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funds within funds and expense ratios?
Old 08-24-2007, 07:29 PM   #1
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funds within funds and expense ratios?

My part time non-profit employer just started a 403b plan, their first one since inception 10 years ago. Only about 8 people there make any substantial full-time income from the employer and the other 40 of us are only part time (3-10 hrs/wk) most making from $4000-10000/yr.

Given this, I know it could not have been easy for them to set up a 403b plan with a provider since the amount of investment would not be too impressive.

We received a handout from Transamerica IDEX Mutual Funds, I guess that is who we have to pick our investments from. I looked at their website to see what kind of possibilities there were, and saw a bunch of funds that had, like, 10 other mutual funds inside them. What the ...? How do the fees work for these things- if the expense ratio is listed at a freakin' 1.7%, is that just TA's fees on top of all the enclosed funds' existing ERs, or is the 1.7% the total of all the fees taken out of your investment?

The employer cannot provide any matching, so if these funds suck as much as I think they do, then I will probably just set up my own Solo401k from other SE income. I think Fidelity has a program for individuals...

I will find out all this when I meet with the nice salesmen they brought in, but I just wanted to have knowledge before I have to talk to these "advisors". Anybody have any food for thought?
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Old 08-24-2007, 07:34 PM   #2
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Originally Posted by igsoy View Post
My part time non-profit employer just started a 403b plan, their first one since inception 10 years ago. Only about 8 people there make any substantial full-time income from the employer and the other 40 of us are only part time (3-10 hrs/wk) most making from $4000-10000/yr.

Given this, I know it could not have been easy for them to set up a 403b plan with a provider since the amount of investment would not be too impressive.

We received a handout from Transamerica IDEX Mutual Funds, I guess that is who we have to pick our investments from. I looked at their website to see what kind of possibilities there were, and saw a bunch of funds that had, like, 10 other mutual funds inside them. What the ...? How do the fees work for these things- if the expense ratio is listed at a freakin' 1.7%, is that just TA's fees on top of all the enclosed funds' existing ERs, or is the 1.7% the total of all the fees taken out of your investment?

The employer cannot provide any matching, so if these funds suck as much as I think they do, then I will probably just set up my own Solo401k from other SE income. I think Fidelity has a program for individuals...

I will find out all this when I meet with the nice salesmen they brought in, but I just wanted to have knowledge before I have to talk to these "advisors". Anybody have any food for thought?
No, they don't double expense you on fund of funds. If you are that low of a tax bracket and won't receive any matching, I say don't even worry about investing in a tax def account with some crappy mutual funds.
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Old 08-24-2007, 07:40 PM   #3
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Well, I'm in the 25% bracket due to my other employment and my husband's. So it would make sense if I could dump this whole paycheck in, but not if they are bad investment choices.
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Old 08-24-2007, 07:43 PM   #4
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At 25% I would still go for the after-tax and invest in good, low cost funds. But that could be debated so to each his/her own...
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Old 08-24-2007, 09:43 PM   #5
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Even with the crappy expense ratios, I would contribute the max allowed to a tax-deferred retirement plan which would be $15,500 this year if under 50 plus any employer contributions. So if self-employed, I think you could put something like $45,000 in a properly set up plan with your self-employed income and not have to bother with the 403b. However, if your SE income is less than $45,000 you could contribute to the 403b with the right math.

The reason to still contribute to the crappy 403b is that you can always quit and then rollover your 403b to a place with low expense ratios and have that tax-deferred money going for quite some time. Without the initial contributions, you will miss out on that.

As for whether the 1.7% is the total fee, you will have to read the plan documentation carefully. My spouse's 401k plan shows the fund fees of about 1.5%, but then the provider tacks on 1.25% in additional fees.
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Old 08-25-2007, 01:59 AM   #6
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Most of the funds offered in my megacorp 401k have fairly high fees. In the 1.5% - 1.8% range.

Thank goodness there is one equity fund with a lower rate that has acceptable performance. My diversification into other areas has to happen in IRAs and after tax funds.
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Old 08-25-2007, 10:56 AM   #7
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Dang... and I was pissed off that my company had bond funds as high as 57BPs...

The fees mentioned are supposed to be all in fees... and if it is a good one (like Vanguard) then there is not 'extra' fee for the investment... but I doubt that is the case with what you say...

Do you have other options It would seem you could set up a portfolio that 'tracks' that if you had the funds available and skip the extra fee for them doing it on their own..


BTW... my sister's fund company charges 1.25% on all funds as that is the maximum that is allowed by her 'company'... (she is 403 also)...
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