[Help needed to create] Ideal 401K plan

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Fisherman
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[Help needed to create] Ideal 401K plan

Post by Fisherman » Sun Apr 27, 2014 6:12 pm

Dear Members,

I work in a medium sized health care company. In our existing retirement plan managed by Fidelity, only 2 index funds are provided,sp500 and total bond market. Plan is a combination of 401k/403B.

We complained a lot for not including a few other spartan index funds. They listened to us and they are inviting both Fidelity and Vanguard to submit new plans and choices at reasonable cost to the company and to us.

They invited three of us to the meetings with Fidelity and Vanguard.

I would appreciate your all's suggestions on the best portfolio we can request them.

I am going to request the following indexes

Total Market/ total bond market/ total international/real estate index/ medium term treasury index/ TIP or vanguard inflation linked bond index/ emerging market index

With these one can have a variety of portfolios, 3 fund/ Swenson etc

Please advice not only on the choices but also on the structure of the plans and other questions to ask in the meeting

Thank you all

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LadyGeek
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Re: Ideal 401K plan

Post by LadyGeek » Sun Apr 27, 2014 7:11 pm

This thread is now in the Personal Finance (Not Investing) forum (401(k) plan).

I also retitled your thread. If you want to change the thread title, just edit the Subject: line in Post #1. Your post suggests this is a combination 401(k)/403(b) plan.
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Jack FFR1846
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Re: [Help needed to create] Ideal 401K plan

Post by Jack FFR1846 » Sun Apr 27, 2014 7:18 pm

Like any Boglehead, you will first want to know ALL the fees. ALL of them that you as participants will have to pay. My horrible plan has high ERs, then a management fee, then a 12b-1 fee. Get a listing of the funds and the ERs and find what the other fees are.

My personal IRA has Spartan Advantage index funds. The ERs are lower. Perhaps request that the Advantage funds be made available along with Institutional class funds.

The easiest way to find all the funds is to go to Fidelity's site and click research, then mutual funds. A search box appears on the right. Type in Spartan and go. You could also separate them out by typing Spartan Advantage and go. It'll list out the funds and they meet what you're asking. There are 14 advantage funds.
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Re: [Help needed to create] Ideal 401K plan

Post by Grt2bOutdoors » Sun Apr 27, 2014 7:26 pm

Fisherman wrote:Dear Members,


I am going to request the following indexes

Total Market/ total bond market/ total international/real estate index/ medium term treasury index/ TIP or vanguard inflation linked bond index/ emerging market index

With these one can have a variety of portfolios, 3 fund/ Swenson etc

Please advice not only on the choices but also on the structure of the plans and other questions to ask in the meeting

Thank you all
I would change the request for Total International Index - to All World ex - US and keep the request for an Emerging Market index. Include a request for extended market index. This way, participants can choose to either go with the market weighing or they can choose to tilt towards the more riskier classes (emerging market/extended index for domestic only). I know you mean Intermediate Term Treasury when you refer to medium term duration Treasury fund. I wouldn't ask for any more funds, except perhaps a short term treasury indexed fund.

The plan participant can then make the portfolio as simple (3 fund) or as complex (4 or more funds) as they would like. But I don't see any Target type funds in your list of required offerings - many plan participants simply do not have the time, motivation or understanding of how to construct and maintain a portfolio, Target type funds could fit the bill for them.
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Fisherman
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Re: [Help needed to create] Ideal 401K plan

Post by Fisherman » Sun Apr 27, 2014 8:02 pm

Target date funds are already included, the current fidelity target date funds have expense ratio of .45%

livesoft
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Re: [Help needed to create] Ideal 401K plan

Post by livesoft » Sun Apr 27, 2014 8:34 pm

Our Fidelity plan covers all necessary asset classes. For index funds, we have
FUSVX S&P500, aka large-cap
FSEVX extended market, aka completion index
Those 2 can be used to create Total US market or to over/underweight large or mid/small.

FSGDX - all-world ex-US which covers int'l just fine, but since emerging did worse, this fund did worse than FSIVX
FSITX - Total US Bond Market.

In addition to the index funds, Fidelity picked actively-managed funds in the above and other categories.

As for fees, they are all negotiable. One can have no additional fees for participants if the company pays $5 to $20 per person and/or an annual fee of a few thousand dollars. I think Fidelity will look at what your partipicants invest in and that can affect the fee negotiation after the first year. For example, if all the employees pick actively-managed funds with 12b-1 fees, then Fidelity could make lots of money and reduce the per person fees. However, if everybody picked index funds, then Fidelity won't make as much money and will want to keep the per-person fees and other fees intact.
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Fisherman
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Re: [Help needed to create] Ideal 401K plan

Post by Fisherman » Mon Apr 28, 2014 4:29 am

How important it is to have REIT index and Tips fund in the plan?
Do we need to have a intermediate term corporate bond index as well or Total bond market index will cover this and TIPs

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JamesSFO
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Re: [Help needed to create] Ideal 401K plan

Post by JamesSFO » Mon Apr 28, 2014 7:31 am

How many employees is medium sized?

I would look to the government TSP line up to get a sense of what a broadly diversified line up of funds should look like, they don't have every bell and whistle but they have a good mix.

Fisherman
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Re: [Help needed to create] Ideal 401K plan

Post by Fisherman » Mon Apr 28, 2014 8:56 am

I think there may be around 10,000 working in the company. What is the Government TSP?
Thanks

simpleton
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Re: [Help needed to create] Ideal 401K plan

Post by simpleton » Mon Apr 28, 2014 9:17 am

Fisherman wrote:What is the Government TSP?
The TSP is the defined contribution plan for federal government employees, and it is is your greatest friend in the battle for simplicity and low costs.

https://www.tsp.gov/PDF/formspubs/tspbk08.pdf

Check out page #13 of that PDF for an overview of the TSP. The two key lessons of the TSP that should be appealing to your company are:

1) Simple choices are better choices. Even though the TSP has 4,000,000 individual participants, only 6 complementary investment options are required to allow those participants to implement a wide range of investing strategies. Participants aren't confused by too many choices and employee education is easier.

2) Index funds don't fail. Check out the inception dates on all the funds. Each time the TSP decided to add an asset class, they used an index fund to gain market exposure. The TSP has thus never had to kick out a fund for trailing it's benchmark. All three original funds from 1987-1988 are going strong. The new assets classes added in 2001 tracked complementary indexes, and have had no drama for their entire history. Same for the lifescycle funds added in 2005.


Boring. Simple. Predictable. High Performing: I'm guessing HR at your company would value ALL of those attributes in your 401(k) plan.

Rupert
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Re: [Help needed to create] Ideal 401K plan

Post by Rupert » Mon Apr 28, 2014 11:18 am

Fisherman wrote:How important it is to have REIT index and Tips fund in the plan?
Do we need to have a intermediate term corporate bond index as well or Total bond market index will cover this and TIPs
While it's not completely wrongheaded to offer a REIT index, a TIPs fund, and a intermediate corp bond fund in a retirement plan, it's also not important to offer those funds. Keep it simple. When my company was choosing funds for our new retirement plan, I was the employee pushing for REITs and some other slightly more exotic funds in the plan. The fiduciary consultant who was helping us choose funds had to pull me aside and remind me that this was not my personal investment account. I wanted those funds, but they weren't appropriate for most of the investors in our plan. And he was completely right to do that. Most of the people contributing to the plan will not be sophisticated investors. If you put sector funds, etc., in the account, you're giving those unsophisticated investors the rope with which to hang themselves.

simpleton
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Re: [Help needed to create] Ideal 401K plan

Post by simpleton » Mon Apr 28, 2014 11:51 am

Rupert wrote: The fiduciary consultant who was helping us choose funds had to pull me aside and remind me that this was not my personal investment account. I wanted those funds, but they weren't appropriate for most of the investors in our plan.
Did your plan include a self-directed brokerage account? Great way to pair simplicity for 95% of participants with flexibility for the other 5%.

Fisherman
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Re: [Help needed to create] Ideal 401K plan

Post by Fisherman » Mon Apr 28, 2014 12:19 pm

Not in the current plan, we asked them to include it last year and they didn't, it looks like plan expenses go a bit higher with that, we will ask them again

Fisherman
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Re: [Help needed to create] Ideal 401K plan

Post by Fisherman » Mon Apr 28, 2014 12:45 pm

The TSP plan looks very simple and efficient, do they have their own index or they invest with fidelity or vanguard?

simpleton
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Re: [Help needed to create] Ideal 401K plan

Post by simpleton » Mon Apr 28, 2014 2:04 pm

Not in the current plan, we asked them to include it last year and they didn't, it looks like plan expenses go a bit higher with that, we will ask them again
Self-Directed Brokerage Accounts usually result in individual service fees ONLY for those participants who use them and do not increase the cost of the plan overall.
The TSP plan looks very simple and efficient, do they have their own index or they invest with fidelity or vanguard?
The TSP has their own investment vehicles at crazy low prices (less than 0.03%). However, you can look in the row of the table labeled "Objective of Fund" and see which index is being tracked and use a commercially available fund that tracks the same index


Code: Select all

TSP Fund  Objective                  Vanguard Equivalent       Fidelity Equivalent
C         S&P 500 Index              500 Index                 Spartan 500 Index Fund
S         Completion Index           Extended Market Index     Spartan Extended Market Index Fund
F         Aggregate Bond Index       Total Bond Market Index   Spartan U.S. Bond Index Fund 
I         International EAFE Index   Developed Markets Index   Spartan International Index Fund

G         No principle risk          Money market fund (or a Stable Value fund if your platform offers one)
L funds   Lifecyle Index Funds       Target Retirement         Freedom Index

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CyberBob
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Re: [Help needed to create] Ideal 401K plan

Post by CyberBob » Mon Apr 28, 2014 2:22 pm

Grt2bOutdoors wrote:I would change the request for Total International Index - to All World ex - US...
Why do you suggest that? Total International is cheaper and more diversified.

Bob

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LadyGeek
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Re: [Help needed to create] Ideal 401K plan

Post by LadyGeek » Mon Apr 28, 2014 3:39 pm

Fisherman wrote:What is the Government TSP?
To supplement simpleton's answer, here's some basic info: Thrift Savings Plan
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Fisherman
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Re: [Help needed to create] Ideal 401K plan

Post by Fisherman » Mon Apr 28, 2014 5:00 pm

Thanks Lady Geek for the link.

Apart from investments, is there any thing else I need to ask regarding the plan structure .
What % do you all consider a good match

Thanks

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LadyGeek
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Re: [Help needed to create] Ideal 401K plan

Post by LadyGeek » Mon Apr 28, 2014 7:53 pm

Take a look at this wiki article: Setting up a 401(k) plan

(From the flip side: How to campaign for a better 401(k) plan)
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