How do companies that offer 401k profit?

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BlueRidgeHorizon
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How do companies that offer 401k profit?

Post by BlueRidgeHorizon » Wed May 16, 2018 1:53 pm

Im curious, how does a company like Vanguard that offers a large corporation a 401k portfolio make a profit off of said corporations employees buying into the 401k?

Rupert
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Re: How do companies that offer 401k profit?

Post by Rupert » Wed May 16, 2018 1:59 pm

Expense ratios

Silk McCue
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Re: How do companies that offer 401k profit?

Post by Silk McCue » Wed May 16, 2018 2:07 pm

Vanguard specifically makes no profit.

https://www.washingtonpost.com/business ... ae3611de60

Cheers

PNW1
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Re: How do companies that offer 401k profit?

Post by PNW1 » Wed May 16, 2018 7:16 pm

BlueRidgeHorizon wrote:
Wed May 16, 2018 1:53 pm
Im curious, how does a company like Vanguard that offers a large corporation a 401k portfolio make a profit off of said corporations employees buying into the 401k?
I'm assuming you're asking something like this: "I work for Employer A, and our retirement plan is held/administered at Organization B (Vanguard, Fidelity, Great West, Transamerica, etc). How does Organization B get compensated?"

If that's your question, the answer is "It depends." In some cases, Organization B's compensation will come from Employer A simply paying fees (usually a per-employee fee plus an assets-under-management fee). Or the plan might be designed to have those fees come out of the plan itself (reducing your retirement savings). Or there might be a combination of the two. It all depends on how your 401(k) plan is put together. You should be able to request a 401(k) Plan Summary that provides the details for your plan.

Anecdotally, I've worked for an employer that covered all fees other than the expense ratios of the individual investments. I've also worked for an employer that passed Organization B's assets-under-management fees on to the plan participants. These showed up as automatic quarterly sales/deductions (I forget the term) of assets to pay for the management fee.

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LadyGeek
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Re: How do companies that offer 401k profit?

Post by LadyGeek » Wed May 16, 2018 7:36 pm

This thread is now in the Investing - Theory, News & General forum (general question).
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willthrill81
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Re: How do companies that offer 401k profit?

Post by willthrill81 » Wed May 16, 2018 7:49 pm

Vanguard is a non-profit, but this only means that they have no shareholders to whom they are beholden. Employees within any non-profit can be paid any profit that would otherwise result from their activities as long as doing so "furthers the goals of the organization." There are some other legal restrictions, but it is done regularly at many non-profit organizations.

I no longer place any value on the term "non-profit."
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LadyGeek
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Re: How do companies that offer 401k profit?

Post by LadyGeek » Wed May 16, 2018 7:55 pm

Forum member Barry Barnitz has two blog posts of interest:*

- Vanguard Group Inc. book value | Financial Page
- Vanguard funds and payables to Vanguard Group Inc. | Financial Page

*Yes, we have a blog. :) You can find the link on the left-side menu of every wiki page (desktop view only).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Grogs
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Re: How do companies that offer 401k profit?

Post by Grogs » Wed May 16, 2018 8:24 pm

PNW1 wrote:
Wed May 16, 2018 7:16 pm
BlueRidgeHorizon wrote:
Wed May 16, 2018 1:53 pm
Im curious, how does a company like Vanguard that offers a large corporation a 401k portfolio make a profit off of said corporations employees buying into the 401k?
I'm assuming you're asking something like this: "I work for Employer A, and our retirement plan is held/administered at Organization B (Vanguard, Fidelity, Great West, Transamerica, etc). How does Organization B get compensated?"

If that's your question, the answer is "It depends." In some cases, Organization B's compensation will come from Employer A simply paying fees (usually a per-employee fee plus an assets-under-management fee). Or the plan might be designed to have those fees come out of the plan itself (reducing your retirement savings). Or there might be a combination of the two. It all depends on how your 401(k) plan is put together. You should be able to request a 401(k) Plan Summary that provides the details for your plan.

Anecdotally, I've worked for an employer that covered all fees other than the expense ratios of the individual investments. I've also worked for an employer that passed Organization B's assets-under-management fees on to the plan participants. These showed up as automatic quarterly sales/deductions (I forget the term) of assets to pay for the management fee.
My company does the latter. I pay a $48 flat fee per year plus the ERs of the funds. Luckily, ERs are in the 5-10 basis point range, so once the 401k balance starts getting into the six figure range, we're only paying around 0.1% total per year.

Independent George
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Re: How do companies that offer 401k profit?

Post by Independent George » Wed May 16, 2018 9:11 pm

Silk McCue wrote:
Wed May 16, 2018 2:07 pm
Vanguard specifically makes no profit.

https://www.washingtonpost.com/business ... ae3611de60
That's a bit of a misnomer; I love Vanguard, but calling it a non-profit is really a stretch. They are great for investors because of low costs, but when you have 5 trillion in assets under management, those low fees add up to a lot of revenue. Let's say the average expense ratio across all its holdings is 0.1% - that's 5 billion coming in this year. That's a different business model; but it is still a business. It is not a non-profit enterprise.

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Artful Dodger
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Re: How do companies that offer 401k profit?

Post by Artful Dodger » Thu May 17, 2018 4:28 pm

I worked for a large health insurer, and they were non-profit, and they offered a 401k. I think previously they had a 403b thrift plan, but switched to a 401k later. They made matching contributions to employee deferrals.

Am I understanding your question?

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