Getting company to change 401k custodian

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captpete
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Getting company to change 401k custodian

Post by captpete » Sun Mar 19, 2017 2:02 pm

Has anyone on here ever been successful getting HR to change the companies 401k custodian over fees. I am composing a letter and adding some excel spread sheets and an article from brightscope and investopiedia to augment my case a bit. Any advice?
Thanks

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dm200
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Re: Getting company to change 401k custodian

Post by dm200 » Sun Mar 19, 2017 2:14 pm

captpete wrote:Has anyone on here ever been successful getting HR to change the companies 401k custodian over fees. I am composing a letter and adding some excel spread sheets and an article from brightscope and investopiedia to augment my case a bit. Any advice?
Thanks


Be aware of how such fees are viewed (and valued) by the employer. These 401k administrators/custodians/investment managers market/sell to employers, in great part, as to how much (dollars) it will cost the employer to provide the 401k plan. Some employers aim for as close to zero as possible. The way the custodians can offer near zero net admin costs to employers is to charge fees to the participants.

If your employer places a high priority on low or near zero admin costs, then low cost (fees) to partipants argument will get nowhere because it is from such fees that the employer lowers the admin costs.

I doubt that you know (or can even estimate) what the admin fees to the employer would be with the alternatives you will propose.

These "low net cost to employer" outfits are also very good at "wining and dining" the upper management (decision makers) to obtain and keep the business. Switching to a "low net cost to participants" provider means they will not be "wined and dined".

You might think that the employer/management/decision makers are "in the dark" and might make a change to better deals for participants. In my experience (working at a small company), I learned that this was just not the case. ALL that employer cared about in the 401k administrator was having their net admin cost as close to zero as possible.

Nate79
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Re: Getting company to change 401k custodian

Post by Nate79 » Sun Mar 19, 2017 2:21 pm

captpete wrote:Has anyone on here ever been successful getting HR to change the companies 401k custodian over fees. I am composing a letter and adding some excel spread sheets and an article from brightscope and investopiedia to augment my case a bit. Any advice?
Thanks


How many quotes from different 401k providers do you have to show to your employer the cost savings to the employer and employees? I surely hope you understand the actual costs associated with 401k plans and have factual information to back your case.

captpete
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Re: Getting company to change 401k custodian

Post by captpete » Sun Mar 19, 2017 2:37 pm

I don't know any of the costs from other custodians. I guess I will call VG and see if they can help me

livesoft
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Re: Getting company to change 401k custodian

Post by livesoft » Sun Mar 19, 2017 2:40 pm

Yes, I have been successful at my former employer and at my spouse's employer.

But we had the ear of the CEOs in both cases. My CEO was pissed that he had some extra tax issues related to the 401(k), so he put me on the 401(k) committee.

My spouse's company replaced the CEO, so that's when opportunity struck.

The best letter will show how the CEO and CFO can save time and money for both the company and themselves without disrupting any stakeholders such as the brother-in-law who runs the plan for the head of HR.
Last edited by livesoft on Sun Mar 19, 2017 4:47 pm, edited 1 time in total.
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ved
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Re: Getting company to change 401k custodian

Post by ved » Sun Mar 19, 2017 2:44 pm

How big is your employer? If it is close to a mega-corp, then, your chance would be close to zero. These companies have committees to research, analyze and recommend the optimal solution to the executives. Which means, there will be consultants that provide a lot more "customized info" that will convince the committees/execs, than you could by googling and providing a few articles.

If you work for a small company, then, it may work. Depends on how your standing is with the execs/ceo/owner, and what the decrease in costs to the company will be in your proposed solution.

captpete
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Re: Getting company to change 401k custodian

Post by captpete » Sun Mar 19, 2017 2:56 pm

We have 2900 employees. According to brightscope the plan has 112 million

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dm200
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Re: Getting company to change 401k custodian

Post by dm200 » Sun Mar 19, 2017 4:37 pm

captpete wrote:I don't know any of the costs from other custodians. I guess I will call VG and see if they can help me


I suspect Vanguard would not know the costs from other custodians. I don't think Vanguard offers all of the services that other custodians do.

livesoft
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Re: Getting company to change 401k custodian

Post by livesoft » Sun Mar 19, 2017 5:05 pm

BTW, I don't think using Brightscope as the model for change is the way to go about this. I would at least consider the advice in the bogleheads wiki, too:

How to campaign for a better 401k plan

but also see:
Setting_up_a_401(k)_plan

I would not stress benefits to employees, but certainly list them. I would stress benefits to the CEO, to company management, and to the company and its shareholders because costs would be lower to the company and it would take less time and money to administer the plan.
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sawhorse
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Re: Getting company to change 401k custodian

Post by sawhorse » Sun Mar 19, 2017 6:23 pm

dm200 wrote:Be aware of how such fees are viewed (and valued) by the employer. These 401k administrators/custodians/investment managers market/sell to employers, in great part, as to how much (dollars) it will cost the employer to provide the 401k plan. Some employers aim for as close to zero as possible. The way the custodians can offer near zero net admin costs to employers is to charge fees to the participants.

If your employer places a high priority on low or near zero admin costs, then low cost (fees) to partipants argument will get nowhere because it is from such fees that the employer lowers the admin costs.

I doubt that you know (or can even estimate) what the admin fees to the employer would be with the alternatives you will propose.

These "low net cost to employer" outfits are also very good at "wining and dining" the upper management (decision makers) to obtain and keep the business. Switching to a "low net cost to participants" provider means they will not be "wined and dined".

You might think that the employer/management/decision makers are "in the dark" and might make a change to better deals for participants. In my experience (working at a small company), I learned that this was just not the case. ALL that employer cared about in the 401k administrator was having their net admin cost as close to zero as possible.


I agree. When you see plans with 0.75% for an index fund, for example, the employer is almost certainly passing the cost of administering the plan onto the employees in the form of higher ERs.

You might have better luck by asking to have index funds added to the options in the plan.

shepherd
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Re: Getting company to change 401k custodian

Post by shepherd » Sun Mar 19, 2017 8:02 pm

I sit on the 401k committee of my company. When I joined 2 years ago they primarily had an active lineup. i was able to convince the committee members to change by showing all the analytics, articles, etc. However, I think the most powerful argument i had was the growing legal liability that companies faced by offering funds with high fees. You would need to handle diplomatically but you could mention the lawyer in St. Louis - Jerome Schlichter - who has won several lawsuits against International Paper and others. Having sat on multiple 401k committees I can tell you that most committee members have limited knowledge or interest in the active/passive debate and simply repeat what the hired investment professionals tell them - and all of the investment professionals push active.

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Steelersfan
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Re: Getting company to change 401k custodian

Post by Steelersfan » Sun Mar 19, 2017 8:09 pm

A technical point (but it may help your argument be better received), you are not asking to change the custodian but the company who manages the funds provided to the employees, a.k.a. the fund provider.

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dm200
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Re: Getting company to change 401k custodian

Post by dm200 » Sun Mar 19, 2017 9:07 pm

When you see plans with 0.75% for an index fund, for example, the employer is almost certainly passing the cost of administering the plan onto the employees in the form of higher ERs.
You might have better luck by asking to have index funds added to the options in the plan.


From an experince with a previous employer's 401k plan, I concluded that "Index Funds" may offer little or no advantages.

You may pay just about as much for an Index fund as a managed fund because they may be passing on a lot of the admin costs to participants.

Neither can you count on published "expense ratios". Such expensive plans often add an additional percentage cut to the funds you hold.

Since the representatives of these administrative and investment managers for 401k plans are either ignorant or liars, you cannot believe them.

To determine the actual hit you are taking - in addition to the expense ratio published - do this:

Assuming you receive or can get quarterly fund performance figures, take one of your fund holdings in your 401k and stop making any contributions, withdrawals, transfers, etc. for a full quarter. In other words - have completely stable holdings for a full quarter. When you get the performance report for that fund, compare YOUR performance with that advertised/published. For example, the published figure might show that the XYZ fund had an annualized gain of 4.50% for the first quarter. Then, look at your statement for that same first quarter for your XYZ fund holdings. Calculate the annualized gain (or loss). You might expect (perhaps with very slight differences for rounding) YOUR fund to have a 4.50% annualized gain. What if you calculate 3.75% annualized gain? Where did YOUR 0.75% go?? It went to the additional fees (provided for in your company's contracts and plan). Note that the advertised, say, 4.50% was AFTER the fund expense ratio. Let's say the advertised expense ratio os 0.85%. In this example, participants are paying 1.60% expenses/fees/charges for participating in the company 401k plan with this fund.

Rupert
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Re: Getting company to change 401k custodian

Post by Rupert » Mon Mar 20, 2017 8:21 am

Are you sure the custodian is the problem? There are usually three entities (well, four if you count the employer) involved in running a 401k: the custodian (who just holds the money), the administrator (who does most of the paperwork), and the adviser (who helps the employer choose and monitor the fund lineup and who sometimes is paid to educate employees about the plan). Sometimes insurance company providers will lump two or three of these together to provide a "bundled" service to the employer. Often the entities are involved in revenue-sharing agreements that are difficult to discern. The tax form filed by the employer each year (the Form 5500) is the best (sometimes only) way to find out who's being paid what.

kmurp
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Re: Getting company to change 401k custodian

Post by kmurp » Mon Mar 20, 2017 8:45 am

Likely it's the plan advisor who may be working under an AUM model. It would be interesting to find out which level of fiduciary responsibility they are operating under. The best bet would be to lobby for a three fund portfolio to be added. I would not accept high ER index funds. Try to find out who's on the investment committee.

captpete
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Re: Getting company to change 401k custodian

Post by captpete » Tue Mar 21, 2017 12:29 am

Thanks for all the replies. I was about to give up but we are talking about a significant portion of my retirement here so I feel obligated to at least try. I am taking into consideration all of your advice. Thanks again

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