Any advice on moving my company 401k?

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Archimedes
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Any advice on moving my company 401k?

Post by Archimedes » Sun Oct 01, 2017 10:53 am

I am the founder of small company undergoing rapid growth. I currently have about 100 employees. We have a 401k plan with T Rowe Price and our employees have the option of investing in many of the T Rowe Price mutual funds, including managed funds, index funds, and target retirement funds. The vast majority of our employees are highly compensated professionals. Most of them max their personal tax deferred contributions, and the company makes significant contributions through our 401k profit sharing plan on their behalf as well.

The customer service of T Rowe Price is quite good and their investment management is good, but I am concerned about the fees for their mutual funds being significantly higher than Vanguard over a 30 year investment horizon. As one simple example, the fees for a Vanguard target retirement fund are 15 basis points, with the analogous fund at T Rowe Price being 72 basis points. When I calculate the difference this would make for a perhaps typical employee with a 40k total yearly contribution over 30 years, the T Rowe Price account would have 350k less (approximately 10% less) for retirement than the equivalent Vanguard account.

I am considering moving our company 401k profit sharing plan to Vanguard. I know it will likely take much time and effort given that our plan has become quite large. But it may be easier doing this sooner rather than later.

Is there anyone on this forum who can comment about the pros and cons of making such a move?

Are there any special considerations we should be aware of before we do this?

We do have a pension accountant to assist us, but I wanted to throw this question open on the forum. I have reaped great benefits from the collective wisdom shared here.

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tfb
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Re: Any advice on moving my company 401k?

Post by tfb » Sun Oct 01, 2017 11:14 am

Archimedes wrote:
Sun Oct 01, 2017 10:53 am
I am considering moving our company 401k profit sharing plan to Vanguard. I know it will likely take much time and effort given that our plan has become quite large. But it may be easier doing this sooner rather than later.
Having a larger plan is a strength. It helps spread admin cost and make the savings on expense ratio more substantial. Ascensus has a partnership with Vanguard for small business plans.
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livesoft
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Re: Any advice on moving my company 401k?

Post by livesoft » Sun Oct 01, 2017 11:29 am

Our company used Fidelity and populated the plan the Fidelity index funds.
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Archimedes
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Re: Any advice on moving my company 401k?

Post by Archimedes » Sun Oct 01, 2017 3:02 pm

The other thing that is so challenging about these 401k plans is the fees charged by the funds themselves and then the other fees charged for the administration of the plan.

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daytona084
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Re: Any advice on moving my company 401k?

Post by daytona084 » Sun Oct 01, 2017 3:12 pm

Over the years, the large company that I worked for changed from an (apparently) "home brew" 401k, to State Street, then to Fidelity, and now it's in T Rowe Price. My assumption is that representatives of these firms came knocking on the door, looking to snag the business. If Vanguard wants your business, maybe they would make the changeover as painless as possible.

BTW, in my 401k, T Rowe Price offers Vanguard index funds as some of their choices. Perhaps you could see if T Rowe Price would do this for you.

Archimedes
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Re: Any advice on moving my company 401k?

Post by Archimedes » Sun Oct 01, 2017 3:25 pm

daytona084 wrote:
Sun Oct 01, 2017 3:12 pm


BTW, in my 401k, T Rowe Price offers Vanguard index funds as some of their choices. Perhaps you could see if T Rowe Price would do this for you.
Thank you Daytona084. That is exactly the reason I posted my question. The idea of keeping the plan at T Rowe would save us a lot of administrative work and cost. Offering Vanguard funds through our current plan with T Rowe would give our employees access to lower fee Vanguard funds. I am definitely going to look into that option.

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BigOil
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Re: Any advice on moving my company 401k?

Post by BigOil » Sun Oct 01, 2017 8:01 pm

Apparently it's not all about (lowest)costs. My 401k is moving from Vanguard to Fidelity.
It's a HUGE plan in a Fortune 20 company. But there is a key distinction between fund costs and plan costs --- to me a best practice is to look at those fees separately AND carry them through to to participants transparently.

I think the Johnson family (Fidelity is not a public company) will be competitive in some costs, to leverage the other products/services they offer ... stuff that may make the Johnsons money, that Vanguard does not focus on due to structure/management. I am not sure any publicly owned fund company (T-Rowe etc) can ever be as inexpensive as Vanguard, or "relatively inexpensive" with some enhanced services as perhaps Fidelity.

I suspect Fidelity will get more in fees from some higher cost products & services/rollovers in our new 401k, but the core fund cheap stuff will remain in Vanguard funds or equivalent without Vanguard plan management services.

In my opinion, Fidelity offers more handholding, better web, & storefronts in big cities etc. that would be very attractive to a plan ... most folks DO NOT want to mess with stuff. That is probably a significant driver when the Company reviewed such a big change. Vanguards customer service is kind of bare-bones generally speaking, bit better if Flagship. It is inexpensive.

I'd tell a fund sponsor to get cheap core (index & target date) funds, and have the management fees be a line charge to participants. Transparent. Fiduciary.

Shop the management fees for the services you want your participants to have. Ensure the investment core stuff is inexpensive. Offer a brokerage option for the "special needs group" (LOL) that charges enough to cover it's expenses if the plan is big enough.

No T-Rowe is not Fiduciary to this non-lawyer.

Archimedes
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Re: Any advice on moving my company 401k?

Post by Archimedes » Sun Oct 01, 2017 8:11 pm

BigOil wrote:
Sun Oct 01, 2017 8:01 pm
But there is a key distinction between fund costs and plan costs --- to me a best practice is to look at those fees separately AND carry them through to to participants transparently.
Thanks BigOil, certainly more good advice.

I am trying to figure out how much we are paying in plan costs apart from the fund costs. These fees are very opaque and this information is difficult to come by. There is a US Department of Labor ruling (February 2012) that these fees must be transparent, but I certainly am struggling to find out how much we are paying in fees on top of the fund fees.

Here is the ruling, but I see no transparency.

Final Rule to Improve Transparency of Fees and Expenses
to Workers in 401(k)-Type Retirement Plans

https://www.dol.gov/sites/default/files ... eerule.pdf

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Portfolio7
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Re: Any advice on moving my company 401k?

Post by Portfolio7 » Tue Oct 03, 2017 3:27 am

I work for a F500 firm. Our 401(k) has a 2 basis point plan fee that we all get charged on top of our fund fees. I pay about 32 basis points in total, though I could get it down to about 7 basis points if I went with a 3 fund allocation. I slice and dice, using a mix of mostly Vanguard and DFA funds in a Fidelity administered plan.
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dkturner
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Re: Any advice on moving my company 401k?

Post by dkturner » Tue Oct 03, 2017 8:48 am

Archimedes wrote:
Sun Oct 01, 2017 3:25 pm
daytona084 wrote:
Sun Oct 01, 2017 3:12 pm


BTW, in my 401k, T Rowe Price offers Vanguard index funds as some of their choices. Perhaps you could see if T Rowe Price would do this for you.
Thank you Daytona084. That is exactly the reason I posted my question. The idea of keeping the plan at T Rowe would save us a lot of administrative work and cost. Offering Vanguard funds through our current plan with T Rowe would give our employees access to lower fee Vanguard funds. I am definitely going to look into that option.
.

If you talk with your TRP representative I think you will find that you can get any combination of low cost funds you want. The issue of administrative expenses for the plan is another issue. As a general rule, the lower the fund expense ratio the higher the administrative expenses, AND the higher the fund expense ratio the lower the administrative expenses. This is because of revenue sharing between the mutual fund companies and the plan provider. Again, talk to your TRP representative for a complete explanation of this interrelationship.

Archimedes
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Re: Any advice on moving my company 401k?

Post by Archimedes » Wed Oct 04, 2017 4:32 pm

Thanks dkturner. That is the obvious thing to do. Talk to our provider about our fees.

Sometimes challenging though, to find the time to chase down these details when our core business takes up so much time and attention.

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Re: Any advice on moving my company 401k?

Post by dkturner » Thu Oct 05, 2017 5:13 am

Archimedes wrote:
Wed Oct 04, 2017 4:32 pm
Thanks dkturner. That is the obvious thing to do. Talk to our provider about our fees.

Sometimes challenging though, to find the time to chase down these details when our core business takes up so much time and attention.
We're not talking about "details" here. We're talking about the big picture of how mutual fund expense ratios and plan administrative expenses interact. If you are responsible for you company's 401(k) plan it's imperative that you develop a basic understanding of the economics of plan design and investment selection.

brentflog
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Re: Any advice on moving my company 401k?

Post by brentflog » Fri Oct 06, 2017 8:04 pm

I sent you a message but wanted to add a few points. Like mentioned above it is about total plan costs and even though the providers have to give you a fee disclosure each year, they are typically difficult to decipher. The first place to start is to ask for the 408b2 disclosure.

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hoppy08520
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Re: Any advice on moving my company 401k?

Post by hoppy08520 » Sun Oct 08, 2017 8:51 am

Archimedes, I commend you for your benevolence to your employees.

Echoing some of the other replies, my company (~300 employees) has its 401(k) plan with TRP. We have TRP funds including the TDF funds at ~0.72% ER but we also have Fidelity index funds in the “premium” share class with ER for TSM at 0.04%, TBM at 0.05%, etc., so I’m quite happy. Our plan just recently got the premium share classes, which replaced the standard ones that were 0.1% more. Only downside is the TDF funds which are the default funds are the actively managed TRP funds. I wonder if you can get the Fidelity Freedom index funds?

In my plan, participants also pay a 0.25% AUM fee. This has been declining gradually over the past decade, thankfully.

ONabm
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Re: Any advice on moving my company 401k?

Post by ONabm » Sun Oct 08, 2017 9:25 am

I work at a small- to medium-sized company (250 employees). Financial services so most folks are well compensated. I'm responsible for our 401K / profit sharing plan, together with a few other folks.

We switched to Vanguard. As others here note, the big difference is not so much in fund availability (but a note on that in a second) and total expense ratios, but in (1) administrative fees and (2) whether your administrator pushes you toward a fiduciary.

Administrative Fees: Vanguard is really low and, unlike some of their competitors, pushes a flat fee per participant. For us, it's $20 per person per quarter, but it's lower if you have a bigger plan. Almost all other administrators charge a percentage of AUM. The really big difference is that Vanguard does not see their fee go up as balances go up. The percentage goes down as balances go up whereas at other administrators it remains the same. This approach makes a lot more sense since the cost to administer a certain balance is the same if it's $100,000 or $10M.

Fiduciary: Some administrators push you to have an administrator, which adds a lot of cost to the whole structure. In our experience, and we used them before, they're worthless. And they add a lot of expense. Our previous fiduciary charged as much as ~30 to ~40 bps Vanguard; our total administrative expense for everything (excluding funds) is now something like 5 bps. In our experience, Vanguard said they didn't see much point in them, and they'll help to come up with a fund slate that hits all of the possible asset classes.

One note on fund selection: it is true that you can get basically any fund on any administrator's platform, BUT you do get some benefits by going through Vanguard. With us, they allowed us to get discounted target date funds even though we didn't hit the usual AUM thresholds to be able to do so.

For us, it came down to Fidelity v. Vanguard. Both very good, but the willingness to charge a fixed administrative fee rather than a percentage of AUM decided it for us. Plan participants have been VERY happy with our choice.

Archimedes
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Re: Any advice on moving my company 401k?

Post by Archimedes » Sun Oct 08, 2017 11:14 am

ONabm wrote:
Sun Oct 08, 2017 9:25 am


One note on fund selection: it is true that you can get basically any fund on any administrator's platform, BUT you do get some benefits by going through Vanguard. With us, they allowed us to get discounted target date funds even though we didn't hit the usual AUM thresholds to be able to do so.

For us, it came down to Fidelity v. Vanguard. Both very good, but the willingness to charge a fixed administrative fee rather than a percentage of AUM decided it for us. Plan participants have been VERY happy with our choice.
Thanks ONabm,

Someone else had said that Vanguard will not take a plan without 50M in balances. We are a new company and we only have about 10M in assets. I am going to do the following:

Collect more information on exactly what we are paying for administrative costs. I now exactly what the fund fees are, but I don't know how much we are paying for administration. We pay our specialty pension accounting firm fees every year, and then we pay T Rowe other fees. I understand it is the total cost including funds and administration that is important.

Get my HR benefits manager to seek proposals from a couple of other companies, including Vanguard and Fidelity to compare with T Rowe.

I heard that Betterment also offers low cost 401k plans. Has anyone had any experience with the Betterment 401k, in terms of cost and benefits?

Many thanks to all for the sage advice.

Archimedes
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Re: Any advice on moving my company 401k?

Post by Archimedes » Sun Oct 08, 2017 11:15 am

brentflog wrote:
Fri Oct 06, 2017 8:04 pm
I sent you a message but wanted to add a few points. Like mentioned above it is about total plan costs and even though the providers have to give you a fee disclosure each year, they are typically difficult to decipher. The first place to start is to ask for the 408b2 disclosure.
Thank you brentflog. I am going to have my HR benefits administrator ask for the 408b2 disclosure.

Spirit Rider
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Re: Any advice on moving my company 401k?

Post by Spirit Rider » Sun Oct 08, 2017 12:07 pm

Archimedes wrote:
Sun Oct 08, 2017 11:14 am
Someone else had said that Vanguard will not take a plan without 50M in balances. We are a new company and we only have about 10M in assets. I am going to do the following:
Last I knew the cut off was $20M. However, Vanguard co-markets a small business plan with Ascensus as the TPA. You need to contact Ascensus directly at 800-345-6363. Also, you can certainly use other TPAs and still have access to Vanguard Funds.

Here again, the last I knew the yearly admin fee was $3,475 for 1-15 employees and a sliding scale from $75 -> $55 for each additional employee. Vanguard Retirement Plan Access

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