I hate to be paternal, but sometimes you have to protect people from themselves. This is also why I chose not to open the door to brokerage trading.

I had also thought about trying to add the Vanguard Retirement Trust funds (stable value) but couldn't find much info on them or even a ticker. I wanted something better than VMMXX for cash equivalent, but without more info I just didn't feel comfortable.
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

sologuy wrote: I would be wary of doing the education yourself, personally...if they mishear you or misinterpret what you say, that in my mind is a concern for breach of fiduciary duty in providing adequate education, particularly as a sponsor and educator. I would want to have someone with some letters after their name doing that. Of course, I don't know your background -- perhaps you are a CFA, etc. I am sure you are as capable or more capable than many with those degrees, but unfortunately it is the perception and not the reality that guides people's (legal) actions. I would also be wary of advising people to skip the auto-pilot and do it themselves. Again, a lot of room for error... This is why I plan to bring in an outside fee-based advisor. I am not sure 3(38) is much of an isolator in terms of fiduciary duty, so I am not looking for this.
What are the options for a fee-based advisor that would reduce some of my fiduciary liability? I want to avoid having a constant AuM % leech attached to the plan, as I'm currently paying 100bps for an "advisor" that gave a one hour webinar at the beginning of the plan, administered a risk test, and then made some recommendations based on that. I suppose he plans to do so yearly, but that in no way is worth 1.00% of my plans assets. I can't live with what that does to each of our accounts over the long run.
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

leonard wrote:
Also, keep in mind part of the implementation plan for a new 401k includes planning for who will own auditing the 401k, do the payroll contribution reconciliation each pay period, do the trust balance roll forward each month and in general. Also, how is the person going to ensure that Employee Fidcuiary (and the trust company) are actually transacting at the end of day closing market price for each security, each day a transaction happens. Is the EF and the trust reporting detailed enough to audit for accuracy? Are the reports easily available and timely? Every time you add a fund or set of funds to the administration of the plan - it increases complexity by a factor. Just one fund isn't much - but when you add an entire set of TR or LS (or other funds) it becomes much more complex. And, complexity is prone to error. So, in this process, I would challenge you to make sure someone is thinking about the rows and columns of every spreadsheet report that needs to be generated to ensure accuracy of the plan. Anyway - all of this administration is made easier and more accurate by having fewer funds in the plan. Keep in mind that employees also benefit from that accuracy.

BTW - the decisions we are talking about now are really on the margin of a phenomenal list of fund options you have compiled. You probably won't hear it from plan participants so I'll say it - great job. Plan participants should thank you.
I currently do the payroll contribution reconciliation and ensure the funds are deposited to John Hancock into our plan. I'm assuming that process will be similar with EF and MG Trust.
Is it really a plan sponsors responsibility to ensure, daily, that the market prices quoted are accurate? Is that not the role of the TPA? I'm assuming that the Employee Fiduciary/MG Trust team is competent enough to report accurate market prices. I sure hope I'm not making a liberal assumption with that...

I appreciate you helping me think of everything, and for the encouragement. It has been an overwhelming crash course over the past few weeks, but I'm determined to offer my participants something besides the LUDICROUS avg ER we are currently subjected to. :annoyed
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Re: Creating a 401k for my company through Employee Fiduciar

Post by leonard »

jdasch9 wrote:
leonard wrote:
Also, keep in mind part of the implementation plan for a new 401k includes planning for who will own auditing the 401k, do the payroll contribution reconciliation each pay period, do the trust balance roll forward each month and in general. Also, how is the person going to ensure that Employee Fidcuiary (and the trust company) are actually transacting at the end of day closing market price for each security, each day a transaction happens. Is the EF and the trust reporting detailed enough to audit for accuracy? Are the reports easily available and timely? Every time you add a fund or set of funds to the administration of the plan - it increases complexity by a factor. Just one fund isn't much - but when you add an entire set of TR or LS (or other funds) it becomes much more complex. And, complexity is prone to error. So, in this process, I would challenge you to make sure someone is thinking about the rows and columns of every spreadsheet report that needs to be generated to ensure accuracy of the plan. Anyway - all of this administration is made easier and more accurate by having fewer funds in the plan. Keep in mind that employees also benefit from that accuracy.

BTW - the decisions we are talking about now are really on the margin of a phenomenal list of fund options you have compiled. You probably won't hear it from plan participants so I'll say it - great job. Plan participants should thank you.
I currently do the payroll contribution reconciliation and ensure the funds are deposited to John Hancock into our plan. I'm assuming that process will be similar with EF and MG Trust.
Is it really a plan sponsors responsibility to ensure, daily, that the market prices quoted are accurate? Is that not the role of the TPA? I'm assuming that the Employee Fiduciary/MG Trust team is competent enough to report accurate market prices. I sure hope I'm not making a liberal assumption with that...

I appreciate you helping me think of everything, and for the encouragement. It has been an overwhelming crash course over the past few weeks, but I'm determined to offer my participants something besides the LUDICROUS avg ER we are currently subjected to. :annoyed
The TPA should be ensuring that all the transaction are happening at the appropriate market closing price. But, there is still a fiduciary duty to ensure the financial process is happening accurately and timely. So, in that sense, it's just like any other financial process in your company - AP, AR, Payroll, royalties, etc. Someone in the company needs to be auditing every aspect of all the financial processes - and the 401k is no exception. Also, unique to the 401k is the personal fiduciary duty that comes with overseeing the plan. 401k decision makers can be held personally liable for problems in the 401k. So, IMO, auditing of the 401k is necessary by the company and can't just be delegated to the 401k TPA - because the fiduciary duty can't be delegated. IMO - that including that every employee contribution to the plan invests at the correct market rate. To be fair - I have never heard of any company reconciling their 401k to the market pricing verification. However, it isn't that hard to do and any other financial process that included security pricing would reconcile to market. I think it's just good internal controls and auditing.

If you are interested in market price reconciliation - I can give you some ideas on how to get the data more easily in to excel (or whatever spreadsheet).

My personal goal is to be able to answer the question "Is the 401k complete and accurate for every employee?" with a simple "Yes" with the audit reports that back it up. No qualifiers. No explanations that cause employees and administrators eyes to glaze over. Just a "yes" and easily explainable reports that I can walk any non-financial person through and demonstrate it.
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: Creating a 401k for my company through Employee Fiduciar

Post by ruralavalon »

jdasch9 wrote:Hi Bogleheads,

I am looking for some advice on what funds to offer my employees as I create the menu with Employee Fiduciary. I am just beginning the process, so I'm not completely clear on the course of action, but I believe I am able to select any combination of funds, up to 30. I definitely do not want 30, but want to make sure my menu is reasonably thorough so as to fulfill my obligations as the fiduciary/plan sponsor. For this exercise I'm using investor shares as I'm not sure if we will have access to signal/admiral shares. Our plan is very small, so definitely no institutional shares.

Here is my list so far:

Vanguard Total Stock Market (VTSMX)
Vanguard Total International Stock Index Fund (VGTSX)
Vanguard Total Bond Market Index Fund (VBMFX)
Vanguard Total International Bond Market Index Fund (VTIBX)
Vanguard Prime Money Market Fund (VMMXX)
Vanguard Target Retirement Funds

It is bare, but obviously good enough to do the job. My question is whether or not to include others such as REIT, TIPS, small/medium/large cap, or any others (Vanguard or not) you may find worthwhile. My reasoning for NOT including these is to keep the plan simple, but please advise if you believe these options are worthwhile to include.

Also, I am unclear what my responsibilities and/or restrictions are with this new setup with Employee Fiduciary in terms of advising/educating my employees. I'm sure Employee Fiduciary will make clear what is required of me, but I am open to any advice or anecdotes about working with Employee Fiduciary or a similar setup. I am no expert, but I'm working tirelessly to educate myself and I KNOW that this new plan will be leaps and bounds better than our current one. Our current plan is through John Hancock and comes with an investment adviser for an additional 100 bps. The average fund is over 100bps baseline, so we are eating about 200bps currently. I am ashamed I was duped, but I was led to him by my trusted accountant, who is also a very close family member. It wasn't too costly, as our plan has only been active for 9 months, so I'm extremely happy to have stopped the heist early, largely thanks to this forum.

Thanks for any input!
I would omit Vanguard Total International Bond Market. It's not necessary, keep it simple.

I would use the LifeStrategy funds, rather than the Target Retirement. I think the fixed allocation LifeStrategy funds are easier to understand. Anyone can understand items like "conservative growth", " growth", "moderate growth", and "income". That's easier to understand than glide paths and how to select your TR fund by looking at asset allocation.

I might add the REIT index fund.
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Re: Creating a 401k for my company through Employee Fiduciar

Post by neurosphere »

jdasch9 wrote: What are the options for a fee-based advisor that would reduce some of my fiduciary liability?
Define fiduciary liability? In practical terms, what would a plan participant possibly sue you for, that didn't involve outright fraud on the employers part? I can think of one, right off the bat, and that would be inappropriate investment selections. But one would have a hard time winning a lawsuit against you if your funds were similar to what is in the TSP, with some additional Target Date Funds.

So what else? Perhaps having an advisor who assumes the fiduciary liability is not necessary. But also, think about this: as an employer, I don't think it's POSSIBLE for you to "pay away" your fiduciary duties. You can get insurance, but otherwise you can't just have another entity absorb all of the risk. At best, you could share it. But you would still be "fiducially" liable for anyone you hired to assume any fiduciary liability. So how does that help you? Note, I'm not a lawyer, and I'm not an ERISA expert, so don't rely on what I say, of course. But I know there are plenty of folks out there who will certainly make you THINK they will assume the liability, and also tell you that it is very expensive for them to assume such liability (and thus make you pay handsomely for this service).
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Re: Creating a 401k for my company through Employee Fiduciar

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (employer retirement plan).
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Re: Creating a 401k for my company through Employee Fiduciar

Post by neurosphere »

For what it's worth, I recently helped a client set up a 401k with Employee Fiduciary, and these were the funds we used (all Vanguard, and all Admiral where available):

Total Stock Market
Total Bond Market
Total International Stock
Small Cap Value Fund
Short-Term Corporate Bond Fund
Vanguard Prime Money Market Fund (VMMXX)
Vanguard Target Retirement Funds

The firm is just 2 people (the employer and one employee). The employee intends to use a Target Date fund, while the owner plans to go with the 3-fund portfolio. We could have easily left off the SCV fund and the Corporate Bond fund and still had a perfectly great 401k. Fund changes can be made at no cost every quarter, so it's quite easy to add new fund or make other changes.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

neurosphere wrote:For what it's worth, I recently helped a client set up a 401k with Employee Fiduciary, and these were the funds we used (all Vanguard, and all Admiral where available):

Total Stock Market
Total Bond Market
Total International Stock
Small Cap Value Fund
Short-Term Corporate Bond Fund
Vanguard Prime Money Market Fund (VMMXX)
Vanguard Target Retirement Funds

The firm is just 2 people (the employer and one employee). The employee intends to use a Target Date fund, while the owner plans to go with the 3-fund portfolio. We could have easily left off the SCV fund and the Corporate Bond fund and still had a perfectly great 401k. Fund changes can be made at no cost every quarter, so it's quite easy to add new fund or make other changes.
Why did you decide to include SCV and ST corp bond? Just in case the employer was interested in tilting that way?
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Re: Creating a 401k for my company through Employee Fiduciar

Post by sologuy »

jdasch9 wrote:
sologuy wrote: I would be wary of doing the education yourself, personally...if they mishear you or misinterpret what you say, that in my mind is a concern for breach of fiduciary duty in providing adequate education, particularly as a sponsor and educator. I would want to have someone with some letters after their name doing that. Of course, I don't know your background -- perhaps you are a CFA, etc. I am sure you are as capable or more capable than many with those degrees, but unfortunately it is the perception and not the reality that guides people's (legal) actions. I would also be wary of advising people to skip the auto-pilot and do it themselves. Again, a lot of room for error... This is why I plan to bring in an outside fee-based advisor. I am not sure 3(38) is much of an isolator in terms of fiduciary duty, so I am not looking for this.
What are the options for a fee-based advisor that would reduce some of my fiduciary liability? I want to avoid having a constant AuM % leech attached to the plan, as I'm currently paying 100bps for an "advisor" that gave a one hour webinar at the beginning of the plan, administered a risk test, and then made some recommendations based on that. I suppose he plans to do so yearly, but that in no way is worth 1.00% of my plans assets. I can't live with what that does to each of our accounts over the long run.
From what I have read here and in other forums as well as the IRS website on 401k plans, the best would be a 3(38) who accepts fiduciary responsibility alongside you but you cannot get rid of your ownership of the fiduciary responsibility as the plan sponsor. In other words, you are spreading the responsibility but are still primarily responsible. The few quotes I received for this service were in the $1500-2500/yr range. Second best would be fee-only advisor to demonstrate you are trying to act in the best interest of your plan participants. Third would be a commission based advisor who benefits from the product they are selling which is obviously a conflict of interest.

The other issue with a 3(38) is that (from what I gathered talking to a few of them) they must be able operate without interference or influence from the plan sponsor, which means your 401k must be pooled. I wanted to have individually directed accounts so that was a no-go for me. Add on top of that the fact that you are still ultimately responsible, and it did not seem worthwhile to me.

Disclosure: I am not a financial advisor, lawyer, etc. Just a worker bee trying to set up a decent retirement plan for himself and the worker bees under him.
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jdasch9
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

sologuy wrote:
From what I have read here and in other forums as well as the IRS website on 401k plans, the best would be a 3(38) who accepts fiduciary responsibility alongside you but you cannot get rid of your ownership of the fiduciary responsibility as the plan sponsor. In other words, you are spreading the responsibility but are still primarily responsible. The few quotes I received for this service were in the $1500-2500/yr range. Second best would be fee-only advisor to demonstrate you are trying to act in the best interest of your plan participants. Third would be a commission based advisor who benefits from the product they are selling which is obviously a conflict of interest.

The other issue with a 3(38) is that (from what I gathered talking to a few of them) they must be able operate without interference or influence from the plan sponsor, which means your 401k must be pooled. I wanted to have individually directed accounts so that was a no-go for me. Add on top of that the fact that you are still ultimately responsible, and it did not seem worthwhile to me.

Disclosure: I am not a financial advisor, lawyer, etc. Just a worker bee trying to set up a decent retirement plan for himself and the worker bees under him.
Hiring a 3(21) or 3(38) just seems too expensive for my tiny plan. I'm not sure what my options are besides bearing the full fiduciary responsibility. I'm confident in the plan's goals, choices, costs, and diversification and in my competence to execute and audit the plan. Maybe I'm being foolish.
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Re: Creating a 401k for my company through Employee Fiduciar

Post by fcirullo »

Good question, jdasch9. Don't you love it when people treat you right by giving you great answers to your questions on 401(k) plans! I have included this thread in the wiki article Setting up a 401(k) plan. You can find it under Frequently asked questions at http://www.bogleheads.org/wiki/Setting_up_a_401(k)_plan .
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Re: Creating a 401k for my company through Employee Fiduciar

Post by MossySF »

jdasch9 wrote:Hiring a 3(21) or 3(38) just seems too expensive for my tiny plan. I'm not sure what my options are besides bearing the full fiduciary responsibility. I'm confident in the plan's goals, choices, costs, and diversification and in my competence to execute and audit the plan. Maybe I'm being foolish.
Probably over-thinking. Having low-cost Target Retirement funds and/or balanced funds should be enough to get you in the DOL safe harbor -- Google QDIA. I'd then look at insurance to cover the remaining X% liability.
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Re: Creating a 401k for my company through Employee Fiduciar

Post by neurosphere »

jdasch9 wrote:Why did you decide to include SCV and ST corp bond? Just in case the employer was interested in tilting that way?
Yes, just in case the owner wanted to tilt in the future, but the chances of that are low. Mostly I wanted to see how easy it would be to make changes to the plan, so I added a couple of funds that I knew the two participants would not be using, so that the owner can test out Employee Fiduciary next quarter with a request to swap out one fund for another.

Neurosphere
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Re: Creating a 401k for my company through Employee Fiduciar

Post by jdasch9 »

MossySF wrote:
jdasch9 wrote:Hiring a 3(21) or 3(38) just seems too expensive for my tiny plan. I'm not sure what my options are besides bearing the full fiduciary responsibility. I'm confident in the plan's goals, choices, costs, and diversification and in my competence to execute and audit the plan. Maybe I'm being foolish.
Probably over-thinking. Having low-cost Target Retirement funds and/or balanced funds should be enough to get you in the DOL safe harbor -- Google QDIA. I'd then look at insurance to cover the remaining X% liability.
Thanks for the reassurance, MossySF! Are you referring to a fidelity bond or some other insurance?
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MossySF
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Re: Creating a 401k for my company through Employee Fiduciar

Post by MossySF »

An ERISA bond and fiduciary liability insurance are 2 different things. The 1st is required for all plans, the 2nd is optional depending on your level of nightly sleeplessness.
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joe8d
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Re: Creating a 401k for my company through Employee Fiduciar

Post by joe8d »

I never see The VG Retirement Savings Trust ( Stable Value) mentioned in these type of posts.That would be preferable to the PMMF.
All the Best, | Joe
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Re: Creating a 401k for my company through Employee Fiduciar

Post by MossySF »

joe8d wrote:I never see The VG Retirement Savings Trust ( Stable Value) mentioned in these type of posts.That would be preferable to the PMMF.
This fund has a 1M minimum. Vanguard also has an alternative "total plan assets" minimum (e.g. you don't how your pie will be allocated when setting up a new plan) -- it's not listed anywhere but it's probably at 25M.

This makes it quite unlikely for most of our small business 401k plans.
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Re: Creating a 401k for my company through Employee Fiduciar

Post by joe8d »

I see.
All the Best, | Joe
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