Terrible 401(k) Investment Options at Work

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aburntoutcase
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Terrible 401(k) Investment Options at Work

Post by aburntoutcase »

I recently joined a new company that is on the smaller side (< 200 employees and only $4M in AUM for 401-K plan). The plan is administered by Principal Financial Group and although they use non-PFG investment funds as well, the investment fees are extremely high.

They range from 1% to 1.5% for bond and equity funds and even for the stable value fund they are very high at 0.65%. For equity funds the fees are high too. The S&P 500 index fund has fees of 0.7% and the actively managed equity funds are in the 1% to 1.5% range.

I think whatever my employer is saving on the plan administration fees, PFG is taking out of the other pocket through fund management fees and expenses. Assuming a 1% expense premium to what a low cost passive manager like Vanguard would charge, investors in the 401-K plan are paying ~$40K in excess annual fees.

Is someone like Vanguard an option as a plan administrator for a small employer with only $4M AUM in 401-K assets? If not, what would be some other options? Any idea how much Vanguard charges for purely administrative functions?
gsmith
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Re: Terrible 401(k) Investment Options at Work

Post by gsmith »

Having been on both sides of the table, I can sympathize.

The good news is that if you eventually move to a new job, you will be able to take the assets with you.
The cheapest I've found is Guideline, which charges the employer only $8/employee/mo, and offers mostly Vanguard funds.

The best part about them is their payroll integration. Once they make a pay run, OnPay makes the deductions/match accounting entries, and within two weeks Guideline pulls the money. No spreadsheets to upload. If they use a payroll provider compatible with Guideline, HR literally does nothing. Even changes to contributions, % or $, Roth or Trad, and AA percentages are handled online through a portal, and require no actions from the business.


I would become friends with HR and point out that this would save a few hours of hairpulling, and then point out the massive savings to employee's retirement.
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ruralavalon
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Re: Terrible 401(k) Investment Options at Work

Post by ruralavalon »

aburntoutcase wrote: Sun Feb 17, 2019 9:43 am I recently joined a new company that is on the smaller side (< 200 employees and only $4M in AUM for 401-K plan). The plan is administered by Principal Financial Group and although they use non-PFG investment funds as well, the investment fees are extremely high.

They range from 1% to 1.5% for bond and equity funds and even for the stable value fund they are very high at 0.65%. For equity funds the fees are high too. The S&P 500 index fund has fees of 0.7% and the actively managed equity funds are in the 1% to 1.5% range.

I think whatever my employer is saving on the plan administration fees, PFG is taking out of the other pocket through fund management fees and expenses. Assuming a 1% expense premium to what a low cost passive manager like Vanguard would charge, investors in the 401-K plan are paying ~$40K in excess annual fees.

Is someone like Vanguard an option as a plan administrator for a small employer with only $4M AUM in 401-K assets? If not, what would be some other options? Any idea how much Vanguard charges for purely administrative functions?
www.employeefiduciary.com

www.guideline.com

www.ascensus.com
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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aburntoutcase
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Re: Terrible 401(k) Investment Options at Work

Post by aburntoutcase »

gsmith wrote: Sun Feb 17, 2019 10:03 am The good news is that if you eventually move to a new job, you will be able to take the assets with you.
The cheapest I've found is Guideline, which charges the employer only $8/employee/mo, and offers mostly Vanguard funds.
Thank you! Our payroll provider is Paychex, which while not listed as a "Fully Integrated" payroll processor is listed in the next category of "Quick Sync" providers. I will let HR know about them, they have a pretty straightforward website and transparent pricing listed there.
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aburntoutcase
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Re: Terrible 401(k) Investment Options at Work

Post by aburntoutcase »

Thanks! I looked at the Employee Fiduciary website and they actually had several real-life benchmarking exercises relative to Principal Financial Group plans. I have passed those and the links to Guideline to our HR Head who I happen to know since it is a small company.
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