are we moving to awful 401(k)?

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lynneny
Posts: 231
Joined: Sun Apr 15, 2012 10:23 pm

are we moving to awful 401(k)?

Post by lynneny »

Our company is moving our 401(k) plan to Principal Financial Group. Do any Bogleheads have experience with Principal as their 401(k) provider, and if so, what do you think of it?

From the info our company has provided about the new plan, I already have a few concerns:

1. Each employee at our 1,000-person company will be charged a $100/yr fee (current plan at Wells Fargo: no fee)

2. We'll get to keep a few of our current funds that I invest in (stable value, Vanguard small cap, Vanguard total int'l stock index), but none of the new funds have ticker symbols (current plan: all funds except SVF have ticker symbol). I called Principal, was transferred to three different reps, and finally told vaguely "well, they're not really publicly-quoted so you can't look them up." I'm guessing this might mean they're Collective Investment Trusts.

Principal provides some basic info and some of the funds have low ERs, but I usually research funds on Morningstar, or see what Bogleheads have said about them. For instance, our current Wells Fargo Advantage DJ Target funds, which Morningstar writes reports about, are being replaced by SSgA Target Retirement Class C Funds. The SSgA funds have a low ER of .17% and Principal provides average annual total returns, benchmarked against "Morningstar Lifetime Moderate Index." But I'd prefer to be able to research these funds myself. Am I being too demanding?

3. Worst of all, the open brokerage window, which I'm currently a heavy user of at Schwab PCRA, is larded with fees at the Principal: $75 annual fee just to have the account, $25 for any buy or sell transaction, and a $1 charge for each dividend reinvestment. Maybe I let them transfer my current brokerage holdings "in kind" to new window, and then just don't add to them?

I'd really appreciate hearing from anyone who's familiar with Principal, or just has feedback in general on how this compares to your 401(k). As a long-time employee, our current 401(k) is the only one I've been in, so it's hard for me to tell if this one is bad, or just typical of companies trying to transfer more plan costs to employees these days.

Thank you!
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Alto Astral
Posts: 970
Joined: Thu Oct 08, 2009 10:47 am

Re: are we moving to awful 401(k)?

Post by Alto Astral »

I had Principal from an employer around a decade ago. I **think** some smaller employers prefer this since it does not cost them anything to manage. At the time, the cost was shifted to the employees in the form of higher expense ratio. Looks like now they've take the yearly fee approach.

401ks are a hit or miss. I wouldn't say you are too demanding, but I doubt you will be able to do much here. Larger employers seem to offer more Vanguard funds. Although my current 401k does not charge any yearly fee, the funds are not great. So I just stick all my money in their cheapest S&P500 index fund. I could change employers, but I like doing what I do. I guess, we do the best with what we got.

One thing you can do is, if you have a sufficient balance, you can leave any money at your current WellsFargo account and not move it. Usually WellsFargo is happy to manage your funds over a certain amount since you are paying them via the ER. So one option is not to rollover any funds. You could also keep your contributions to the company match and put the rest in other retirement accounts.
cherijoh
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Joined: Tue Feb 20, 2007 3:49 pm
Location: Charlotte NC

Re: are we moving to awful 401(k)?

Post by cherijoh »

The problem is that different companies can use the same 401K provider and have vastly different offerings and fees. So it is not the 401k provider per se but what your employer has set up with them that counts.

The megacorp for which I work currently has a plan through Fidelity. We have about 30 options including a series of target retirement funds, company stock, a stable value fund, lots of slice & dice active funds with higher expense ratios, and a few key Vanguard Index funds with very low ERs. We do not have a brokerage window. We get charged an asset-based record keeping fee that adds about 0.1% on an annual basis to the ER of the underlying funds. (It is deducted quarterly when dividends are paid out). I am very happy with my plan since it includes the VG index funds in Institutional class and I get 1:1 matching up to a 5% contribution.

If your plan has a fixed fee, then it will hurt the people with smaller balances more than those with larger balances. (in our plan, the higher balances subsidize the lower balances). Considering the average balances in 401k plans, $100/yr. seems high to me - although it probably does cost at least that much per person to run the plan. With the fee structure on the brokerage window, I would look hard at the other options and then only use it to make bulk purchases into a single fund no more than once per quarter. Otherwise, you will get eaten to death by fees.
JW-Retired
Posts: 7189
Joined: Sun Dec 16, 2007 11:25 am

Re: are we moving to awful 401(k)?

Post by JW-Retired »

lenneny,
I wouldn't worry too much yet. Over 40 years my Megacorp has changed 401k administrators quite a few times and it has made no significant difference to participant's (very low) costs. I believe that once the management that chooses these admins has learned that low costs are of value in a 401k, they don't forget that lesson. It's their 401k too. We never had Principal but SSgA funds ring a bell. There were usually a few somewhat higher cost choices but if you picked index funds the costs were every bit as good as Vanguard.

However, mine was/is a much larger company than yours is.
JW
Retired at Last
JeffAL
Posts: 234
Joined: Sat Dec 05, 2009 6:32 pm

Re: are we moving to awful 401(k)?

Post by JeffAL »

I'm on the 401k committee at a MUCH smaller company and our two finalist were Fidelity and Principal. Much to my surprise, Principal is competitive with Fidelity for us.

1. All providers quoted a fixed basis points fee that's tacked onto the fund expense ratio to cover plan costs for us.
2. Fund selection is up to your 401k committee. Public ticker symbols for investments are a plan option with Principal.
3. We don't have a brokerage window.
Last edited by JeffAL on Mon May 11, 2015 6:47 am, edited 1 time in total.
Topic Author
lynneny
Posts: 231
Joined: Sun Apr 15, 2012 10:23 pm

Re: are we moving to awful 401(k)?

Post by lynneny »

OP here. Thank you for all your insights into the 401(k) experience! I guess I should be glad our new plan has some inexpensive options, and that as a longtime employee the new $100/yr fee is a relatively small part of my sizeable balance (although I feel badly that young colleagues, with still tiny accounts, are paying a disproportionate amount).

Coincidentally, our company is at the same time moving our HSAs from Chase, which has exited the HSA business, to Payflex. The Chase HSA had horrible investment options, and no index funds. Payflex has much better options, including Vanguard Lifecyle Funds. So I'm happy with one of our new retirement accounts!
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