New 401(k) - need gut check

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Topic Author
PghPharmBoy
Posts: 11
Joined: Wed Sep 05, 2018 2:01 pm

New 401(k) - need gut check

Post by PghPharmBoy »

Hi all,

Long time reader/lurker...very infrequent poster. I find myself in need of a Bogleheads "gut check". Thanks in advance for reading and any/all advice! :sharebeer

The Megacorp I work at has been subsumed by an UltraMegaCorp and, as happens, they have moved us all into their existing 401(k) plan for the new year. In the previous plan (administered by Fidelity), we had a variety of good index funds, reasonable managed funds, and the Vanguard lineup of TDRFs.

In the new plan, the TDRFs are run by State Street (SSGA) and the index funds are also State Street products but all appear to be some sort of CIT (collective investment trust) and there is scant information available on the recordkeeper's website (Empower Retirement).

I'm good with my asset allocation and the rest of my portfolio - I use low-cost index funds and stick with basically a 3-fund portfolio (along with my 2 shares of Berkshire Hathaway B :mrgreen: and some small allocations to TIPS and a real estate index fund).

What I'm looking for is a gut check on the following:
1.) Can I assume the SSGA CITs are going to stick close to the index they purport to represent? There are no prospectuses available online and the "data sheets" are some sort of Morningstar-esque 2-pagers with no risk/volatility measures (except for bond and S&P 500 - those measurements of Beta, Sharpe Ratio, Std Dev, etc. look reasonable).

2.) My preference is for a total market index fund, but my options are an S&P 500 index fund and a "small/mid index" - I don't know what's in it, so I can't determine if it would suffice as a "completion" fund. I suppose this is "good enough"?

3.) The TDRFs seem to be composed of index funds but the Morningstar-esque fact sheets (as of 12/31/2021) show them in the lowest quartile rank for YTD and 1-year returns (the only other returns listed are for 1-month and 3-months, both reflecting a next-to-lowest quartile rank).

4.) Is there any benefit to using the actively managed funds instead? My gut says "no," except that I feel like I know very little about the index options.

5.) There is a brokerage window I can use ($12 quarterly fee; transaction fees; etc.) and/or I can sign up for Edelman Financial Engines Management for a quarterly fee of "$4.25 per $10,000 managed" or roughly 17 basis points. I am assuming E/Fe will just use the funds in my lineup, so this is not an attractive proposition for me.

6.) I know there are FAR worse 401(k) plans out there and that I have a huge tendency to overthink things, so I'm looking for some additional feedback (or a "stop overthinking this and just use the index funds!" :P ).

If it's important to know the size of the portfolio or the AA, let me know and I can add that info.

Selections:
State Street Global Advisors TDRFs - available in Retirement Income and then in the usual 5-yr increments. ER = 0.05% (no tickers available)

State Street Global All Cap Ex-US Index SL Class II (no ticker) ER = 0.06%
State Street S&P 500 Index SL Cl II (no ticker) ER = 0.01%
State Street Russell Small/Mid Idx SL Cl II (no ticker) ER = 0.02%
State Street US Bond Index SL Cl XIV (no ticker) ER = 0.02%

Galliard Stable Value Fund (no ticker) ER = 0.32%

American Funds EuroPacific Growth Fund R6 (RERGX) ER = 0.46%
Diamond Hill Small-Mid Cap Fund Class Y (DHMYX) ER = 0.80%
American Funds The Growth Fund of America R6 (RGAGX) ER = 0.30%
American Funds Washington Mutual Fund R6 (RWMGX) ER = 0.27%
TCW MetWest Total Return Bond A (no ticker) ER = 0.22%

Cheers,
PghPharmBoy
PersonalFinanceJam
Posts: 92
Joined: Tue Aug 24, 2021 8:32 am

Re: New 401(k) - need gut check

Post by PersonalFinanceJam »

Stop over thinking things. :D

I had a previous 401k managed by Voya with very similar State Street CIT options. As far as I could tell they tracked the indexes they purport to track very well. I wouldn’t get too hung up on total market versus the S&P 500 fund. That said when I was in my previous plan I just chose the target date fund which matched my asset allocation as closely as possible because it was cheap and I didn’t have to fiddle with anything.

Looks like you have a really good plan.
MrJedi
Posts: 1532
Joined: Wed May 06, 2020 11:42 am

Re: New 401(k) - need gut check

Post by MrJedi »

You should be able to see what index your small/mid index fund tracks. Based on the name it appears to be the Russell 2500 which is the bottom 2500 of the Russell 3000. This is effectively a Russell 3000 (essentially total market) completion index when you couple with a SP500 index. Please confirm the index though in your fund information.
Dottie57
Posts: 10630
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: New 401(k) - need gut check

Post by Dottie57 »

State Street has great funds.

American Funds are actively managed. They are ok, but I would use SS instead.
MrJedi
Posts: 1532
Joined: Wed May 06, 2020 11:42 am

Re: New 401(k) - need gut check

Post by MrJedi »

Also your options are absolutely excellent. Not just good, but excellent. They have lower fees than the typical Vanguard stuff.

State Street is a reputable company. You may have heard of a product of theirs, the SPY ETF.
exodusNH
Posts: 1926
Joined: Wed Jan 06, 2021 8:21 pm

Re: New 401(k) - need gut check

Post by exodusNH »

PghPharmBoy wrote: Thu Jan 13, 2022 7:27 pm Hi all,

Long time reader/lurker...very infrequent poster. I find myself in need of a Bogleheads "gut check". Thanks in advance for reading and any/all advice! :sharebeer

The Megacorp I work at has been subsumed by an UltraMegaCorp and, as happens, they have moved us all into their existing 401(k) plan for the new year. In the previous plan (administered by Fidelity), we had a variety of good index funds, reasonable managed funds, and the Vanguard lineup of TDRFs.

In the new plan, the TDRFs are run by State Street (SSGA) and the index funds are also State Street products but all appear to be some sort of CIT (collective investment trust) and there is scant information available on the recordkeeper's website (Empower Retirement).

I'm good with my asset allocation and the rest of my portfolio - I use low-cost index funds and stick with basically a 3-fund portfolio (along with my 2 shares of Berkshire Hathaway B :mrgreen: and some small allocations to TIPS and a real estate index fund).

What I'm looking for is a gut check on the following:
1.) Can I assume the SSGA CITs are going to stick close to the index they purport to represent? There are no prospectuses available online and the "data sheets" are some sort of Morningstar-esque 2-pagers with no risk/volatility measures (except for bond and S&P 500 - those measurements of Beta, Sharpe Ratio, Std Dev, etc. look reasonable).

2.) My preference is for a total market index fund, but my options are an S&P 500 index fund and a "small/mid index" - I don't know what's in it, so I can't determine if it would suffice as a "completion" fund. I suppose this is "good enough"?

3.) The TDRFs seem to be composed of index funds but the Morningstar-esque fact sheets (as of 12/31/2021) show them in the lowest quartile rank for YTD and 1-year returns (the only other returns listed are for 1-month and 3-months, both reflecting a next-to-lowest quartile rank).

4.) Is there any benefit to using the actively managed funds instead? My gut says "no," except that I feel like I know very little about the index options.

5.) There is a brokerage window I can use ($12 quarterly fee; transaction fees; etc.) and/or I can sign up for Edelman Financial Engines Management for a quarterly fee of "$4.25 per $10,000 managed" or roughly 17 basis points. I am assuming E/Fe will just use the funds in my lineup, so this is not an attractive proposition for me.

6.) I know there are FAR worse 401(k) plans out there and that I have a huge tendency to overthink things, so I'm looking for some additional feedback (or a "stop overthinking this and just use the index funds!" :P ).

If it's important to know the size of the portfolio or the AA, let me know and I can add that info.

Selections:
State Street Global Advisors TDRFs - available in Retirement Income and then in the usual 5-yr increments. ER = 0.05% (no tickers available)

State Street Global All Cap Ex-US Index SL Class II (no ticker) ER = 0.06%
State Street S&P 500 Index SL Cl II (no ticker) ER = 0.01%
State Street Russell Small/Mid Idx SL Cl II (no ticker) ER = 0.02%
State Street US Bond Index SL Cl XIV (no ticker) ER = 0.02%

Galliard Stable Value Fund (no ticker) ER = 0.32%

American Funds EuroPacific Growth Fund R6 (RERGX) ER = 0.46%
Diamond Hill Small-Mid Cap Fund Class Y (DHMYX) ER = 0.80%
American Funds The Growth Fund of America R6 (RGAGX) ER = 0.30%
American Funds Washington Mutual Fund R6 (RWMGX) ER = 0.27%
TCW MetWest Total Return Bond A (no ticker) ER = 0.22%

Cheers,
PghPharmBoy
State Street is a good house. I'd have no qualms using them.

You should be able to get the prospectus for the funds. In my past experience with Empower, they're linked from the fund lineup dashboard, with the caveat that I've only ever had mutual funds, not CITs.

Empower is kind of expense from an administrative perspective, but ultramegacorp probably negotiated those down. (And there's nothing you can do about it anyway.)

The small/mid index probably completes the 500, or close enough anyway. Simply because the 500 dominates the market, whatever it does will strongly correlate with the whole market. I don't think you can make a bad decision between just the 500 or 85% 500 and 15% small/mid.
Topic Author
PghPharmBoy
Posts: 11
Joined: Wed Sep 05, 2018 2:01 pm

Re: New 401(k) - need gut check

Post by PghPharmBoy »

PersonalFinanceJam wrote: Thu Jan 13, 2022 7:47 pm Stop over thinking things. :D

I had a previous 401k managed by Voya with very similar State Street CIT options. As far as I could tell they tracked the indexes they purport to track very well. I wouldn’t get too hung up on total market versus the S&P 500 fund. That said when I was in my previous plan I just chose the target date fund which matched my asset allocation as closely as possible because it was cheap and I didn’t have to fiddle with anything.

Looks like you have a really good plan.
Thanks! I figured I was worrying too much about minutiae, but it's always good to hear that confirmed!:D
Topic Author
PghPharmBoy
Posts: 11
Joined: Wed Sep 05, 2018 2:01 pm

Re: New 401(k) - need gut check

Post by PghPharmBoy »

MrJedi wrote: Thu Jan 13, 2022 7:49 pm You should be able to see what index your small/mid index fund tracks. Based on the name it appears to be the Russell 2500 which is the bottom 2500 of the Russell 3000. This is effectively a Russell 3000 (essentially total market) completion index when you couple with a SP500 index. Please confirm the index though in your fund information.
As I mentioned, there is no prospectus information available from the recordkeeper for any of the SSGA funds. From the info that is available, it says the fund is a "Mid Cap Blend" and that it contains 2,568 holdings. I think the assumption that it's the Russell 2500 is most likely correct. I'll reach out to the recordkeeper tomorrow and see if I can get a prospectus or a confirmation. On the page that lists all of the fund options, only the actively managed funds have prospectus links. Everything else is populated with an "N/A" :?
MrJedi wrote: Thu Jan 13, 2022 8:07 pm Also your options are absolutely excellent. Not just good, but excellent. They have lower fees than the typical Vanguard stuff.

State Street is a reputable company. You may have heard of a product of theirs, the SPY ETF.
Yes, quite familiar with their SPDRs :happy My concern was less about SSGA as a fund provider and more about not knowing what's in the CITs that are offered. But I'm absolutely willing to own my overthinking this! And I agree - the ERs are amazingly low. Maybe I'm just too cynical :wink:
ondarvr
Posts: 85
Joined: Tue Dec 22, 2020 6:03 pm

Re: New 401(k) - need gut check

Post by ondarvr »

I had similar options for ten years, State Street did fine, no regrets. I wish my new employer had those options.
Topic Author
PghPharmBoy
Posts: 11
Joined: Wed Sep 05, 2018 2:01 pm

Re: New 401(k) - need gut check

Post by PghPharmBoy »

So, update...

When looking through the Summary Plan Description for the administrative fees (based on exodusNH's comment about Empower's expenses), I found the section that provides an investment summary of all of the options:
State Street Russell Sm/Mid Cp Indx SL CI II
The fund is managed using an "indexing" investment approach, by which SSGA attempts to approximate, before
expenses, the performance of the Russell Small Cap Completeness Index (the “Index”) over the long term. SSGA
will typically attempt to invest in the equity securities comprising the Index, in approximately the same proportions
as they are represented in the Index. The Russell Small Cap Completeness Index measures the performance of the
Russell 3000 Index companies excluding S&P 500 constituents. The Russell Small Cap Completeness Index is
constructed to provide a comprehensive barometer of the extended broad market beyond S&P 500 exposure.
MrJedi was spot on - and I learned I should read *all the way through* the SPD before posting a question... :oops:

Thanks, all, for your thoughts and feedback! I knew you all would have good insight!

Cheers!
:sharebeer
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