Wife's 401k investment options (high fees!)

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FriedFire
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Wife's 401k investment options (high fees!)

Post by FriedFire » Mon Nov 13, 2017 9:38 pm

I have been reading about people lobbying their HR to have better investment options. I was wondering if my wife's options justify such lobbying. Note: my wife is hesitant about reaching out to HR because it's a small company and she doesn't want to get on the HR person's "bad side".

Available funds and gross expense ratio:
  • Invesco Stable Asset Fund/ Stable Value 1.10%
  • JPMorgan Core Bond Fund - Class A/ Intermediate-Term Bond 0.91%
  • Loomis Sayles Strategic Income Fund - Class A/ Multisector Bond 0.96%
  • JPMorgan SmartRetirement Income Fund 1.03%
  • JPMorgan SmartRetirement 2020 Fund 1.07%
  • JPMorgan SmartRetirement 2025 Fund 1.08%
  • JPMorgan SmartRetirement 2030 Fund 1.12%
  • JPMorgan SmartRetirement 2035 Fund 1.15%
  • JPMorgan SmartRetirement 2040 Fund 1.20%
  • JPMorgan SmartRetirement 2045 Fund 1.24%
  • JPMorgan SmartRetirement 2050 Fund 1.31%
  • JPMorgan SmartRetirement 2055 Fund 1.35%
  • Invesco Comstock Fund - Class A/Large Value 0.84%
  • JPMorgan U.S. Equity Fund 1.14%
  • State Street S&P 500 Index Fund 0.70%
  • Alger Capital Appreciation Institutional Fund 1.12%
  • State Street S&P MidCap Index Fund 0.71%
  • JPMorgan US Small Company Fund 1.45%
  • State Street Russell Small Cap Index Fund 0.96%
  • Janus Henderson Triton Fund 1.18%
  • Federated International Leaders Fund 1.45%
  • State Street REIT Index Fund 0.72%
In addition to that, there is a statement that reads "GuidedChoice Managed Accounts: 0.20% investment management fee charged by Guided Choice. This is an annual fee charged to your account monthly. Guided Choice is a designated investment manager for the assets managed in accordance with the managed accounts product offered by Guided Choice."

Right now all of her contributions are going to the S&P 500 Index which has an ER of 0.70% (the lowest available fund).

Given that about a third of the funds are under 1% ER, is there a strong case/justification to lobby HR?

ThriftyPhD
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Re: Wife's 401k investment options (high fees!)

Post by ThriftyPhD » Mon Nov 13, 2017 10:00 pm

This is a good place to start. https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

With a small company, costs might be higher because of lower assets, or the plan manager just not knowing any better. Worth having a discussion with them, they just might not even be aware.

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badbreath
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Re: Wife's 401k investment options (high fees!)

Post by badbreath » Mon Nov 13, 2017 10:02 pm

100% State Street S&P 500 Index Fund 0.70%
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

Dottie57
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Re: Wife's 401k investment options (high fees!)

Post by Dottie57 » Mon Nov 13, 2017 10:07 pm

badbreath wrote:
Mon Nov 13, 2017 10:02 pm
100% State Street S&P 500 Index Fund 0.70%
+1

Add Some State Street Russell Smal cap.

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badbreath
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Re: Wife's 401k investment options (high fees!)

Post by badbreath » Mon Nov 13, 2017 10:20 pm

badbreath wrote: ↑Mon Nov 13, 2017 11:02 pm
100% State Street S&P 500 Index Fund 0.70%
+1

Add Some State Street Russell Small cap.
I would not do small cap till you have $30-40k invested in the S&P if not more.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

Nate79
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Re: Wife's 401k investment options (high fees!)

Post by Nate79 » Mon Nov 13, 2017 10:34 pm

Is the Guidance choice mandatory?

Your fees aren't horrible and any change would require finding another provider, not just adding other investment options because you already have S&P500 index fund, etc. You might ask your provider why the expense ratio of the S&P500 is so high compared to State Street low expense funds. Perhaps you can get a lower expense fund class.

TIAX
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Re: Wife's 401k investment options (high fees!)

Post by TIAX » Mon Nov 13, 2017 10:46 pm

Consider explaining to the employer that having high fees may expose it to breach of fiduciary duty lawsuits.

delamer
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Re: Wife's 401k investment options (high fees!)

Post by delamer » Mon Nov 13, 2017 10:50 pm

Does your wife receive any employer match?

FriedFire
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Re: Wife's 401k investment options (high fees!)

Post by FriedFire » Tue Nov 14, 2017 12:06 am

delamer wrote:
Mon Nov 13, 2017 10:50 pm
Does your wife receive any employer match?
No matching

jalbert
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Re: Wife's 401k investment options (high fees!)

Post by jalbert » Tue Nov 14, 2017 12:59 am

There is no reason to exclude the midcap index fund and reit index fund based on expense ratio (1 and 2 bp higher than SP500 respectively). Your wife could open a Roth IRA say at Vanguard and make monthly contributions. Only contribute to the 401k if and after she has maxxed out the Roth IRA.

One way a small company can sometimes get lower expenses is to reduce the number of funds in the plan so that the assets are more concentrated in the funds that remain.

For instance:

JPMorgan U.S. Equity Fund 1.14%
Alger Capital Appreciation Institutional Fund 1.12%
JPMorgan US Small Company Fund 1.45%
Janus Henderson Triton Fund 1.18%
Federated International Leaders Fund 1.45

are all extraneous. And they only need two fixed income funds (one properly chosen bond fund and stable value fund).

Lastly, I would never invest in a mutual fund managed by an investment bank-- too many conflicts of interest. For instance, will they pressure fund managers to buy illiquid leftovers from a failed IPO, transfering the junk indirectly to the fund's investors? Will JPMorgan front-run the fund's transactions? This criterion eliminates all of the JPMorgan funds from consideration for investing for me.
Risk is not a guarantor of return.

goingup
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Re: Wife's 401k investment options (high fees!)

Post by goingup » Tue Nov 14, 2017 10:12 am

Your wife's options aren't great, but they aren't awful either. We certainly have seen worse options posted here.

Participating in a 401K is easy and automatic so I wouldn't forego participating. It is the easiest way to build retirement wealth, IMO. Depending on how much you and your wife plan to contribute overall, it would be good to max out a Roth IRA and then use the lowest cost funds available in that 401K.

As to whether she should raise the issue with HR. Well, some folks are gladly agents of change and some aren't. The high cost of the funds usually reveals the extent to which the employer is subsidizing the plan. It can cost the employer more money to subsidize the plan and offer low-cost funds to employees.

I wouldn't get cross-ways with my spouse over this, but if she felt comfortable doing so, she could email HR information about other 401K administrators such as Employee Fiduciary. https://www.employeefiduciary.com

rantk81
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Re: Wife's 401k investment options (high fees!)

Post by rantk81 » Tue Nov 14, 2017 10:25 am

70 basis points for an index fund? Yeeeouch. I'd be super pissed off.

KSActuary
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Re: Wife's 401k investment options (high fees!)

Post by KSActuary » Tue Nov 14, 2017 10:28 am

No idea how big the plan is in terms of assets but those fees are really loaded up with 12b-1 and sub-ta expenses. Looks like all of the admin and advisor fees are passed through the funds. If the plan is small than EF or Vanguard if above $2.0 million.

JW-Retired
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Re: Wife's 401k investment options (high fees!)

Post by JW-Retired » Tue Nov 14, 2017 10:36 am

FriedFire wrote:
Mon Nov 13, 2017 9:38 pm
Right now all of her contributions are going to the S&P 500 Index which has an ER of 0.70% (the lowest available fund).
......................
Given that about a third of the funds are under 1% ER, is there a strong case/justification to lobby HR?
S&P 500 is 80% of the total US market. I would be satisfied with her current choice until she has several years of contributions. An ER of 0.70% will take years to do very much damage.

Would not lobby HR. They are not on her side.
JW
Retired at Last

dbr
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Re: Wife's 401k investment options (high fees!)

Post by dbr » Tue Nov 14, 2017 10:40 am

Your wife is being cheated out of her money because the company management is unable, unwilling, or too stupid to do better.

Only she can judge whether there is a possibility of lobbying for something better. I don't think this has to do with HR but with the top two or three managers in the company. It would be a question of what kind of relationship she has with those individuals. Alternatives do exist. A choice is to take the punishment in anticipation of working elsewhere sooner or later.

FriedFire
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Re: Wife's 401k investment options (high fees!)

Post by FriedFire » Tue Nov 14, 2017 11:08 am

Just read through their last year's financial report. The plan is about $1M in assets with 73 participants. Admin fees for last year were just over $1,000. Switching to EF would result in admin fees going up to $2,800 but fund fees would dramatically fall by ~10x.

My wife has been with this company for about 6 months now and doesn't know the top managers in the company. The HR person just took over as the 401k admin and doesn't really understand much about how the plan works.

It looks like we may be stuck with S&P Index at 0.70% (we're not eligible for Roth IRA) and use our rollover IRAs to balance out the overall portfolio.

racy
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Re: Wife's 401k investment options (high fees!)

Post by racy » Tue Nov 14, 2017 11:16 am

My wife also works at a small firm. She brought up the fact that their 401k had high fees to her boss. About a month later he cancelled the company's plan altogether. No more free money via a company match...

KSActuary
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Re: Wife's 401k investment options (high fees!)

Post by KSActuary » Tue Nov 14, 2017 11:27 am

The $1,000 admin fee is a base fee of some sort and the 20 bps are not shown on the Form 5500-SF or Annual Report. There is also the revenue sharing captured by GuidedChoice. For example, the Loomis Sayles bond fund has 25 bps 12b-1 fee and probably a sub-ta fee which is not reported annually.

The problem with the plan is the low average balance due to no match and no one local to help get people saving. EF would be $1,500 + $1,290 (30 x 43) + 800 (.08% of 1 million). Also, EF goes by eligible not those with an account balance so it could be higher. Vanguard would be 3,475 + 35 x 75 + 23 x 70 = 7,710. Low average account balance plans with a lot of participants are expensive to operate.

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ruralavalon
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Re: Wife's 401k investment options (high fees!)

Post by ruralavalon » Tue Nov 14, 2017 11:31 am

badbreath wrote:
Mon Nov 13, 2017 10:20 pm
badbreath wrote: ↑Mon Nov 13, 2017 11:02 pm
100% State Street S&P 500 Index Fund 0.70%
+1

Add Some State Street Russell Small cap.
I would not do small cap till you have $30-40k invested in the S&P if not more.
I suggest Street S&P 500 Index Fund, ER 0.70%.

Consider also the Invesco Stable Asset Fund. What rate of return has it been paying? Is there a guaranteed rate? If the rate paid is good, that can be a good substitute for a bond fund.

The S&P 500 index covers 81% of the domestic stock market. Historically adding small-cap to that (trying to mimic a total stock market index fund) has added little to returns, just an average 0.11% annually over the last 25 years.

I would not (even later when she has a larger balance to invest) use State Street Russell 2000 Small-cap Index Fund at an expense ratio 0.96%, it's not worth the 0.26% extra annual expense.
Last edited by ruralavalon on Tue Nov 14, 2017 11:44 am, edited 1 time in total.
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goingup
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Re: Wife's 401k investment options (high fees!)

Post by goingup » Tue Nov 14, 2017 11:43 am

racy wrote:
Tue Nov 14, 2017 11:16 am
My wife also works at a small firm. She brought up the fact that their 401k had high fees to her boss. About a month later he cancelled the company's plan altogether. No more free money via a company match...
Interesting. Having an expensive plan can be a liability (in terms of lawsuits) to an employer. Having no plan is not. I'd be pretty unhappy about this change. Maybe the employer will regroup and offer a new plan in 2018?

chevca
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Re: Wife's 401k investment options (high fees!)

Post by chevca » Tue Nov 14, 2017 11:49 am

FriedFire wrote:
Mon Nov 13, 2017 9:38 pm
Right now all of her contributions are going to the S&P 500 Index which has an ER of 0.70% (the lowest available fund).

Given that about a third of the funds are under 1% ER, is there a strong case/justification to lobby HR?
I would just keep throwing it all in the S&P 500 fund.

I also wouldn't bother lobbying anyone about the plan. It seems they have no interest in low ERs if they don't even have an index fund below .70%. I would imagine it would require changing plans or providers. Which of course is very possible, but how willing is the small company to do it? My guess would be, not likely.

deltaneutral83
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Re: Wife's 401k investment options (high fees!)

Post by deltaneutral83 » Tue Nov 14, 2017 12:03 pm

This is very straight forward for me, 500 SSGA fund 100%. 70 bps isn't the end of the world if that's all in, but there may be admin fees and another AUM fee for the plan on top of the ER based on AUM for the entire company plan. Build out mid/small in other accounts with lower ER's if you choose but the S&P is right underneath 80% of the TSM.

jalbert
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Re: Wife's 401k investment options (high fees!)

Post by jalbert » Tue Nov 14, 2017 1:15 pm

If there is not the expectation of having over 100 employees, replacing the plan with a SIMPLE IRA would be one strategy.
Risk is not a guarantor of return.

FriedFire
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Re: Wife's 401k investment options (high fees!)

Post by FriedFire » Tue Nov 14, 2017 1:22 pm

Thank you all. We’ll just continue with 100% S&P and use our other accounts for other asset classes.

We’ll hold off on lobbying until my wife gets to know the top managers and feels comfortable bringing it up.

sco
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Re: Wife's 401k investment options (high fees!)

Post by sco » Tue Nov 14, 2017 7:36 pm

Also consider how long she will be at this job. If she is only there 5-10 years, I probably wouldn't bother bringing it up. Over 30-40 years it could add up. Of course they will likely change their provider during that time anyway..

TravelforFun
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Re: Wife's 401k investment options (high fees!)

Post by TravelforFun » Tue Nov 14, 2017 7:39 pm

If the employer doesn't match, don't participate.

TravelforFun

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ruralavalon
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Re: Wife's 401k investment options (high fees!)

Post by ruralavalon » Tue Nov 14, 2017 7:48 pm

FriedFire wrote:
Tue Nov 14, 2017 11:08 am
It looks like we may be stuck with S&P Index at 0.70% (we're not eligible for Roth IRA) [emphasis added] and use our rollover IRAs to balance out the overall portfolio.
TravelforFun wrote:
Tue Nov 14, 2017 7:39 pm
If the employer doesn't match, don't participate.

TravelforFun
I disagree.

They are not eligible to contribute to Roth IRAs, so have higher income and a higher tax bracket. Tax deductible traditional 401k contributions are probably very good for them, in addition they get tax-deferred growth and compounding.

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth, depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
4) Contribute to a taxable investing account.
Please see the wiki article "Prioritizing investments".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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