No displayed dividend reinvestment in 401(k)

[a]

I was looking at the transaction history for my MegaCorp 401(k) account, which has two parts, the company match paid as company stock, and my own contribution, which is currently in a bond index fund, an S&P 500 index fund, and the Vanguard Windsor fund. I was confused, because there are listings every three months for dividend payments for the company stock portion, but there are never any dividend payments for the other three. When I called, the rep told me that dividend reinvestment for funds is done automatically and "is the reason the share price increases for the funds," which I took to mean that the value of each share unit is going up in dollar value over time, even if my number of shares doesn't increase due to a dividend reinvestment. But later I thought again about this and realized it doesn't make sense. Anyone have an idea as to what's going on?

I guess it's possible that the rep was wrong and they do do dividend reinvestment and for whatever reason don't want to display that for me, but it's ok to display it for company stock.. I haven't actually sat down with Excel and added up all the share transactions to see if there are some invisible gains being added in which would be the undisplayed dividend reinvestments.

[LOL!]

My spouse's 401(k) plan has an annuity wrapper around the underlying funds, so you never see the dividends. If you login online to your 401(k) account, what do you see? Is it run by Vanguard or by someone else?

[a]

Quote:

Originally Posted by LOL! My spouse's 401(k) plan has an annuity wrapper around the underlying funds, so you never see the dividends. If you login online to your 401(k) account, what do you see? Is it run by Vanguard or by someone else?

Annuity wrapper around an index fund or other mutual fund? I didn't know there was such a thing. It's run by Citistreet. A different rep told me it's an "institutional" fund, also, if that's relevant.

[Animorph]

I have FBIDX bond fund held in a Fidelity 401k and did see a distribution on that.

I bet if your bond fund is a custom fund just for that 401k you might not see distributions explicitly, since they wouldn't be required for a non-taxed fund.

Dan

[ats5g]

A lot of funds that are only available or made for retirement plans are set up this way. The fed gov't TSP is set up this way:

Why don't I receive dividends and capital gains distributions from the TSP's C, S, or I Funds?

Quote:

Under the Internal Revenue Code, the TSP and other similar type defined contribution plans (e.g., 401(k) plans) manage dividends and capital gains differently from mutual funds because the individual investments in the plans are made with tax-deferred money. Barclay’s Global Investors, which currently manages the index funds in which the C, S, and I Funds are invested, credits dividend income each business day. This income is then reflected in the TSP’s C, S, and I Funds’ share price. The daily change in TSP share prices reflects all investment income (realized or unrealized capital gains or losses, dividends, interest on short-term investments, and securities lending income) net of TSP administrative expenses and investment management fees. Therefore, the TSP does not report dividends or capital gains/losses on its participant statements

I wouldn't be to worried unless the management fee is excessive.

- Alec

[d]

vaguard windsor paid dividends ... you should have received dividends!
(there is not, to my knowledge, any class of windsor which did not pay dividends.) any chance they a mixed-in with your contributions? ...

[jazz4cash]

Our megacorp 401k is with Fidelity. The company stock is monetized....meaning the fiduciary assigns a value to the company stock fund which includes a small percentage of cash to manage withdrawals, etc. The stock price and the stock fund monitized value are not the same, but move together. The company stock fund is similar to a mutual fund, but with only one stock. When dividends are paid, the monetized per share value usually drops, but more shares are added so it evens out.

The other funds in thid 401k are the same funds available for direct purchase and behave the same way as far as dividends, NAV, etc.

You should ask if any of the funds are monetized. You should also compare the annual performance and expense ratio of your 500 Index fund to Vanguard's 500 fund ......ditto for your Windsor fund. I fear you are being charge additional expenses.

[a]

Well, there definitely are not any hidden shares being added to my account thanks to dividends. I added up all my contributions for a year for the Windsor fund and the share total comes out exactly right. So, as in the C, S and I Funds of the TSP, the dividends must be getting worked into the share price itself. I think this is basically the same as the monetized fund jazz4cash mentions.

Interestingly, on the Morningstar Fact Sheet I can download for the Vanguard Windsor fund, it lists the ticker symbol VWNEX, and even has a footnote saying that the fund was converted to Admiral shares on a certain date. Under management company it says Wellington Management Sanford Bernstein & Company, Inc.

I'll get around to comparing the performance of this 401(k) plan's funds to the underlying funds sometime, but tell me if this is right. Assuming the expenses for this 401(k) administrator aren't extremely high, shouldn't the share price of their Windsor fund outstrip the share price of the real Windsor fund fairly quickly? If an institutional fund has relatively low expenses, then the dividends being added into the share price every quarter should make these shares grow an extra 1-2% over the real Windsor fund every year. Likewise for the S&P fund. In other words, if I were to overlay the share price of my 401(k)'s version of Windsor on the real Windsor on a chart, the price of my 401(k)'s version should be shooting up past the real Windsor's value and accelerating to boot.

[jazz4cash]

somethings wrong...........keep digging. I suspect the fees are being concealed. If they call it "windsor fund", it should be the same and the dividends should show up as additional shares when posted.

FWIW our megacorp has proprietary 500 index fund with ER of about .14 vs. .18-.19 for Vanguards and .05 for TSP "C" version.....point is if you have some clone fund, I would not expect the difference in ER 1-2% lower.......especially compared to VG.

[a]

Quote:

Originally Posted by jazz4cash somethings wrong...........keep digging. I suspect the fees are being concealed.

I agree.

Quote:

Originally Posted by jazz4cash FWIW our megacorp has proprietary 500 index fund with ER of about .14 vs. .18-.19 for Vanguards and .05 for TSP "C" version.....point is if you have some clone fund, I would not expect the difference in ER 1-2% lower.......especially compared to VG.

What I meant was that, if they truly were silently rolling the dividends into the share price, the share price of their cloned Windsor should be growing faster than the actual Windsor. Somehow I doubt I would see this if I graphed the two on top of each other.

Thinking about this brought up a related question. It's understood that the Vanguard 500 index will necessarily lag the real S&P 500 by a small fraction of a percent every year, due to expenses. Also, apparently the Vanguard 500 expects to lose an additional 0.25% every year to front running. Over time, this 0.4% or so lag should grow geometrically and make a graph of the Vanguard 500 overlaid with the real S&P 500 separate farther and farther. But all graphs I've seen of the two, including one shown in the little booklet they mail their investors at the end of the year, show the two following each other almost exactly. There is no noticeably growing gap.

[ats5g]

a,

Check the NAV of the VWNEX fund you have in your 401(k). If it matches the NAV of the fund as reported by Vanguard, then I'd say it is likely that the 401(k) plan provider is just buying more shares of VWNEX with the fund's distributions. If the NAV's are much different, then something wierd is going on.

btw - per Vanguard's performance page for VFINX, VFINX's average yearly tracking error has been -0.11%, so Vanguard has made up 0.07% of its expense ratio in fund execution.

Quote:

Year VFINX S&P 500 Tracking Error 2006 15.64% 15.79% -0.15% 2005 4.77% 4.91% -0.14% 2004 10.74% 10.88% -0.14% 2003 28.50% 28.68% -0.18% 2002 -22.15% -22.10% -0.05% 2001 -12.02% -11.89% -0.13% 2000 -9.06% -9.10% 0.04% 1999 21.07% 21.04% 0.03% 1998 28.62% 28.58% 0.04% 1997 33.19% 33.36% -0.17% 1996 22.88% 22.96% -0.08% 1995 37.45% 37.58% -0.13% 1994 1.18% 1.32% -0.14% 1993 9.89% 10.08% -0.19% 1992 7.42% 7.62% -0.20% Average -0.11%

- Alec

[a]

Quote:

Originally Posted by ats5g Check the NAV of the VWNEX fund you have in your 401(k). If it matches the NAV of the fund as reported by Vanguard, then I'd say it is likely that the 401(k) plan provider is just buying more shares of VWNEX with the fund's distributions. If the NAV's are much different, then something wierd is going on.

Hmm..is NAV the same as share price? The price of a unit of their Windsor is a little over $100, very different from the real Windsor's NAV displayed by yahoo (about $61).

Quote:

Originally Posted by ats5g btw - per Vanguard's performance page for VFINX, VFINX's average yearly tracking error has been -0.11%, so Vanguard has made up 0.07% of its expense ratio in fund execution.

Ahh ok. That's something that should make up some of the gap I guess. Still, if VFINX lags S&P by only 0.30% each year, that should add up to being visible on a graph.

I'm just wary of free lunches. Sure it's great that despite being handicapped, Vanguard is somehow able to make their index fund stick almost exactly to the underlying index, but that reminds me of a story I read about the treasurer of a large county being able to produce 2% better rates on his bond investments than everyone else for several years. In the end it turned out he wasn't investing in bonds at all. If there SHOULD be a growing gap between VFINX and the S&P, I'd actually prefer to see it.

[ats5g]

Quote:

Originally Posted by a I'm just wary of free lunches. Sure it's great that despite being handicapped, Vanguard is somehow able to make their index fund stick almost exactly to the underlying index, but that reminds me of a story I read about the treasurer of a large county being able to produce 2% better rates on his bond investments than everyone else for several years. In the end it turned out he wasn't investing in bonds at all. If there SHOULD be a growing gap between VFINX and the S&P, I'd actually prefer to see it.

But we're not talking about 200 basis point per year above average or index returns. We're talking about a couple of basis points. Vanguard is just making up a couple basis points in their execution. I don't think Vanguard falling behind by hundreds of basis points is any real possibility.

fyi - here is the rest of the traking error since inception: [from VFINX's 12/31/03 annual report]

VFINX S&P 500 Tracking Error
1991 30.20% 30.40% -0.20%
1990 -3.30% -3.10% -0.20%
1989 31.40% 31.60% -0.20%
1988 16.20% 16.50% -0.30%
1987 4.70% 5.20% -0.50%
1986 18.10% 18.60% -0.50%
1985 31.20% 31.60% -0.40%
1984 6.20% 6.20% 0.00%
1983 21.30% 22.50% -1.20%
1982 21.00% 21.50% -0.50%
1981 -5.20% -4.90% -0.30%
1980 31.90% 32.40% -0.50%
1979 18.00% 18.40% -0.40%
1978 5.90% 6.50% -0.60%
1977 -7.80% -7.20% -0.60%
1976 5.30% 5.90% -0.60%

- Alec

[jazz4cash]

Quote:

Originally Posted by a Hmm..is NAV the same as share price? The price of a unit of their Windsor is a little over $100, very different from the real Windsor's NAV displayed by yahoo (about $61). Ahh ok. That's something that should make up some of the gap I guess. Still, if VFINX lags S&P by only 0.30% each year, that should add up to being visible on a graph.

Yes.........NAV=share price. Since your fund NAV>$100, but VG's NAV~$61, you could compare the daily %change between the two...........these should be extremely close....any difference could be the monetization effect I mentioned earlier. If they are extremely close, it still may not account for the missing dividend. The dividend could be the monetized portion (i.e. the dividends are not reinvested in Windsor, but are sitting in cash or some other investment). In any event the explanation you received is bogus IMO, and as we agreed before......keep digging!

[a]

Well, thanks to your encouragement I investigated further and found out what was going on - sort of. As suggested, I compared the change in share price for a share of the clone Windsor in my 401(k) with a share of the real Windsor on the same dates. For the clone Windsor:

Mar 18 2005 - 106.14
Jan 26 2007 - 135.57

For the real Windsor, courtesy Yahoo Finance:

Mar 18 2005 - 17.83 or 14.68
Jan 26 2007 - 18.74 or 18.74

The second number is the "Adjusted Close" value or the value of the share after accounting for dividends and splits. Whatever that means. At any rate, if you compare the change in price for the two different versions of Windsor (using the Adjusted Close number for the real Windsor) you get the same ratio.

Now that's fine and well, but apparently the Adjusted Close number is not the "real" price of a share of Windsor. Vanguard itself displays the non-adjusted close value on its website if you use their historical price search feature.

So, I don't know exactly what it means to account for dividends and splits in a close price for a fund, but apparently Citigroup and Yahoo are doing it in the same way. I assume it means something like Citigroup gets to buy shares at a discounted price since it doesn't distribute any dividends to policyholders like me.

I wish I understood exactly how they calculate the adjusted price, and things like why the adjusted close price for this January is exactly the same as the real price (what, did the effects of dividends disappear at the beginning of 2007?), but overall I feel pretty confident that the dividends are being accounted for.

--

Oh yeah, I'm not sure where I got that Windsor is about $61..as stated above it's more like $18-$19. I really don't know where I got that before.

--

2nd edit: In retrospect, rereading that quote from the TSP plan mentioned by ats5g, that describes exactly what's going on here. I did intrepret it differently than how it really works though. I assumed that if I didn't get extra shares for my dividends, then I should get extra gain reflected in the price of the shares I do have. This apparent system of discounting FUTURE purchases of shares depending on dividends seems a bit bizarre..for example, if I suddenly decided to stop buying Windsor today, but held all the shares I did have, I would never see any of the effects of future dividends..ah, I dunno.

[Animorph]

a,

The adjusted close is for looking back at past total return, including dividends, instead of just prices. It is adjusted so that today's adjusted close is equal to todays price. Looking back in time it will stay equal to price until an event like a dividend distribution occurs. At that point, the adjusted close will differ from the closing price. You will see a jump in the closing price (from the dividend value being subtracted out of the share price) after the dividend distribution. The adjusted close should have just a small change due to the daily value fluctuations.

It's a way of incorporating the dividend return or stock splits without having to update the number of shares each time a distribution occurs. It's the number to use if you want to make a comparison graph between two stocks or funds. However, it is just a "virtual" price, with no "real" meaning. Since it is pegged to the current price, those historical adjusted close values will change everytime some event happens.

It is what you want to look at for your fund comparison, as a ratio of adjusted close at the start date and adjusted close at the end date.

Dan

[a]

Thanks for explaining that the adjusted close is something that only exists in hindsight, Animorph.

I'm confused though. That would mean that Citigroup is still buying Windsor shares at the full price. For example, let's say that today, March 19th, a dividend was set to occur soon after today. Citigroup takes out $70 from my paycheck to put into Windsor as usual today, and since it's $18.61 today, I get 3.761 shares. A few days into the future, and Windsor distributes a dividend, causing the adjusted close price of Windsor back when I bought it to be, say, $17.00. But I still bought the shares at the full price, right? My share total in my 401(k) still only increased by 3.761, so it seems like I'm never reaping the benefits of the dividends.

I must not be understanding the concept, because somehow Citigroup knows the adjusted close of the current day each time it buys shares for me. Or does that mean that Citigroup is actually retroactively changing the number of shares in my account each time in the future it gets a new adjustment to the share price? I.e., today I might check my account and see that I have exactly 100.25 shares, but if tomorrow Windsor pays a dividend, if I look tomorrow I will see that my total shares have magically increased slightly, *without me making a new deposit into my 401(k) account*?

[Animorph]

Citigroup takes your $70 and buys 3.761 shares of Windsor. But then they add those to the clone fund assets and give you the equivalent of $70 in your clone fund shares. So you get 0.5 share (I just made that up) more of the clone fund instead of 3.761 shares of Windsor directly.

When Windsor distributes a dividend, Citigroup receives more Windsor shares into the clone fund, but the total price of those shares drops. The net result is approximately no change in total value, just the normal daily fluctuation. Citigroup leaves the number of shares in the clone fund unchanged and the fund's price changes a little to reflect its total value for the day.

The reason they do this is usually to tack on extra fees. They can't exactly take Windsor shares out of your account to pay themselves, so they have a clone fund. Both my wife and I had company stock funds in 401k's that worked like this. In those cases they also told us the equivalent number of shares of the real stock. You could actually see the number of equivalent shares shrink as they subtracted costs out of the funds.

Dan