Rank These 401(k) Providers

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Alskar
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Rank These 401(k) Providers

Post by Alskar »

For the third time in my career, I'm working to get my employer to provide a better 401(k) plan. I was successful the first two times. I hope to be successful again, but I've been thrown for a loop by some 401(k) providers that were NOT on the list I recommended. I could use some input:

The current plan is administrated by ADP. It contains mostly co-mingled funds, the least expensive of which (an S&P 500 index fund) has an ER of 0.71%. That's not a typo; the cheapest fund is an S&P 500 index fund with an ER of 0.71% or something like 12x higher than Vanguard's S&P 500 fund. I get a bit dizzy when I look at the other ER's; some are over 2%.

Despite my suggestions the HR manager has chosen the following 401(k) providers for consideration:

• Vanguard
• John Hancock
• Principal
• Transamerica

How would you rank these providers and why? Does anybody have any really recent experience with these providers they'd like to share? I did search this forum and have read the information therein, but most of it is over a year old and some of it is much older than that.

Obviously, I'm pushing for Vanguard, but I don't yet know if it is big-Vanguard or Small-Business-Vanguard she's talking to. Since we only have around $1.2M (USD) in assets, I suspect it's the newish Vanguard Small Business plan.

Does anybody have any recent, direct experience with Vanguard's Small Business 401(k)?
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manwithnoname
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Re: Rank These 401(k) Providers

Post by manwithnoname »

who is going to pay for the cost of administering the plan?
Last edited by manwithnoname on Fri Mar 28, 2014 7:29 pm, edited 1 time in total.
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JamesSFO
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Re: Rank These 401(k) Providers

Post by JamesSFO »

I think you will find all but Vanguard will be putting in expensive funds... Vanguard will be brutally honest about costs.
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Clark & Addison
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Re: Rank These 401(k) Providers

Post by Clark & Addison »

I don't have any direct experience with Vanguard for a 401k, but with the other three options being insurance companies, I can't imagine a situation in which Vanguard wouldn't be your best option out of those four. I've always tried to use insurance companies for insurance, and investment companies for investing.
manwithnoname
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Re: Rank These 401(k) Providers

Post by manwithnoname »

JamesSFO wrote:I think you will find all but Vanguard will be putting in expensive funds... Vanguard will be brutally honest about costs.
But how are the plan admin cost going to be paid?

Is ADP going to continue as plan administrator?
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dm200
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Re: Rank These 401(k) Providers

Post by dm200 »

Principal is the 400 pound gorilla in the employer 401k market. They have gained that position, in my opinion and experience, by:

1. Engaging an aggressive, talented and persuasive sales force. They are able to convince employers that Principal can take all (or almost all) of the administrative burdens off the employer and employer's staff.

2. Principal "structures" the offerings so as to "maximize" ways of passing on the costs of administration onto the employee participants.

3. Principal has a separate support hotline and folks for the employer to call from the employees. They tell one story to employees who ask about admin costs and a different story to employer staff.

4. Employees get screwed by Principal.
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Re: Rank These 401(k) Providers

Post by joe8d »

dm200 wrote:Principal is the 400 pound gorilla in the employer 401k market. They have gained that position, in my opinion and experience, by:

1. Engaging an aggressive, talented and persuasive sales force. They are able to convince employers that Principal can take all (or almost all) of the administrative burdens off the employer and employer's staff.

2. Principal "structures" the offerings so as to "maximize" ways of passing on the costs of administration onto the employee participants.

3. Principal has a separate support hotline and folks for the employer to call from the employees. They tell one story to employees who ask about admin costs and a different story to employer staff.

4. Employees get screwed by Principal.
:thumbsup They were my first 401k provider.
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Hug401k
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Re: Rank These 401(k) Providers

Post by Hug401k »

Here's my industry reputation rank, however this is based on experience with larger plans and is over a year old. That being said, these providers don't typically change quickly. I'm not familiar with Vanguards small business service, but if it uses their same basic record keeping platform they use for large service, same funds (but with perhaps a more expensive class), I feel they are the best choice. I believe Principal is the market leader with total number of small plans administered, but considering investments, I would prefer Vanguard. You may be offered a full Vanguard line up with no flexibility. They tend to need all the assets to make it work since the funds are so low cost. You might get some flexibility from Principal etc., but higher cost funds.

1. Vanguard
2. Principal
3. Hancock
4. TransAmerica

By the way, most HR Managers hire based on a) what the boss wants b) what they know c) who will make their life the easiest (administratively) and keeps them out of trouble d) what will get the lowest paid under contributing population involved ..and then funds (unless that's what the boss wants).

That's my opinion anyway. Good luck! Let us know how it goes.
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tfb
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Re: Rank These 401(k) Providers

Post by tfb »

This is the key question:
manwithnoname wrote:who is going to pay for the cost of administering the plan?
The other providers will be able to offer a free plan to your employer. Vanguard likely won't. Push your employer to have the Vanguard admin expenses deducted from plan assets. This way it's still free to the employer and comparable with other providers. Then you can compare the cost to the employees. BTW the other three are equally bad.
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Re: Rank These 401(k) Providers

Post by JonnyDVM »

joe8d wrote:
dm200 wrote:Principal is the 400 pound gorilla in the employer 401k market. They have gained that position, in my opinion and experience, by:

1. Engaging an aggressive, talented and persuasive sales force. They are able to convince employers that Principal can take all (or almost all) of the administrative burdens off the employer and employer's staff.

2. Principal "structures" the offerings so as to "maximize" ways of passing on the costs of administration onto the employee participants.

3. Principal has a separate support hotline and folks for the employer to call from the employees. They tell one story to employees who ask about admin costs and a different story to employer staff.

4. Employees get screwed by Principal.
:thumbsup They were my first 401k provider.
True that. Just rolled my money out of my old employers principal 401k plan. They love to stick it to you with fees including a pleasant $40 fee to roll my money out. Thanks Principal! To the positive they did have a large, mid and small cap index fund. Vanguard is not going to give you top rate customer service but you'll get the best fee structure in exchange. Can't comment on the other two.
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Watty
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Re: Rank These 401(k) Providers

Post by Watty »

My companies 401k plan is with Principal and one of the things I do not like about it is that with the 401K they do not have mutual funds, but instead they have “separate accounts” that are made up to look like mutual funds. You can look these up on the internet but one of the things I don't like is that there is no prospectus for them and even if you call the 800 number about all you can get in the way of details about it is a one or two page information sheet instead of the prospectus.

Being a separate account instead of a mutual fund they can also do lots of odd stuff. There was a real estate separate account that was made to look like a REIT that they were having problems with starting in about 2008 and for about three years they would not let you take your money out of that separate account! They also do not have dividends that you can see and when I asked about they said that the dividends that the companies pay are automatically put into the NAV.

The expense ratio that is listed for the separate funds changes each year but to see this you have to compare the old paperwork to the current paperwork since they only show the current years expense ratio. I would assume that this is based on how good a deal your company negotiated that year. I work for a large company with lots of employees so we probably have better than typical ER's. As I recall the target date funds have an ER of about 0.7% and the other funds go up to about 1.5%

In addition to the target dated funds we have access to about 25 or 30 funds.

Prior to this year the only good choices were small, medium and large cap index funds with an ER of 0.10% and this year they added an international index fund and a bond index fund with good ER's so I started using them too. These all are listed as tracking their respective index(less the ER) pretty well so I think(hope) that it means they have not been able to slip in too many other fees.

I think I am doing OK with them because we have a few good choices but I would not recommend them.
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Re: Rank These 401(k) Providers

Post by dkdoy »

dm200 wrote:Principal is the 400 pound gorilla in the employer 401k market. They have gained that position, in my opinion and experience, by:

1. Engaging an aggressive, talented and persuasive sales force. They are able to convince employers that Principal can take all (or almost all) of the administrative burdens off the employer and employer's staff.

2. Principal "structures" the offerings so as to "maximize" ways of passing on the costs of administration onto the employee participants.

3. Principal has a separate support hotline and folks for the employer to call from the employees. They tell one story to employees who ask about admin costs and a different story to employer staff.

4. Employees get screwed by Principal.
Agree on all counts.
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Random Musings
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Re: Rank These 401(k) Providers

Post by Random Musings »

joe8d wrote:
dm200 wrote:Principal is the 400 pound gorilla in the employer 401k market. They have gained that position, in my opinion and experience, by:

1. Engaging an aggressive, talented and persuasive sales force. They are able to convince employers that Principal can take all (or almost all) of the administrative burdens off the employer and employer's staff.

2. Principal "structures" the offerings so as to "maximize" ways of passing on the costs of administration onto the employee participants.

3. Principal has a separate support hotline and folks for the employer to call from the employees. They tell one story to employees who ask about admin costs and a different story to employer staff.

4. Employees get screwed by Principal.
:thumbsup They were my first 401k provider.
Have them now. Employer sticks with them since costs transferred to employees. However, since our company has over $20MM in assets, we get large cap index and small cap index for 0.18%. PIMCO is 0.65%. Most other choices are around 1%.

Have asked HR for bond index for years, hasn't happened yet. Also a couple of poor performing actives over the past 5 years were removed and replaced with funds with better historical track records.

I looked at Vanguard one time for them, $30K per year, $18K taking taxes into consideration. ER savings alone per year dwarf the $18K fee, so would improve the overall benefit package to the employee, including key executives who have larger balances in their accounts.

However, HR and Controller various times in past have gone on those nice seminars to warm places. Works for them. :annoyed

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dm200
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Re: Rank These 401(k) Providers

Post by dm200 »

Watty wrote:My companies 401k plan is with Principal and one of the things I do not like about it is that with the 401K they do not have mutual funds, but instead they have “separate accounts” that are made up to look like mutual funds. You can look these up on the internet but one of the things I don't like is that there is no prospectus for them and even if you call the 800 number about all you can get in the way of details about it is a one or two page information sheet instead of the prospectus.

Being a separate account instead of a mutual fund they can also do lots of odd stuff. There was a real estate separate account that was made to look like a REIT that they were having problems with starting in about 2008 and for about three years they would not let you take your money out of that separate account! They also do not have dividends that you can see and when I asked about they said that the dividends that the companies pay are automatically put into the NAV.

The expense ratio that is listed for the separate funds changes each year but to see this you have to compare the old paperwork to the current paperwork since they only show the current years expense ratio. I would assume that this is based on how good a deal your company negotiated that year. I work for a large company with lots of employees so we probably have better than typical ER's. As I recall the target date funds have an ER of about 0.7% and the other funds go up to about 1.5%

In addition to the target dated funds we have access to about 25 or 30 funds.

Prior to this year the only good choices were small, medium and large cap index funds with an ER of 0.10% and this year they added an international index fund and a bond index fund with good ER's so I started using them too. These all are listed as tracking their respective index(less the ER) pretty well so I think(hope) that it means they have not been able to slip in too many other fees.

I think I am doing OK with them because we have a few good choices but I would not recommend them.
In my opinion, "separate accounts" that are made to look like mutual funds (but are not) may or may not be OK. What Principal does (from my experience at a former employer) quite well (in the evil sense!) is hide and bury that actual costs and fees passed on to the employee. Here is what I discovered about what they did (when I was a participant) and how they did it.

Every quarter, we received our account statements (of our actual balances, transactions, etc.) AND a general Principal newsletter with general reports on all of their "funds". This general newsletter stated a very low "expense ratio" for their "funds", and some very fine print stating that your actual account details, etc. were based on the specific details of your company's "plan'. So, each quarter, I looked at my account performance - and it was always lower than the performance cited in the general newsletter. So, I called the Principal participant hot line and asked why my performance was lower. The answer I received was that my performance was different because I had transactions and changing balances during the period. OK, but it kept happening. Same answer.

SO - I then knew something fishy was going on - and I was not being told the truth. I then changed my contribution allocation to stop contributing to 1 or 2 funds that I held. Those "funds" were then completely static for the whole quarter. My end of quarter report still showed over a 1% annualized lower performance than the glowing newsletter. I called the hotline again - same answer - balances are changing during the period. When I pointed out the static holdings in the account, they could not explain it. I then learned that Principal has two different "hotline" departments - one for the employer and one for the employee. The employee hotline folks are kept in the dark about a lot of the details, so when they give an answer that is not true, they are not "technically" lying, because they don't know the truth. I finally got through to the "employer" hotline person who admitted that Principal's agreement/contract with my employer (at the time) provided for a very large added fee (triple or quadruple the newsletter expense ratio).

It was my conclusion that such tactics are what enables Principal to offer 401k plans to employers that give the employers a very, very low net cost of administering the 401k plan. A significant portion of the money take from employee participants goes into the pockets of the sales folks from Principal who are successful in gaining more 401k business from employers.

My efforts in exposing this (in my terms) "dishonesty" were regarded by my small company employer as those of a disturbed disgruntled employee. The finance/HR woman suggested that since I, apparently, was so emotionally and/or mentally disturbed - perhaps I should just not participate in the 401k plan. I also had discovered some non-trivial errors that short-changed me and some other employees.
ccieemeritus
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Re: Rank These 401(k) Providers

Post by ccieemeritus »

My wife's work 401k was in Diversified which got merged into Transamerica last year. The index fund available is the Principal LgCap 500 which has an expense ratio of 0.42%. The fund shows a 31.79% return in 2013.

By comparison the Vanguard Employee Benefit Index Fund in my Schwab 401k, which also tracks the S&P500, reported a 32.41% return in 2013. Per the prospectus the expense ratio varies from 0.02 to 0.17 based on the amount of the investment (institutional plus to investor). My 401k reports their expense at 0.017. I guess that low end expense ratio at Vanguard of 0.02 was rounded up to the nearest hundredth. Thank you Megacorp CFO for a good 401k pick! Thank you Vanguard!

For reference Vanguard and Fidelity prospectuses confirm that the S&P500 return was 32.39% in 2013. So Vanguard appears to have slightly beaten the index fund they are emulating.

Summary: Transamerica bad. But not as bad as that .7 ER someone else mentioned. Vanguard funds good. I'm also a happy Schwab customer and trust them for various reasons (early into discount brokering, advertised the evils of loaded funds in the 90's when I got into investing).
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Re: Rank These 401(k) Providers

Post by gloomydog »

I set up our 401K with vanguard small biz. It's administered by ascensus, we're very pleased with it.
I've heard bad things about Principal and John Hancock obviously since I get my info mostly here, dunno transamerica.

The fee schedule:
New plan once off charge $1K (conversion of existing plan is 1.5K)
Annual service fee:
1-15 participants $3475
16-50 $3475+75/participant
51-100 $6100+70 per participant

Given the option of company paying annual fee, or rolling into participant based on assets. As you can see the fees are significant if they are paid by participants' plan assets.

You get to choose vanguard funds, and/or allow brokerage account trading for a small extra fee.
Some of the funds offered belong to a share class "signal", some are inv, some are admiral. We didn't get to choose which share class the fund is, just the funds to invest in.

If you enjoy maxing out absolutely everything including the back door roth, better push your HR towards vanguard. :D

Last year was the first year with a 401K plan, and I had a pretty hard time convincing Ascensus the back door roth maneuver was legit, but probably in subsequent years we'll be fine.
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Re: Rank These 401(k) Providers

Post by 3CT_Paddler »

tfb wrote:This is the key question:
manwithnoname wrote:who is going to pay for the cost of administering the plan?
The other providers will be able to offer a free plan to your employer. Vanguard likely won't. Push your employer to have the Vanguard admin expenses deducted from plan assets. This way it's still free to the employer and comparable with other providers. Then you can compare the cost to the employees. BTW the other three are equally bad.
+1. Also the OP should take a look at Employee Fiduciary if possible.
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ERMD
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Re: Rank These 401(k) Providers

Post by ERMD »

my 403b is with transamerica. institutional share vanguard index funds, ERs mostly <0.1.

no complaints.
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JamesSFO
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Re: Rank These 401(k) Providers

Post by JamesSFO »

gloomydog wrote:I set up our 401K with vanguard small biz. It's administered by ascensus, we're very pleased with it.
I've heard bad things about Principal and John Hancock obviously since I get my info mostly here, dunno transamerica.

The fee schedule:
New plan once off charge $1K (conversion of existing plan is 1.5K)
Annual service fee:
1-15 participants $3475
16-50 $3475+75/participant
51-100 $6100+70 per participant

Given the option of company paying annual fee, or rolling into participant based on assets. As you can see the fees are significant if they are paid by participants' plan assets.

You get to choose vanguard funds, and/or allow brokerage account trading for a small extra fee.
Some of the funds offered belong to a share class "signal", some are inv, some are admiral. We didn't get to choose which share class the fund is, just the funds to invest in.

If you enjoy maxing out absolutely everything including the back door roth, better push your HR towards vanguard. :D

Last year was the first year with a 401K plan, and I had a pretty hard time convincing Ascensus the back door roth maneuver was legit, but probably in subsequent years we'll be fine.
This was consistent with the quote we got from Vanguard/Ascensus. Basically there is circa a $6K minimum per year I was quoted which is similar to the above but a touch higher. And they are upfront about it, and yes it could come from participant's assets. Other providers seem to hide the fees more. That's all I was trying to say.

To @manwithnoname, someone has to pay the fees, but what I find is that many providers hide them in high ERs, so you just see an ER of say 1%. While that might be the VG fee above on a small plan, the VG fee will go down as assets go up, but the hidden wrap fees don't seem to move down. But employer may find the hidden wrap fee more appealing.

To @gloomy - Why would VG/Ascensus have anything to do with the back door roth??? They aren't involved in the slightest...?
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Re: Rank These 401(k) Providers

Post by jlawrence01 »

Vanguard is quite up front about the lower fee structure. With Vanguard, the expense ratio for the Vanguard funds were 0.35%; when the new owners moved the money to Fidelity, the expenses rose to 0.78%.

Vanguard does a pretty good job at minimizing the "black out" period when funds are exchanged between periods.
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Re: Rank These 401(k) Providers

Post by mnvalue »

JamesSFO wrote:To @gloomy - Why would VG/Ascensus have anything to do with the back door roth??? They aren't involved in the slightest...?
You're clearly thinking of a backdoor Roth IRA where you make a non-deductible Traditional IRA contribution and then convert that (tax-free, since it was non-deductible) to a Roth IRA. gloomydog is probably talking about the other backdoor Roth thing--the one where you make after-tax (not the same as Roth) contributions to a 401k and then roll them over to a Roth account (typically a Roth IRA, but I think an in-plan conversion to Roth 401k is now an option).
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Re: Rank These 401(k) Providers

Post by gloomydog »

Yes I was referring to the after tax contribution to 401K, which can then be rolled out into a roth 401K. Hardly any plan seem to offer this!
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Re: Rank These 401(k) Providers

Post by mnvalue »

gloomydog wrote:As you can see the fees are significant if they are paid by participants' plan assets.
I'm not sure I'd say $75/year is "significant". Vanguard charges no mark-up on the fund ERs and offers Admiral Shares. For non-Admiral Shares funds, Vanguard offers a .09% ER credit to the plan, offsetting against the $75/participant/year fee. So let's assume everyone stays in the default (most people do, according to Vanguard), which is a Target Fund at 0.18% ER, or 0.09% ER after netting out the offset. If we're comparing to a competitor who charges 1% ER with no other fees to participants or the plan sponsor, that's a difference of .91% for a break-even point of $8,241.

That's not a huge balance, even for a lower income worker. I live in a fairly low-cost area. A major employer has starting wages around $13/hr, matches 3% and contributes another 4% in profit sharing. So that's $2.6k/year between employee contributions. So in just over 3 years, they're over the breakpoint. And even while they're under the breakpoint, the employer match and profit sharing is 24 times their participant fee. Granted, there are employers offering worse deals, but this discussion is only relevant for employers who offer 401ks at all and employees who choose to use them (so if the match doesn't outweigh the $75/year, they're always free to use a Roth IRA at Vanguard).

I'm a HUGE fan of per-participant fees to do 401k cost recovery. Why? Because they are fixed with respect to plan assets. The costs don't go up with the plan asset base, so why should the fees? And fixed costs to participants encourage rather than discourage increased participation (in dollar terms), at least once you get over the initial hurdle of participating at all.
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Re: Rank These 401(k) Providers

Post by davidlukewilcox »

I have Vanguard and my wife has had Transamerica at her previous job and Principal now. My brother-in-law has John Hancock.

Out of all four, I like principal the best, mainly because they have a few cheap stock index funds to keep me happy (.1% ER) and they allow after-tax 401k contributions. To me, the after-tax 401k contributions is a big deal. Vanguard does not allow that.
MarginalCost
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Re: Rank These 401(k) Providers

Post by MarginalCost »

I have TransAmerica, and my experience is very different than some of the earlier posters. The lowest cost plan is, I kid you not, a bond index fund with a .8% ER, and then on top of that, a .6% fee they slap on top of all accounts. Target Date and Stock indexes start at .9% (plus the .6%). I've been told that the fee is going to go down to .3% soon as our company size (and plan assets) grow, but it hasn't happened yet. Our company is small, but not tiny (I don't know the exact number, but probably 500-1000 employees), so depending on the size of your employer, I would stay far away from TA if you can.
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dm200
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Re: Rank These 401(k) Providers

Post by dm200 »

davidlukewilcox wrote:I have Vanguard and my wife has had Transamerica at her previous job and Principal now. My brother-in-law has John Hancock.

Out of all four, I like principal the best, mainly because they have a few cheap stock index funds to keep me happy (.1% ER) and they allow after-tax 401k contributions. To me, the after-tax 401k contributions is a big deal. Vanguard does not allow that.
Regarding Principal, it all depends on the employer agreements/contracts. I would look at the actual performance of your wife's account(s) and compare her actual performance with the "advertised" Principal numbers. It could be (as I posted earlier) that she is actually paying more (perhaps much more) than the advertised expense ratio.
davidlukewilcox
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Re: Rank These 401(k) Providers

Post by davidlukewilcox »

dm200 wrote:
davidlukewilcox wrote:I have Vanguard and my wife has had Transamerica at her previous job and Principal now. My brother-in-law has John Hancock.

Out of all four, I like principal the best, mainly because they have a few cheap stock index funds to keep me happy (.1% ER) and they allow after-tax 401k contributions. To me, the after-tax 401k contributions is a big deal. Vanguard does not allow that.
Regarding Principal, it all depends on the employer agreements/contracts. I would look at the actual performance of your wife's account(s) and compare her actual performance with the "advertised" Principal numbers. It could be (as I posted earlier) that she is actually paying more (perhaps much more) than the advertised expense ratio.

I honestly don't see how it's legal for them to be doing what you claim they're doing. They say the "gross expense ratio" is .1%. They define gross expense ratio as:

What is the Total Investment Expense - Gross?

Total Investment Expense Gross is the maximum expense ratio that can be applied to an investment option. This includes expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the investment option, except brokerage costs.

So, the only thing they're allowed to not include is brokerage costs. Are you saying that they are grouping this huge cost as a "brokerage cost"?
gloomydog
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Re: Rank These 401(k) Providers

Post by gloomydog »

mnvalue wrote:
gloomydog wrote:As you can see the fees are significant if they are paid by participants' plan assets.
I'm not sure I'd say $75/year is "significant". Vanguard charges no mark-up on the fund ERs and offers Admiral Shares. For non-Admiral Shares funds, Vanguard offers a .09% ER credit to the plan, offsetting against the $75/participant/year fee. So let's assume everyone stays in the default (most people do, according to Vanguard), which is a Target Fund at 0.18% ER, or 0.09% ER after netting out the offset. If we're comparing to a competitor who charges 1% ER with no other fees to participants or the plan sponsor, that's a difference of .91% for a break-even point of $8,241.

That's not a huge balance, even for a lower income worker. I live in a fairly low-cost area. A major employer has starting wages around $13/hr, matches 3% and contributes another 4% in profit sharing. So that's $2.6k/year between employee contributions. So in just over 3 years, they're over the breakpoint. And even while they're under the breakpoint, the employer match and profit sharing is 24 times their participant fee. Granted, there are employers offering worse deals, but this discussion is only relevant for employers who offer 401ks at all and employees who choose to use them (so if the match doesn't outweigh the $75/year, they're always free to use a Roth IRA at Vanguard).

I'm a HUGE fan of per-participant fees to do 401k cost recovery. Why? Because they are fixed with respect to plan assets. The costs don't go up with the plan asset base, so why should the fees? And fixed costs to participants encourage rather than discourage increased participation (in dollar terms), at least once you get over the initial hurdle of participating at all.

The fee is not $75/participant. it is ~$3500 + $75/participant per year for 15-50 participants.
This fee can be paid by employer, or plan assets.

Last year was our first year, so our plan doesn't have a lot of assets anyway. This would be a huge bite if paid by each plan participant. Fortunately the company chose to pay for it.

Before choosing vanguard/ascensus small biz as the 401K plan, I compared a few other 401K plans. Vanguard did not have the lowest plan admin fees, but the others probably rolled these fees into their funds, whereas vanguard was upfront about offering the same low cost funds we all love.
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Alskar
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Re: Rank These 401(k) Providers

Post by Alskar »

Thanks everybody for sharing your insights and experience; much appreciated! Rather than respond to each post separately, I will just respond here:

Employee Fiduciary, Vanguard small-business, Online 401(k) and a few other less well known 401(k) providers were on the list I gave HR. For whatever reason, only Vanguard made her cut. The Director of HR also insists that we have an adviser who needs to be paid out of the funds assets as well. I don't want to pay for advise I'm not using, but the Director of the HR seems to think it will protect her and the company if they have an outsider adviser.

The current 401(k) plan administrated by ADP is being paid for out of a combination of revenue sharing from co-mingled funds and the company. According to the Form 5500 the company paid over $12K last year to administer the plan, it is difficult to tease out how much money was generated by revenue sharing. I do not know how they plan to pay for the new plan, but I remain hopeful that the company will continue to pay for the bulk of the administrative costs.

In any case, I am hopeful that the Vanguard 401(k) will be so much less expensive to my employer than the current ADP plan, that it will be adopted. The other options don't seem acceptable at all.

In theory, I will be getting an information packet on each plan option this evening for my review (I'm on the committee).

FWIW, I would gladly pay $75 a year (flat fee) to have the Vanguard plan. I'm currently paying something like $300 a year just in ER's.
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mnvalue
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Re: Rank These 401(k) Providers

Post by mnvalue »

Alskar wrote:Employee Fiduciary, Vanguard small-business, Online 401(k) and a few other less well known 401(k) providers were on the list I gave HR. For whatever reason, only Vanguard made her cut. The Director of HR also insists that we have an adviser who needs to be paid out of the funds assets as well. I don't want to pay for advise I'm not using, but the Director of the HR seems to think it will protect her and the company if they have an outsider adviser.
I wouldn't fault the employer for dropping the "less well known" providers. Depending on the size of your plan assets relative to the number of participants, they may even be more expensive than Vanguard. I just ran the numbers for our 401k and Employee Fudiciary would be about twice the cost of Vanguard, ignoring any fund kickbacks. If most people stay in the default Target Retirement fund (which Vanguard predicts), the kickbacks in the Vanguard plan mean it works out to be almost free (in our case).

When I started looking into this for our 401k at work, I was initially against paying for an advisor. I felt like it was money that should be paid by those who need it. And while that's still true in theory, I think the vast majority of the participants in our plan have no idea how to determine their desired asset allocation and other such things. And if we choose a good, low-cost advisor for the 401k, we give the participants a sane default advisor. If we force them to enter the marketplace for advisors on their own, they'll likely choose a high-fee advisor and/or someone who sells them whole life insurance while they're there.
kaptan
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Re: Rank These 401(k) Providers

Post by kaptan »

My current 401k is with John Hancock. It's awful. The lowest ER in the plan is 1.03 for an S&P 500 index. I don't know who chose the available funds, but i guess they checked the 'Everything Under the Sun' option when putting together the plan. We have 130 funds to choose from and every single one charges .50% Sales and Services Fee. Most of them also have an Administrative Maintenance Charge ranging from .10% to .50%. All of the vanguard funds in our lineup get the max fees for a full 1% markup. Target date funds are around 1.50%. Can't wait to roll it into my vanguard IRA.

Just checked my last statement and found that there is also a $25 annual fee for general admin charges...paid out of the employee's assets, not by the company. They sold 0.383511 shares of my bond fund to cover this $6.24 quarterly charge. If they would have consulted me, i would have had them sell some of my US stock to help bring my AA back in line :P
traveler90
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Re: Rank These 401(k) Providers

Post by traveler90 »

I have Transamerica at a very small company. No complaints as I have it all in the Vanguard S&P Index Fund (0.04)
Mike83
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Re: Rank These 401(k) Providers

Post by Mike83 »

My 30 person firm has been with, sequentially over a 20 yr period, Principal, Fidelity, and now Vanguard. With 1.2MM assets, you are well matched for the VG plan as administered by Accesnsus. This administration is virtually seamless, as they just do the paperwork, signup, and receipt of funds on behalf of VG. The 'big' VG plan requires, I believe, 4MM in assets as of last year.

Principal is a reputable insurance company that is available to small plans. But their expenses are high and they may lock you into a multiyear contract if you are starting up. This may not be the case with the 1.2MM assets you have in plan, but the annual expenses and expense ratios will still be high.

Small business 401Ks can have high administrative costs, and many providers allow passing these high costs through to participants as somewhat hidden charges. These charges are the subject of many current news stories about 'bad' deals in 401k plans.

I saved $4000 per year, plus escaped an onerous contract and got an opportunity to retune investment choices, by going from Principal to Fidelity. After five years, I moved to Vanguard and saved an additional $6000 per year. I am now confident that my employees are getting the the best value and comparable or better service than before.

The proposal you get from VG will be very informative as to fees. If you are evaluating plans, I would stay away from insurance companies. If you still have time to select comparisons, add T Rowe or Schwab. Remember that changing plans has inherent opportunities to restructure an existing plan... for example if your old plan did not have a Roth option, it may have cost you thousands to make the plan modification... but if you go to a new provider this is part of a loss-leader initial setup fee.

(so, go with VG as far as I am concerned, a no brainer)
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Alskar
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Re: Rank These 401(k) Providers

Post by Alskar »

FOLLOW UP:

After much discussion, flailing, wailing, and gnashing of teeth my employer has decided to switch to the Vanguard Small Business plan. For those keeping track, I am now 3 for 3 in convincing employers to switch to lower cost plans or funds. My winning streak is alive!

It is unclear if they will chose to use the Section 3(21) support offered by Mesirow Financial through Vanguard or if they will opt to pay the advisers at UBS their 50 bps of AuM to "consult" on the plan. In either case, the employees will not be footing the bill.

Unfortunately, I will not be able to take advantage of the improved 401(k) plan as my last day at this job is 1/30/2015. I'm giving up on start-ups. I've taken a job with Megacorp. Their 401(k) plan is superb, but I can hardly believe how many advisers and consultants have their fingers in the pie. Glad I'm not paying for any of that...

Thanks to everybody for their help!
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cebow
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Re: Rank These 401(k) Providers

Post by cebow »

Watty wrote:My companies 401k plan is with Principal and one of the things I do not like about it is that with the 401K they do not have mutual funds, but instead they have “separate accounts”...

I then changed my contribution allocation to stop contributing to 1 or 2 funds that I held. Those "funds" were then completely static for the whole quarter. My end of quarter report still showed over a 1% annualized lower performance...

I finally got through to the "employer" hotline person who admitted that Principal's agreement/contract with my employer (at the time) provided for a very large added fee (triple or quadruple the newsletter expense ratio).
I did the same thing. I put $5,000 in a static holding with Principal and checked its performance over one quarter. Oddly my return is greater than either what was published on Morningstar or on the fact sheet at Principal (those numbers were identical to each other).

Do you think that this is because any dividends I receive are re-rolled into the NAV, because it is held in a "separate account" and not a mutual fund? In which case, how can I figure out the "real" fees?
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dm200
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Re: Rank These 401(k) Providers

Post by dm200 »

cebow wrote:
Watty wrote:My companies 401k plan is with Principal and one of the things I do not like about it is that with the 401K they do not have mutual funds, but instead they have “separate accounts”...
I then changed my contribution allocation to stop contributing to 1 or 2 funds that I held. Those "funds" were then completely static for the whole quarter. My end of quarter report still showed over a 1% annualized lower performance...
I finally got through to the "employer" hotline person who admitted that Principal's agreement/contract with my employer (at the time) provided for a very large added fee (triple or quadruple the newsletter expense ratio).
I did the same thing. I put $5,000 in a static holding with Principal and checked its performance over one quarter. Oddly my return is greater than either what was published on Morningstar or on the fact sheet at Principal (those numbers were identical to each other).
Do you think that this is because any dividends I receive are re-rolled into the NAV, because it is held in a "separate account" and not a mutual fund? In which case, how can I figure out the "real" fees?
Interesting. If this holding was not an actual "mutual fund", but a separate account where dividends are not paid and reinvested, I did not know that Morningstar tracked them. Are you saying that Morningstar does this?
JoeJohnson
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Re: Rank These 401(k) Providers

Post by JoeJohnson »

FWIW, I had access to Vanguard institutional funds with great/low ERs at Transamerica. To be clear, I was an employee at Transamerica. It all depends on how much the employer is willing to eat vs. how much they pass down to the employees through fees.
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Re: Rank These 401(k) Providers

Post by Salmon Maki »

I'm surprised to hear all the negative comments about Principal. My former employer used them, and they had really low cost funds in our 401(k). There was a yearly fee, but it was reasonable, and there was no fee when I rolled it over to my current 401(k). Must depend a lot on the employer.
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Re: Rank These 401(k) Providers

Post by lynneny »

Our 1,000 person company moved to Principal last year. We are now each charged a $100 annual fee, compared to no fee before, so we assume the move was to shift costs from our company to the employees.

Both plans had a similar mix of low-cost index funds and expensive actively managed funds that don't seem to perform any better than the index funds. Many of the Principal funds are collective investment trusts, with no ticker symbol, so they can't be checked out on Morningstar.

I was a big user of the Schwab brokerage window in our last plan, but Principal makes us use their own brokerage window and charges a $75 annual fee (no fee with previous plan) and charges for dividend reinvestment.

On balance, Prudential isn't terrible but it's more expensive for employees than our previous plan.
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dm200
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Re: Rank These 401(k) Providers

Post by dm200 »

Salmon Maki wrote:I'm surprised to hear all the negative comments about Principal. My former employer used them, and they had really low cost funds in our 401(k). There was a yearly fee, but it was reasonable, and there was no fee when I rolled it over to my current 401(k). Must depend a lot on the employer.
Yes - Principal does what the employer contract calls for. What employee participants may not always recognize are possible fees/charges that Principal "buries" well in order to mash what they are being charged.
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dm200
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Re: Rank These 401(k) Providers

Post by dm200 »

lynneny wrote:Our 1,000 person company moved to Principal last year. We are now each charged a $100 annual fee, compared to no fee before, so we assume the move was to shift costs from our company to the employees.
Both plans had a similar mix of low-cost index funds and expensive actively managed funds that don't seem to perform any better than the index funds. Many of the Principal funds are collective investment trusts, with no ticker symbol, so they can't be checked out on Morningstar.
I was a big user of the Schwab brokerage window in our last plan, but Principal makes us use their own brokerage window and charges a $75 annual fee (no fee with previous plan) and charges for dividend reinvestment.
On balance, Prudential isn't terrible but it's more expensive for employees than our previous plan.
Principal sales folks (in an experience with a previous employer) really pitch LOW employer costs. There are direct costs of administration and indirect costs for the employer's HR/payroll departments. These sales folks also pitch pushing such costs onto employee participants.
cebow
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Re: Rank These 401(k) Providers

Post by cebow »

dm200 wrote:
cebow wrote:
Watty wrote:My companies 401k plan is with Principal and one of the things I do not like about it is that with the 401K they do not have mutual funds, but instead they have “separate accounts”...
I then changed my contribution allocation to stop contributing to 1 or 2 funds that I held. Those "funds" were then completely static for the whole quarter. My end of quarter report still showed over a 1% annualized lower performance...
I finally got through to the "employer" hotline person who admitted that Principal's agreement/contract with my employer (at the time) provided for a very large added fee (triple or quadruple the newsletter expense ratio).
I did the same thing. I put $5,000 in a static holding with Principal and checked its performance over one quarter. Oddly my return is greater than either what was published on Morningstar or on the fact sheet at Principal (those numbers were identical to each other).
Do you think that this is because any dividends I receive are re-rolled into the NAV, because it is held in a "separate account" and not a mutual fund? In which case, how can I figure out the "real" fees?
Interesting. If this holding was not an actual "mutual fund", but a separate account where dividends are not paid and reinvested, I did not know that Morningstar tracked them. Are you saying that Morningstar does this?
Principal offers funds like Vanguard, but they hold them in what are called separate accounts, so the fees, dividends, etc are opaque. Dividends are paid and reinvested within the separate account but you don't get a record of that, just a number at the end of each quarter. So Morningstar doesn't track the separate accounts per se, but I should be able to figure out the performance of the original fund, and then compare it to the retirement statement.

So I put $5,000 in what should be VEIPX. Vanguard says they gave 4 distributions over the course of 2016, and the fund should auto-reinvest.

If I calculate each distribution from Vanguard, and knowing the share price at reinvestment off of the Vanguard website, I calculate that I should have $53 more dollars at the end of the year than I logged from Principal. So that's like an extra fee imposed by Principal of 1%, yes?
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Re: Rank These 401(k) Providers

Post by Wakefield1 »

dkdoy wrote:
dm200 wrote:Principal is the 400 pound gorilla in the employer 401k market. They have gained that position, in my opinion and experience, by:

1. Engaging an aggressive, talented and persuasive sales force. They are able to convince employers that Principal can take all (or almost all) of the administrative burdens off the employer and employer's staff.

2. Principal "structures" the offerings so as to "maximize" ways of passing on the costs of administration onto the employee participants.

3. Principal has a separate support hotline and folks for the employer to call from the employees. They tell one story to employees who ask about admin costs and a different story to employer staff.

4. Employees get screwed by Principal.
Agree on all counts.
Voya (spin off of ING) must be better than that?
cebow
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Re: Rank These 401(k) Providers

Post by cebow »

Wakefield1 wrote:
dkdoy wrote:
dm200 wrote:Principal is the 400 pound gorilla in the employer 401k market. They have gained that position, in my opinion and experience, by:

1. Engaging an aggressive, talented and persuasive sales force. They are able to convince employers that Principal can take all (or almost all) of the administrative burdens off the employer and employer's staff.

2. Principal "structures" the offerings so as to "maximize" ways of passing on the costs of administration onto the employee participants.

3. Principal has a separate support hotline and folks for the employer to call from the employees. They tell one story to employees who ask about admin costs and a different story to employer staff.

4. Employees get screwed by Principal.
Agree on all counts.
Voya (spin off of ING) must be better than that?
I think whenever you have money in a "separate account plan" it's tough to sort out the fees. In a previous job, we had a retirement fund with ING, also using the separate account funds. I had a different method of tracking the fees; I went in every day and typed in the NAV, and then compared it to the equivalent retail fund. They tracked perfectly until the end of the year, there was a big drop in our retirement fund that was not in the retail fund; I assume this was an annual fee being sucked out. Sorry I don't remember how big that drop was.
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