Why does it seem there are so many bad/poor 401K plans?

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airshow
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Why does it seem there are so many bad/poor 401K plans?

Post by airshow » Sat Mar 31, 2018 1:55 pm

I've witnessed very small companies with stellar plans, mid-sized companies with poor plans and vise-versa.

I've read on here it seems about a 50-50 split between good and not-so-good. Of course, there's a middle-ground that could be debated forever, but the bigger question is why do bad plans - very high e/r's, opaque fund choices, front-loads - even exist at all? Does job/industry sector play into this? County/State/Federal too? Do people (from employees to company decision-makers) even know what constitutes a good plan?

Sadly I feel that many companies simply don't care if a plan is consider good for the employee or not, and will look only at 'their' bottom line for a determination.

aaronl
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by aaronl » Sat Mar 31, 2018 1:58 pm

Principal-agent problem.

ThriftyPhD
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by ThriftyPhD » Sat Mar 31, 2018 2:03 pm

The people at the company making the decision don't know what a good plan or a bad plan looks like. So they choose a provider, mostly at random or perhaps who has advertised the most. The provider suggests funds, most likely those funds where the provider makes the most money (those with high fees or commissions). The bad plans probably cost less, and no one ever got fired for choosing the cheaper option.

The default situation is probably a bad plan. To get a good plan, you either need to have the person in the company responsible for the plan to 1) Care and 2) Know what a good plan is, or you need to have enough employees know what a good plan is, complain about the bad plan, and have the person responsible for the plan receptive to feedback from employees. This takes a lot of time and determination on the part of the employees.

Places with higher turnover are probably more likely to have a bad plan, since the person in charge of the plan will change, and few will be around long enough to complain. The current person in charge of the plan is less likely to care what the complaining employees think (they won't be here long), the employees will care less (I'll just roll it out when I leave), and the fund provider will have more influence over the person currently in charge of the plan, since they won't have been there as long and will need to lean more on the provider.

stan1
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by stan1 » Sat Mar 31, 2018 2:09 pm

Follow the money. Plan administrators have to get compensated somehow. Sometimes the employer pays the plan administrator's fees directly. Other times the employer wants the plan participants to pay the administrative costs so the administrator and underlying fund managers whose funds are offered in the 401K negotiate a revenue sharing agreement (some of the fund's expenses go back to the administrator). Then there's the problem of the CEO's fraternity brother or fishing buddy selling investments or insurance but I'd guess that's mostly in companies that are not publicly traded.

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Portfolio7
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by Portfolio7 » Sat Mar 31, 2018 2:12 pm

Good posts above... also, sometimes it's not the plans themselves but the options that were chosen - ignorance on the part of the company setting up the 401k, combined with a bit of greed on the part of some of the 401k provider employees, where the Provider's incentives really aren't aligned. I'm aware of a situation right now where, instead of dropping the plan and moving to another provider, it's become clear that a change in plan options is all that's really needed to make the plan far more beneficial for the employees.
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by Jags4186 » Sat Mar 31, 2018 2:17 pm

stan1 wrote:
Sat Mar 31, 2018 2:09 pm
Follow the money. Plan administrators have to get compensated somehow. Sometimes the employer pays the plan administrator's fees directly. Other times the employer wants the plan participants to pay the administrative costs so the administrator and underlying fund managers whose funds are offered in the 401K negotiate a revenue sharing agreement (some of the fund's expenses go back to the administrator).
Bingo. It's all about opaqueness. Some companies cover all the fees and offer great funds. Some companies offer great funds and pass through the fees directly. Some companies offer funds with high expenses and 12b-1 fees in exchange for no fees.

My wife's company offers pretty much every Vanguard Admiral fund they offer. And every quarter $50 gets deducted from her account. Imagine if you only contributed $1000/yr, you're paying 20% in fees.
My 401k has all actively managed funds except for 3 index funds--SP500, Russell Midcap, and Russell 2000 funds. Each is .1% ER. Everything else offered is 1.5%+
My old company had all actively managed funds, 1.5% ER+, except for 1 S&P 500 index fund which had a .75% ER.

JBTX
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by JBTX » Sat Mar 31, 2018 3:03 pm

There is a decent amount of administration costs surrounding these plans. Somebody has to bear these costs, either the employee or employer. For small plans the propertion of cost to plan assets is much higher.

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Re: Why does it seem there are so many bad/poor 401K plans?

Post by youngpleb » Sat Mar 31, 2018 3:22 pm

My company 401k plan has very good potential I feel, but there are a few funds in there that leave me scratching my head as to how they managed to work their way into the offerings. We've got the run of target date funds and a good index fund offering, but then randomly 1 AMG mid-cap fund, 1 T. Rowe Price LC growth fund, a Wells Fargo MC growth fund...it's random. It'd be interesting to find out how stuff like that happens. I could see plans maybe having a few funds from different companies, but how do you end up with 1 random fund of each? :confused
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Smorgasbord
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by Smorgasbord » Sat Mar 31, 2018 5:17 pm

I chose my company's 401k plan, and when shopping for a plan the high price / lousy plans generally seem to do a much better advertising.

The lousy plans also tend to shift the fees onto employees, so it's an easier sell to the principals at the company. A small company's plan administrator who wants to go with Vanguard is going to have to explain why the company should write a ~$4,000 check when there are "free" plans available elsewhere.

airshow
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by airshow » Sat Mar 31, 2018 5:48 pm

I'm pretty sure THAT is what happened with our new 401k plan. Our company recently sold, and the much-larger ownership group changed our so-so plan to one that is less-than-so-so imo. It took me awhile just to figure out the fund's e/r's. In the fine print each employee will pay .4% annually for the program fee, among other fine-print fees. The e/r's 'appear' low, until you delve way deeper into the plan docs. Unfortunately many employees will just choose a fund or two and be done with it without researching the plan docs. Blaaaaaah

I think there's enough financial gurus with the new ownership to give pause to this 'new' plan, but for whatever reason, we're now stuck with one of these ownership-friendly / employee-unfriendly plans.

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KlingKlang
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by KlingKlang » Sat Mar 31, 2018 6:31 pm

Back in the 1990's our mid-size company's HR manager (who used to be the president's administrative assistant when they were starting out) visited our branch office to explain our new 401(k) plan. Someone asked why they had chosen the company that they did to administer the plan. She was actually dumb enough to say "They took my husband and I to Dallas for a really nice weekend.".

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permport
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by permport » Sat Mar 31, 2018 6:36 pm

Frontline has done a phenomenal documentary on this very issue called “The Retirement Gamble”. The gist of it being that fund management companies bid for position to be in 401K plans, and there are also kick backs and commissions that really bilk the modern investor.
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Iliketoridemybike
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by Iliketoridemybike » Sat Mar 31, 2018 6:42 pm

It’s legal based. Their is a fiduciary responsibility. No one wants to get sued so they offer safe crap.

Dottie57
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by Dottie57 » Sat Mar 31, 2018 6:49 pm

Jags4186 wrote:
Sat Mar 31, 2018 2:17 pm
stan1 wrote:
Sat Mar 31, 2018 2:09 pm
Follow the money. Plan administrators have to get compensated somehow. Sometimes the employer pays the plan administrator's fees directly. Other times the employer wants the plan participants to pay the administrative costs so the administrator and underlying fund managers whose funds are offered in the 401K negotiate a revenue sharing agreement (some of the fund's expenses go back to the administrator).
Bingo. It's all about opaqueness. Some companies cover all the fees and offer great funds. Some companies offer great funds and pass through the fees directly. Some companies offer funds with high expenses and 12b-1 fees in exchange for no fees.

My wife's company offers pretty much every Vanguard Admiral fund they offer. And every quarter $50 gets deducted from her account. Imagine if you only contributed $1000/yr, you're paying 20% in fees.
My 401k has all actively managed funds except for 3 index funds--SP500, Russell Midcap, and Russell 2000 funds. Each is .1% ER. Everything else offered is 1.5%+
My old company had all actively managed funds, 1.5% ER+, except for 1 S&P 500 index fund which had a .75% ER.
+ 1

My employer covered all of the plan costs. The ER on the funds was very low. Great plan through Fidelity.

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BogleFanGal
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by BogleFanGal » Sat Mar 31, 2018 6:50 pm

For most of my career, I don't recall ever having a decent 401k - every plan had high expense ratios, actively managed funds and it wasn't until the last job I had (about 10 years ago) that actually offered index funds. The first two were run by huge insurance conglomerates as the administrators- so you can imagine what a good deal that was. I remember trying to find out expense ratios a couple of times and it was a big secret - they made it really hard to figure out. I tried calling and got the runaround and a lot of condescending talk from the reps trying to make me feel stupid for asking. Good times. :annoyed

I may pay a little higher ER on my Vanguard i401k these days than I feel I should given the restriction on Admiral funds, but I'll still take it over some of these past offerings.

airshow
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by airshow » Sat Mar 31, 2018 7:49 pm

permport wrote:
Sat Mar 31, 2018 6:36 pm
Frontline has done a phenomenal documentary on this very issue called “The Retirement Gamble”. The gist of it being that fund management companies bid for position to be in 401K plans, and there are also kick backs and commissions that really bilk the modern investor.
Just watched it. Agree it is eye-opening. wow and thank you.

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alec
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by alec » Sat Mar 31, 2018 8:21 pm

Maybe the people in charge, the owners of the company, make most of their money from things besides the 401k plan. Hence, they don’t really care about 18k per year, when they’re making tens or hundreds of thousands per year.
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by texasdiver » Sun Apr 01, 2018 2:58 pm

I watched this happen with my wife's employer which at the time was a small public health clinic. In her case it was a 403(b) plan but same difference.

The CFO of the organization who was in charge of chosing plans was something of a control freak and the only MBA in the organization. All the other high level administraters in her organization were doctors who didn't want to be bothered with financial stuff and completely deferred to him on these types of decisions.

He was apparently wined and dined extensively by one of the local insurance company saleswomen who sold them a big package deal which was then presented to the employees as a fait accompli. Apparently she went to the same church and everyone was part of the same social circle.

I went to the meeting with my wife. It was sold as:

1. This is a great plan because it doesn't cost the organization anything, the provider was covering all the costs (as a public clinic they were always fundraising (even from employees) and always pinching pennies.

2. They had great fund choices (showed powerpoints with sales promo stuff like graphs and data tables) about how some of their expensive managed funds from American Funds elsewhere had beaten the market.

3. They had a great web site where you could manage your funds and follow your earnings which was going to be a big improvement, etc. etc.

4. They were "low fee" which they didn't ever define but after lots of digging I figured out they were charging about 0.75% fees on top of the normal fees embedded in the actively managed mutual funds themselves. It was all very obtuse because they wrapped it into some sort of annuity system where the fund values were defined by the insurance company and didn't match the listed values of the mutual funds.

Not one of the highly educated doctors and nurses listening to the presentation had any idea that they seeing or that there would have been far superior options with say Vanguard or Fidelity.

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fortyofforty
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by fortyofforty » Sun Apr 01, 2018 4:54 pm

I was indirectly involved in a 403(b) plan. Vanguard offered very little handholding or administrative support. The Lincoln Financial Group offered all of that, even for a relatively small non-profit. It was impossible for me to convince the decisionmakers to switch away from the relatively high cost company, or even to offer the lower-cost option of Vanguard. Lincoln had gotten itself entrenched, and wasn't going anywhere.
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curious george
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by curious george » Mon Apr 02, 2018 8:05 am

From what I have observed - many employers are busy and don't have knowledge.
They just choose an easy solution.
Companies that charge high fees , etc offer an easier solution for employer.
Employer does not calculate the long-term cost to employees and are never shown that data
Employer often thinks this is easy for me and isn't "that bad".
Smaller employers still have to run the business.
It often isn't a money making scheme or malicious.


Using a low cost solution requires some work and some knowledge by employer
Many things are not always obvious as possibilities
- e.g. even though my friend's company uses fidelity, they offer VG target date funds.

Once in place, there is momentum ...... to switch plans is a lot of work.

Engineer250
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by Engineer250 » Mon Apr 02, 2018 9:17 am

I've mentioned on here before my Megacorp went from Schwab to Vanguard. As of now they have good domestic index funds and good target date funds, and expensive and actively managed international and bond funds. I decided I'd ask HR straight up and found out some third party financial firm picks the funds. Probably some company with a long term relationship with the wealthy owners. That said, my fees are a lot lower than others I have seen on here who also have Vanguard and I can pay $50 a year to invest 90% of my money outside the plan (in which I grab a 3-Fund portfolio). So while it boggles me how my company is obviously generous enough to pay for Vanguard and cover some of the fees yet somehow still paying this stupid financial firm to make decisions, everything combined means there are not-terrible options for me at least.
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by LawyersGunsAndMoney » Mon Apr 02, 2018 11:12 am

Combination of a lot of things. I can only speak from experience in the SMB world.

Historically the Vanguard's and Fidelity's of the world didn't compete in the smaller spaces until very recently. Instead you had a plethora of insurance companies touting their experience working with other SMBs, and offering an "easy" solution that passes lot of expenses to participants.

As a SMB owner/decision maker, you've likely created a 401k to attract better talent, and also to provide yourself with additional investment options. You may have an advisor, and you're also likely working with a TPA. By the time you're done designing a plan with the TPA, you're well-aware of how much providing a match or profit-sharing is going to cost you - so the actual fees charged by the 401k provider may be a bit of an afterthought. You're looking for this to be done quickly.

The companies that come in to pitch you (or the one(s) that come recommended by your advisor) are going to feature their pitch on things like their user-interface, their retirement calculators - and a bunch of other crap that is often times NOT related to the funds they offer and their expense ratios. Any questions about fund choice or ERs and you're going to be told that until you have significant assets under management, these are the (limited) options available to you. Which may or may not be true - depending on how many providers you speak with.

You likely haven't seen the research that shows that limiting fund options to a handful of diversified choices leads to better results than providing a laundry-list of options (my company's original 401k had 110 different choices).

For us - we ended up finally making the switch to a "good" 401k provider after we'd accumulated over $1MM in AUM and when the profit-sharing component of our 401k had become a pretty damn good benefit. As a principal (but not the owner), I informally solicited information from Vanguard about what kind of plan they could offer our 10-person SMB, and then build a spreadsheet that showed the average ER for our previous plan vs. the average ER from a Vanguard plan - and then built that out over 5, 10, 20, 30 years assuming a constant rate of return and variables for employee contribution and company match/profit sharing. I then took this to our founder and said two things. The first was that our profit sharing contribution to 401ks was sizable but being offset by high-fees and the second was- "here's how much more you'll have at retirement if we switch."

We then kicked off the process, asked our advisor to vet 10 providers with criteria we chose, and then brought 3 of them in for presentations. We ended up switching to Fidelity, built a great plan menu, and lowered our fees across the board. It was somewhat of a pain in the butt - and took several months once the decision was made - but well worth it in the end.

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Clever_Username
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by Clever_Username » Mon Apr 02, 2018 11:13 am

permport wrote:
Sat Mar 31, 2018 6:36 pm
Frontline has done a phenomenal documentary on this very issue called “The Retirement Gamble”. The gist of it being that fund management companies bid for position to be in 401K plans, and there are also kick backs and commissions that really bilk the modern investor.
Great documentary. I watched it when it came out. I should keep a link handy to show to others on a more regular basis.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

fposte
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by fposte » Mon Apr 02, 2018 11:17 am

I think it's super-common with schools; it was historically insurance companies, I believe, that got to that market, and most schools haven't paid much attention to what could be done there.

MrPotatoHead
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by MrPotatoHead » Mon Apr 02, 2018 7:03 pm

The way it was explained to me by a small employer (70 employees) is they wanted to be exactly middle of the road in the plans offerings: not slanted to index funds, not slanted to active funds and ERs in the dead center. They were afraid of lawsuits, which I think is a very valid concern.

Consider what may happen if you have a period of time when active funds outperform passive, the plans that are index only may end up on the wrong end of yet another class action lawsuit. From an employers perspective these plans are a lawsuit waiting to happen. Jury shopping happens ad is not hard to see how this may play out.

Face it, part of the reason companies like IBM spent so much money lobbying Congress for the ACA is they wanted out of providing healthcare - the primary reason was lawsuits. In my view it is analogous to 401K plans. The primary motivation is not what the plan provides to the participants but rather how it is sold to company in terms of mitigating future legal actions.

Frankly I am surprised at how many small companies even set up a plan at all. Employees tend to construe benefits as rights and tend to get litigious about things.

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Re: Why does it seem there are so many bad/poor 401K plans?

Post by investor997 » Tue Apr 03, 2018 1:41 pm

In terms of what we as individual contributors/employees/job candidates can do about any of this, how much weight should we place on a potential employer's 401k plan specifics when it comes to weighing job offers? I have to admit that after having discovered this website - and learning tricks like Mega Back Door Roth IRA - I'd be inclined to ask for very specific information before accepting an offer. After all, it's all part of a Total Compensation Package, no?

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Re: Why does it seem there are so many bad/poor 401K plans?

Post by Amphian » Tue Apr 03, 2018 2:17 pm

MrPotatoHead wrote:
Mon Apr 02, 2018 7:03 pm
Frankly I am surprised at how many small companies even set up a plan at all. Employees tend to construe benefits as rights and tend to get litigious about things.
I don't understand why we force companies to provide benefits that are usually part of the state or private sources in other democracies. I think it's a burden to companies (especially small ones) to have to offer things like healthcare, retirement, etc. They need to hire people to plan for all this, manage it, etc. and it's not crucial to the business.

Some benefits will always be tied directly to a company - it's impossible to think of removing things like vacation from the company side, since that obviously has to be scheduled with the company itself - but we could divorce things like retirement completely from jobs and just have extra compensation. The salaries go up to cover the cost normally paid now by the company and either the government or private industry provides alternatives.

Instead of a 401K with a match, let me open an IRA at the broker of my choosing, increase what I can put in per year to match the 401K limits, and increase my salary to make up for the match loss. The company doesn't have to pick anything or do anything other than split my direct deposit if I choose to have it done that way.

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Re: Why does it seem there are so many bad/poor 401K plans?

Post by MrPotatoHead » Tue Apr 03, 2018 4:24 pm

Amphian wrote:
Tue Apr 03, 2018 2:17 pm
MrPotatoHead wrote:
Mon Apr 02, 2018 7:03 pm
Frankly I am surprised at how many small companies even set up a plan at all. Employees tend to construe benefits as rights and tend to get litigious about things.
I don't understand why we force companies to provide benefits that are usually part of the state or private sources in other democracies. I think it's a burden to companies (especially small ones) to have to offer things like healthcare, retirement, etc. They need to hire people to plan for all this, manage it, etc. and it's not crucial to the business.

Some benefits will always be tied directly to a company - it's impossible to think of removing things like vacation from the company side, since that obviously has to be scheduled with the company itself - but we could divorce things like retirement completely from jobs and just have extra compensation. The salaries go up to cover the cost normally paid now by the company and either the government or private industry provides alternatives.

Instead of a 401K with a match, let me open an IRA at the broker of my choosing, increase what I can put in per year to match the 401K limits, and increase my salary to make up for the match loss. The company doesn't have to pick anything or do anything other than split my direct deposit if I choose to have it done that way.
All my employees are currently 1099. That being said in the past when I had W2 employees the benefit program was lean. For health care we had a group plan that the employee paid for 100%. I added a flat dollar amount per employee to their salary on an annual basis and told them my intention was they use it to pay for their health insurance. Retirement was handled in an analogous fashion. Every March we had an all day meeting where I brought in a financial planner to give all day presentations on retirement(I reviewed the area he/she was to cover ahead of time both tax free, tax deferred, and taxable investing). I gave each employee a minimum lump sum as a cash payment, in good years it was more, but never less than the minimum (the IRA limit). At lunch I gave a speech emphasizing the importance of saving and investing for retirement. And then told them that the intention of this bonus was that they put it away for retirement however they were free to spend it as the choose. But one again I reminded them that my intention was they put this away for retirement.

In this way, I had a very inexpensive and very flexible way to provide benefits to my employees that kept the government out of my hair. I never had any complaints.

My point is, it is not hard to provide benefits if you simply provide the dollars to enable employees to buy their own.

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Re: Why does it seem there are so many bad/poor 401K plans?

Post by KSActuary » Tue Apr 03, 2018 6:44 pm

Advisors and recordkeepers love asset based fees for future fee growth. Many old 401ks came from mutual fund companies who did their own recordkeeping (T Rowe Price is a great example). The plan was considered free as the fees were hidden in the funds so employer had no motivation to investigate.

Things are changing slowly. Demand fixed fees for recordkeeping and advisory services.

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munemaker
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by munemaker » Tue Apr 03, 2018 6:46 pm

aaronl wrote:
Sat Mar 31, 2018 1:58 pm
Principal-agent problem.
+1 - exactly. Owners of smaller companies through the business to their friends.

michaeljc70
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Re: Why does it seem there are so many bad/poor 401K plans?

Post by michaeljc70 » Tue Apr 03, 2018 8:31 pm

As others said, it depends how much the company wants to foot the bill for the plan. Though today there seems to be a lot more low cost options for employers.

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Re: Why does it seem there are so many bad/poor 401K plans?

Post by il0kin » Tue Apr 03, 2018 9:14 pm

I actually just got an email from my employer today - cost paid to the firm (Valic) administering our 457 and 403 plans is to be $14.25 per employee, per quarter (so $57 annually). It was a percentage, though I am not sure what the percentage was, and the email stated that the new fee structure will reduce costs to employees. Is $57 annually reasonable? My thought is, my rollover with Vanguard only costs me the fund expenses, why is the firm charging me $57/yr?

Fortunately, we do have a full suite of Vanguard institutional funds available via Valic including VINIX and VBTLX and Vanguard target date funds with very low ER's, so I am thankful someone in HR obviously thought things through.

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Re: Why does it seem there are so many bad/poor 401K plans?

Post by airshow » Tue Apr 03, 2018 10:21 pm

Here's what we have to deal with in our new company plan. Example below:

No-name Target fund e/r: .25 (right out where you can see it easily. THEN you read the fine print:)

admin fee: $55 per participant
additional annual general admin fee: $5,150/300 (fee divided by approximate number of participating employees)
annual 'program' fee: .4%
annual investment management fee: .027%

So, $100,000 in the Target fund will have a 'real' e/r of .75 - not terrible, but certainly not the .25 that was front and center!

But say you just started with the company. You've got $5000 in that same target fund.
Based on above, you're paying an e/r of 2.11

The hard-fixed costs really hurt the small-dollar investor.

Most employees I know will simply throw up their hands and just pick a fund, with no idea how much it really is costing them. How sad.

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Re: Why does it seem there are so many bad/poor 401K plans?

Post by airshow » Tue Apr 03, 2018 10:32 pm

MrPotatoHead wrote:
Tue Apr 03, 2018 4:24 pm
All my employees are currently 1099. That being said in the past when I had W2 employees the benefit program was lean. For health care we had a group plan that the employee paid for 100%. I added a flat dollar amount per employee to their salary on an annual basis and told them my intention was they use it to pay for their health insurance. Retirement was handled in an analogous fashion. Every March we had an all day meeting where I brought in a financial planner to give all day presentations on retirement(I reviewed the area he/she was to cover ahead of time both tax free, tax deferred, and taxable investing). I gave each employee a minimum lump sum as a cash payment, in good years it was more, but never less than the minimum (the IRA limit). At lunch I gave a speech emphasizing the importance of saving and investing for retirement. And then told them that the intention of this bonus was that they put it away for retirement however they were free to spend it as the choose. But one again I reminded them that my intention was they put this away for retirement.

In this way, I had a very inexpensive and very flexible way to provide benefits to my employees that kept the government out of my hair. I never had any complaints.

My point is, it is not hard to provide benefits if you simply provide the dollars to enable employees to buy their own.
I would totally be on board with your method, but I'm afraid there aren't many businessmen like yourself who think along those lines.

TheDDC
Posts: 134
Joined: Mon Jan 08, 2018 11:11 am

Re: Why does it seem there are so many bad/poor 401K plans?

Post by TheDDC » Tue Apr 03, 2018 11:08 pm

I always sort of assumed the fees from a crappy 401(k) were offset by the fact that employer match is typically assumed into the equation, though obviously not in all situations. That is not the case with 403(b) plans usually. It is not typical around my area to have an employer match in a public school/state employment situation since we have also have pensions. The closest thing to that as a cabinet official I had was a payout of unused vacation days at per diem rate into a 403(b).

Things are changing for the better with 403(b) options in schools I have found. In my case I have a wealth of low cost 403(b) plan providers through my ESA'S TPA. I could go with Vanguard, but the $60 per year record keeping fee is higher than Fidelity at $20 per year which I finally chose since I have access to low cost premium funds butnthat requirement is waved for Fido NB.

Fidelity Net Benefits is a different platform from the normal Fidelity brokerage since a 403(b) can't be held/managed in a traditional brokerage account structure. I can pick from 200 Fidelity active/passive funds including the "three fund" index equivalents. I am charged $5 per quarter for record keeping and there is no minimum to open a premium fund and no AUM fee structure. Normally there is a $10k minimum since they are Admiral share equivalent.

This is by far the best set of 403(b) options of any employer I've worked for. Two employees ago I had a lousy $2/pay "administrative fee" in addition to the Ameriprise TSA fees. I ditched Ameriprise and am gradually rolling my 403(b) over to Fidelity.

-TheDDC

Independent George
Posts: 253
Joined: Wed Feb 17, 2016 12:13 pm

Re: Why does it seem there are so many bad/poor 401K plans?

Post by Independent George » Wed Apr 04, 2018 12:01 am

Wow, reading about some of these plans is making me grateful for my own company's plan even if the match kind of sucks (50% of the first 6%, so basically 3%). The default option is more or less what I selected anyway (Vanguard target date fund based on employee age), and the administrative fee is a flat $25/year. Expense ratio on the target date funds is 0.06%.

sport
Posts: 6936
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Why does it seem there are so many bad/poor 401K plans?

Post by sport » Wed Apr 04, 2018 1:13 am

Amphian wrote:
Tue Apr 03, 2018 2:17 pm
MrPotatoHead wrote:
Mon Apr 02, 2018 7:03 pm
Frankly I am surprised at how many small companies even set up a plan at all. Employees tend to construe benefits as rights and tend to get litigious about things.
I don't understand why we force companies to provide benefits that are usually part of the state or private sources in other democracies. I think it's a burden to companies (especially small ones) to have to offer things like healthcare, retirement, etc. They need to hire people to plan for all this, manage it, etc. and it's not crucial to the business.

Some benefits will always be tied directly to a company - it's impossible to think of removing things like vacation from the company side, since that obviously has to be scheduled with the company itself - but we could divorce things like retirement completely from jobs and just have extra compensation. The salaries go up to cover the cost normally paid now by the company and either the government or private industry provides alternatives.

Instead of a 401K with a match, let me open an IRA at the broker of my choosing, increase what I can put in per year to match the 401K limits, and increase my salary to make up for the match loss. The company doesn't have to pick anything or do anything other than split my direct deposit if I choose to have it done that way.
The short answer is "politics". The rules of the forum prevent any detailed discussion of this.

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