Company 401k Meeting - What questions to ask.

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greenice
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Company 401k Meeting - What questions to ask.

Post by greenice »

Our company (all 30 of us) is having a 401k seminar and benefits meeting tomorrow (free pizza). I already know our funds are not that great and have high expense ratios. What are the questions that I should ask that can help steer the company to better/lower cost options?

Our current funds via ADP 401k Retirement are:

o Invesco Stable Asset Fund - Class ADP85 - ER 1.18%
o PIMCO Total Return Fund - Class R - ER 1.10%
o Prudential High Yield Fund - Class R - ER 1.13%
o T. Rowe Price Retirement 2010 Fund - Class R - ER 1.10%
o T. Rowe Price Retirement 2020 Fund - Class R - ER 1.19%
o T. Rowe Price Retirement 2030 Fund - Class R - ER 1.24%
o T. Rowe Price Retirement 2040 Fund - Class R - ER 1.26%
o T. Rowe Price Retirement 2050 Fund - Class R - ER 1.26%
o BlackRock Global Allocation Fund, Inc. - Class R - ER 1.49%
o Janus Balanced Fund - Class R - ER 1.34%
o The Hartford Dividend and Growth Fund - Class R3 - ER 1.35%
o SSgA S&P® 500 Index Fund - ER 0.70%
o American Funds The Growth Fund of America - Class R3 - ER 0.97%
o SSgA S&P MidCap Index Fund - ER 0.70%
o Lord Abbett Developing Growth Fund - Class R3 - ER 1.0%
o American Funds EuroPacific Growth Fund - Class R3 - ER 1.13%
o American Funds Capital World Growth and Income Fund - Class R3 - ER 1.10%
o Oppenheimer Developing Markets Fund - Class N - ER 1.70%

The company offers no match on contributions.

Once again, Thanks to everyone on the board for the help. :happy
boglestan
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Re: Company 401k Meeting - What questions to ask.

Post by boglestan »

There's a great wiki article on this: Setting up a 401(k) plan

edit: Sorry, I meant this one: How to Campaign for a Better 401(k) Plan
VGSailor
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Re: Company 401k Meeting - What questions to ask.

Post by VGSailor »

I can't help but laugh because my company pretty much has offered us the same thing. I raised concerns with the high expense ratios to HR but it probably fell on deaf ears. Also, since you are small (as is my company) the explanation that I got was that, "as a company, we do not have enough invested so the plan provider has to make up costs through the expense ratios."

At my meeting, after they went through their presentation and touted what a great lineup we were given, I asked what the impact of having a 1% expense ratio versus a 0.5% expense ratio would be over the long term. The guy basically answered by saying that well, look at this fund, you'll see it did better than your S&P index, so you're fine. To which, I said, but you can't guarantee me that that fund will continue to perform like that. And then he said, you're right, and then conceded the explanation above.
ftobin
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Re: Company 401k Meeting - What questions to ask.

Post by ftobin »

greenice wrote:o SSgA S&P® 500 Index Fund - ER 0.70%
Ugh. And I thought my wife's 401k having Blackrock's S&P 500 (MASRX) at 0.30% was bad!
bowest
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Re: Company 401k Meeting - What questions to ask.

Post by bowest »

Hmmm... I'd ask if there's a self-directed brokerage window (what what related fees were) where you could but lower-cost index funds. Also ask about in-service rollovers (that would allow you to transfer to a lower-cost provider).

I'd also stress to management that it would be a huge, valuable, and important benefit to employees to seek out lower-cost 401K options for their employees (particularly in the absence of a match).

Fee structure is obviously not ideal but still worth taking advantage of to build assets (while keeping an eye toward eventually moving somewhere with lower expenses). I was in a smaller company with similar fee structure for several years which was luckily acquired by a much larger company. S&P 500 ER dropped from .56% (Principal) to .04% (Vanguard Institutional S&P500) when I rolled over to new company's provider.

Good luck.

P.S. Enjoy the pizza (and take all the pens, stress balls, and other knicknacks that you can)!
xerty24
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Re: Company 401k Meeting - What questions to ask.

Post by xerty24 »

Vanguard's Total Retirement funds are 1% cheaper than T. Rowe's. The charts are basically identical (2050 shown). That should be an easy pitch. Who wants to pay 1% too much?
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hoppy08520
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Re: Company 401k Meeting - What questions to ask.

Post by hoppy08520 »

ftobin wrote:
greenice wrote:o SSgA S&P® 500 Index Fund - ER 0.70%
Ugh. And I thought my wife's 401k having Blackrock's S&P 500 (MASRX) at 0.30% was bad!
I hear you. In my plan, the S&P 500 index fund is 0.53% (JEINX)

Tell one of your colleagues to ask, "Since the expense ratio for the SSgA S&P 500 fund is seven times more then Fidelity's version of the same fund, does that mean it's seven times better?"

Just kidding. That might not be appreciated.

It's so outrageous. Maybe you can just make the point and ask why can't there be a couple more competitive total-market index funds.

Another question to ask is, "I know that 401k fee disclosure rules are coming out soon, but in advance of that, can you tell us what other non-published fees we are paying as participants?"
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Optimistic
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Re: Company 401k Meeting - What questions to ask.

Post by Optimistic »

boglestan wrote:There's a great wiki article on this: Setting up a 401(k) plan

edit: Sorry, I meant this one: How to Campaign for a Better 401(k) Plan
The referenced wiki entry is a good start. It even contains a sample letter to send to the plan administrator. However, it will need to be modified for the OP's 401k. Here's a quote from the sample letter:
That fiduciary duty could be easily met by the addition of just a few index funds to the company plan.
I imagine the OP's plan administrator would respond to the letter by saying, "Oh, we have index funds! The expense ratio for those funds is just 0.70%. Enjoy!"
:oops:
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tyrion
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Re: Company 401k Meeting - What questions to ask.

Post by tyrion »

What is your desired end point for this?

I'm not sure you're going to find much better options when your plan is for 30 people and it looks like the plan administrator is adding roughly .50 to the ERs, probably to pay for admin expenses. In other words, your company could foot that bill but probably doesn't want to.

I think I would ask the following:
How much of the fund costs are the ER for the fund, and how much are for administation of the plan?

Is there any reason there is an index fund for domestic stock, but not one for internation stock? Could you add an international index fund?
ftobin
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Re: Company 401k Meeting - What questions to ask.

Post by ftobin »

Considering the extreme high costs of your selections, you might want to see if being able to do a 401k with ETFs is an option. Any ETF would be cheaper than any of your current options (assuming trading costs aren't sky-high).

ETFs may be an easier sell than low-cost funds, particularly for their buzz-wordiness.
fcirullo
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Re: Company 401k Meeting - What questions to ask.

Post by fcirullo »

greenice wrote:What are the questions that I should ask that can help steer the company to better/lower cost options?
Ask your employer if he will consider the possibility that the plan costs way more than it should. For thirty-employees, your company can get a mix of truly low cost index funds and recordkeeping and administration from Employee Fiduciary for only $30.00, per year, per eligible employee. Easy!

Next, point this out: If the only reason for using ADP's expensive 401(k) plan is that ADP does the payroll, it would be a violation of the employer's fiduciary duty not to always act in the employees' best interests.

Edited on 04/10/2010 to fix the last sentence. I added the word "not" so that the sentence will say what I originally intended it to.
Last edited by fcirullo on Tue Apr 10, 2012 3:44 pm, edited 1 time in total.
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staythecourse
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Re: Company 401k Meeting - What questions to ask.

Post by staythecourse »

I commend anyone taking on their employer's for improving their 401k.

I tried when I became partner in my group, but found out that logic doesn't matter. The FA had their claws in my partners and they were too stupid to even realize it. That is when I realized some folks are remarkably bad with financial desicions no matter how many credentials they have.

My advice: Go the guy making the decisions and just show them how much personal money they are losing with the higher operationg costs in DOLLAR signs. If they see how it affects them personally then you will have a chance.

Good luck.
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greenice
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Re: Company 401k Meeting - What questions to ask.

Post by greenice »

Thanks for the links and the information.

I've talked to HR and they tell me that they don't pay anything towards the plan, so that is why the ER are high. I will ask if they can list out the costs of the funds and the markup to cover admin fees. I will ask the company trustee about the international index fund and getting other index funds.

It looks like the with the extra fee, ADP Retirement is making more money than if the company paid the $30 per employee per year. I think if employee is putting in $10k a year, that over the a 20 year window, the extra 1% fee costs the employee $50-80k. Heck i would offer to pay $30 and have lower cost funds than that extra fee ADP charges.

The end game is just to understand the overall plan and try to get the company to offer decent benefits.

Once again, thanks and I continue to dig deeper and learn more.

8-)
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hoppy08520
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Re: Company 401k Meeting - What questions to ask.

Post by hoppy08520 »

greenice wrote:Heck i would offer to pay $30 and have lower cost funds than that extra fee ADP charges.
I'm not sure if I understand the math right, but if you're talking about 30 employees X $30/year, that's just $900. And if your employer pays this $900, then you get a lower expense ratio overall? Can you just ask your employer to kick in $900? That seems reasonable and I would hope you could convince your bosses to do this.
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Majormajor78
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Re: Company 401k Meeting - What questions to ask.

Post by Majormajor78 »

staythecourse wrote:I commend anyone taking on their employer's for improving their 401k.

I tried when I became partner in my group, but found out that logic doesn't matter. The FA had their claws in my partners and they were too stupid to even realize it. That is when I realized some folks are remarkably bad with financial desicions no matter how many credentials they have.

My advice: Go the guy making the decisions and just show them how much personal money they are losing with the higher operationg costs in DOLLAR signs. If they see how it affects them personally then you will have a chance.

Good luck.
Comparing the costs of the plan for the employer to the costs of the plan for the employees is a good place to stress to HR. Take a look at SSgA S&P® 500 Index Fund - ER 0.70% on Morningstar (I assume it's SVSPX). According to Morningstar SVSPX has an ER of .18% meaning that ADP is tacking on .52% in administration fees to cover the expenses on the plan. That comes down to $52 per $10K invested in the plan, a heck of a lot more than the $30 per employee that employee fiduciary charges. If the average account balance is $20K then they are charging $104 per employee... the HR person should know or should be able to find out what the average account balance is and do the math on the side of a pizza box.

If appealing to management's fiduciary duty doesn't work, then apeal to their greed. If an employee has $100K in the 401K then that individual is paying $520 per year in hidden fees as opposed to the $30 that Employee Fiduciary charges. If the company can't afford to foot the bill, as an employee I'd rather foot a $30 per year administration fee and save a couple of hundered dollars in hidden fees. Bet management (who is more likely to have the larger 401K balances ) would preffer to pay 30 bucks themselves if they understood how much they were paying in hidden fees too.
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downshiftme
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Re: Company 401k Meeting - What questions to ask.

Post by downshiftme »

Consider the costs ongoing for the time you will be with this company. Even if the ERs are high now, the tax deduction may still be worth it. Then when you leave the company you can roll it over to a Vanguard account. Also, in the grand scheme of things, your company plan seems to have high fees, but they could be worse. We have a plan through Principal and the "low cost" option is a 1.6%ER index fund. Most choices are over 2%ER. Employees are trying to use the leverage of possibly leaving to rollover our accounts to influence the company to choose some better low-cost funds. If you think the company may be persuaded to improve the plan, a few years in higher ER funds may still be worthwhile to capture the contribution amounts - anticipating eventually getting the funds into a better fund later.
bilbobogle
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Re: Company 401k Meeting - What questions to ask.

Post by bilbobogle »

I'll chip in here as the the person who manages a 50 person plan with about 2M at our small company.

We have index funds at 0.10 to 0.20%, target funds at 0.5%- to 0.7%, and a few actives. We use a well known firm that ALL of you would know that competes with Vanguard but has a wider range of offering than does Vanguard.

We pay the provider $60 per year per employee. Peanuts. The employees pay nothing other than the ERs listed above, and a $12 small account fee if they have less than $1000 or something in a given fund. Pretty easy to avoid if you dont ove-rdiversify.

So in sum, Your plan really does suck.

I head finance function, and our HR completely follows my lead in these matters. I sign all the documents, so its as it should be. Plus, our HR people are fairly innumerate. That's ok, because I have a low EQ, they say.


I recommend you talk to the CFO about your concerns, he/she may be more receptive.
lawman3966
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Re: Company 401k Meeting - What questions to ask.

Post by lawman3966 »

I endorse the suggestion that you ask about further fees. However, asking about any and all fees may be too open ended, and many provider representatives won't know the answer themselves (one prior provider of mine would not commit herself on paper or over the phone to saying that the fees we knew about were the only ones).

If you want to more specific, ask whether there is a "wrap fee," and what percentage of assets are charged annually under it. There may be another name for it. Some insurance companies call this a "mortality charge". Either way, it usually imposes a cost calculated as a percentage of all assets on the participants, in addition to the Expense Ratios. This fee is commonly not disclosed on the grounds that it does not aid the participants in choosing among the funds, since it applies to all assets equally, however invested.
dkturner
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Re: Company 401k Meeting - What questions to ask.

Post by dkturner »

I would ask if we were to switch to a low cost FUND plan, and we want to keep our employee compensation costs the same, how much would we have to reduce our salaries?

You pretty much have to grasp this simple concept before you can understand why most small company 401(k) plans have lousy investment choices.
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Optimistic
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Re: Company 401k Meeting - What questions to ask.

Post by Optimistic »

dkturner wrote:I would ask if we were to switch to a low cost FUND plan, and we want to keep our employee compensation costs the same, how much would we have to reduce our salaries?

You pretty much have to grasp this simple concept before you can understand why most small company 401(k) plans have lousy investment choices.
The answer to that appears to be between $30 and $60 a year. That doesn't help me understand the lousy 401k plans. Perhaps I'm not grasping the concept fully still. If so, could you please elaborate?
dkturner
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Re: Company 401k Meeting - What questions to ask.

Post by dkturner »

Optimistic wrote:
dkturner wrote:I would ask if we were to switch to a low cost FUND plan, and we want to keep our employee compensation costs the same, how much would we have to reduce our salaries?

You pretty much have to grasp this simple concept before you can understand why most small company 401(k) plans have lousy investment choices.
The answer to that appears to be between $30 and $60 a year. That doesn't help me understand the lousy 401k plans. Perhaps I'm not grasping the concept fully still. If so, could you please elaborate?
Optimistic (love that handle!)

Most employers, small and otherwise, budget a total cost for employee compensation. This total cost has to cover salary, Social Security and Medicare matching contributions, unemployment insurance, workers compensation insurance, medical and dental insurance and retirement plan expenses. Each year most employees have an expectation of a salary increase (it doesn't always happen, but it's usually expected). Their employer also has to deal with annual increases in insurance premiums for medical and dental insurance. The issues of direct compensation and contributions employees have to make towards their medical insurance coverage are usually number 1 and number 2 in the minds of most employees. The vast majority of employees are far more interested in their salary and the amount they have to contribute toward their medical and dental coverage than they are about the expenses associated with the investment options in their 401(k) plan. They either have no clue about mutual fund expense ratios or this expense is far down the list of their salary and benefit concerns.

The people who sell retirement plans know this. They know that employers are easy marks for a retirement plan which will cost the employer little or nothing in DIRECT expenses. They know that each dollar an employer saves in direct retirement plan expenses is a dollar the employer can free-up for additional salary increases, lower employee medical insurance contributions, or (I have heard) enhancing the employer's bottom line. In the rare case where the employer is unaware of this it will be brought to his attention by the salesman.

Now what's the easiest way to show an employer how to establish a retirement plan for his employees that will have the lowest direct cost for the employer? How about a plan that uses 12(b)1 fees, or a variety of other fee sharing options, to subsidize the employer's direct plan administration expenses? Last time I checked you don't get these options with low cost index funds. But you do get them with high expense ratio mutual funds.
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greenice
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Re: Company 401k Meeting - What questions to ask.

Post by greenice »

Update on the meeting:

Pizza was good. The presentation was more of a CYA powerpoint slides. Saying we should put as much as we can into retirement and diversify. He offered no real recommendations during the presentation as he kept saying he was not allowed to but was here to explain the overall plan. At the end I started asking about the fees and why they were triple/double what the open market costs are. After about 10 minutes of back and forth, I finally got him to admit that the company doesn't pay anything for the plan, that all the fees come from the "participants" in the form of higher expense ratios. So I asked if he or the company rep could get some lower cost index funds or if the company would pay some of the fees. I explained that an extra 1% fee would amount to $100k over the 30 year example. I used the same example as he had in the presentation to say we should save more. Most people's eyes glossed over at this point. He said the funds beat the market so don't worry, i replied that he can't guarantee that they will continue to beat the market. So why should I take the extra risk and make them more money from fees when I just want the average return (and they make money in a down market so I lose even more).

After the meeting, him and I continued the discussion about low cost funds and the cut he takes along with the cut ADP takes. Finally got out of him that ADP take 0.3 - 0.5% and he takes 0.2-.5% depending upon the fund. So a base S&P index fund expense of 0.18% ends up close to 0.7%.

The CFO, HR and him huddled after I left and the outcome is any one of the following:
- they are to review the funds to add more low cost index funds
- asking ADP and the middle man (this "advisor") to go to a fixed fee versus % of dollars managed
- a potential of a company match

So, as always, I thank the people here on giving me advice, an eduction and the knowledge base for me to draw on.

:sharebeer
ftobin
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Re: Company 401k Meeting - What questions to ask.

Post by ftobin »

Thank you for the update, greenice.
greenice wrote:He said the funds beat the market so don't worry...
Up until this point, everything he said could have been an honest argument, just driving a hard bargain. This statement, unfortunately, seems to shred any belief in his honesty (or, alternatively, knowledge).

Hopefully things turn out well for you. Industries that prey on ordinary persons' lack of knowledge really chafe me.
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hoppy08520
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Re: Company 401k Meeting - What questions to ask.

Post by hoppy08520 »

Good job and good luck. It's appalling how ignorant some experts can be. "Don't worry about the fees, they'll beat the market anyway." I'm slowly working this issue with my own company and it's good to hear these stories from others to keep your inspiration up.
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Re: Company 401k Meeting - What questions to ask.

Post by livesoft »

It is too late for this meeting, but I wonder what people think of the following questions:

1. Who are the fiduciaries to our 401(k) plan? Can you tell us all their names?

2. Can you please explain what a fiduciary is?

3. Do the fiduciaries know what it means to be fiduciary?

4. How do fiduciaries act in our best interest?
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bilbobogle
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Re: Company 401k Meeting - What questions to ask.

Post by bilbobogle »

dkturner wrote:
Optimistic wrote:
dkturner wrote:I would ask if we were to switch to a low cost FUND plan, and we want to keep our employee compensation costs the same, how much would we have to reduce our salaries?

You pretty much have to grasp this simple concept before you can understand why most small company 401(k) plans have lousy investment choices.
The answer to that appears to be between $30 and $60 a year. That doesn't help me understand the lousy 401k plans. Perhaps I'm not grasping the concept fully still. If so, could you please elaborate?
Optimistic (love that handle!)

Most employers, small and otherwise, budget a total cost for employee compensation. This total cost has to cover salary, Social Security and Medicare matching contributions, unemployment insurance, workers compensation insurance, medical and dental insurance and retirement plan expenses. Each year most employees have an expectation of a salary increase (it doesn't always happen, but it's usually expected). Their employer also has to deal with annual increases in insurance premiums for medical and dental insurance. The issues of direct compensation and contributions employees have to make towards their medical insurance coverage are usually number 1 and number 2 in the minds of most employees. The vast majority of employees are far more interested in their salary and the amount they have to contribute toward their medical and dental coverage than they are about the expenses associated with the investment options in their 401(k) plan. They either have no clue about mutual fund expense ratios or this expense is far down the list of their salary and benefit concerns.

The people who sell retirement plans know this. They know that employers are easy marks for a retirement plan which will cost the employer little or nothing in DIRECT expenses. They know that each dollar an employer saves in direct retirement plan expenses is a dollar the employer can free-up for additional salary increases, lower employee medical insurance contributions, or (I have heard) enhancing the employer's bottom line. In the rare case where the employer is unaware of this it will be brought to his attention by the salesman.

Now what's the easiest way to show an employer how to establish a retirement plan for his employees that will have the lowest direct cost for the employer? How about a plan that uses 12(b)1 fees, or a variety of other fee sharing options, to subsidize the employer's direct plan administration expenses? Last time I checked you don't get these options with low cost index funds. But you do get them with high expense ratio mutual funds.
I think you are conceptually right that employers want to focus on comp areas that employees notice - salary,bonus and contrib to benefits costs. And you make a good point that a lot of employees will have NO idea how much they are losing in fees. But a fair number of employees are pretty savvy about costs.

Also, it its not a zero sum game. We get access to much lower cost alternatives and we (the company, I am in Sr. Mgt) pay only 60 dollar a year per person for 50 employees. We appear to be saving at least 50-75 bp over some of these plans talked about here. With a 2 million dollar plan, that's 10-15K a year in fund costs for a 3000 dollar spend and my HR person can talk about how great our 401K plan is.

I dont think its a grand scheme to stick it too the employees and optimize "visible" comp dollars that results in high ER plans that are "free" to the company. Its ignorance more frequently than extreme savvy at these small companies. I would guess that large companies can bring enough assets to a vendor (if you use a company that offers its own funds and administers, like Fidelity or Vanguard), that the company wont have to pay and can get reasonable fees. That is speculation on my part, i dont know the internal workings at larger firms.
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Re: Company 401k Meeting - What questions to ask.

Post by dbr »

bilbobogle wrote: I would guess that large companies can bring enough assets to a vendor (if you use a company that offers its own funds and administers, like Fidelity or Vanguard), that the company wont have to pay and can get reasonable fees. That is speculation on my part, i dont know the internal workings at larger firms.
It would be interesting to know how often big companies end up in bad plans. The big company plans I hear about here and there seem to be pretty good. The gross and offensive exception seems to be the propensity of large school districts to get involved in bad 403 plans.

I don't think Fidelity and Vanguard are the big players in big company 401k's. A couple of names I am familiar with would be Hewitt Associates as administrator and State Street Global Advisors as fund company. I know for a fact one excellent 401k plan involving those entities. Costs are lower for equivalent investments than Fidelity or Vanguard would provide, I think.
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Re: Company 401k Meeting - What questions to ask.

Post by fcirullo »

greenice wrote:After the meeting, him and I continued the discussion about low cost funds and the cut he takes along with the cut ADP takes. Finally got out of him that ADP take 0.3 - 0.5% and he takes 0.2-.5% depending upon the fund. So a base S&P index fund expense of 0.18% ends up close to 0.7%.
This thread and your update regarding the meeting will help others who want to know which questions they should ask at 401(k) and 403(b) plan meetings.Thank you!

Livesoft had some great questions that every employee should ask their employer:
1. Who are the fiduciaries to our 401(k) plan? Can you tell us all their names?
2. Can you please explain what a fiduciary is?
3. Do the fiduciaries know what it means to be fiduciary?
4. How do fiduciaries act in our best interest?

In addition to livesoft's questions I would ask this:
"When can I expect to get a copy of the Summary Plan Description (SPD)?" Why ask this question? Because many employers don't automatically provide it. Yet, the plan administrator is legally obligated to provide it to participants.

Below is what the DOL has to say about the SPD:
"The summary plan description is an important document that tells participants what the plan provides and how it operates. It provides information on when an employee can begin to participate in the plan, how service and benefits are calculated, when benefits becomes vested, when and in what form benefits are paid, and how to file a claim for benefits. If a plan is changed, participants must be informed, either through a revised summary plan description, or in a separate document, called a summary of material modifications, which also must be given to participants free of charge."

In addition to the SPD, the plan administrator must automatically give participants a copy of the plan's summary annual report.

You can read more about the SPD at http://www.dol.gov/dol/topic/health-pla ... mation.htm

Edited on 04/12/2012 to correct a typographical error.
Frank R. Cirullo | | "It isn't what we don't know that gives us trouble, it's what we know that ain't so." -- | Will Rogers
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