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Retirement Plan Fees
Old 06-09-2011, 07:01 AM   #1
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Retirement Plan Fees

Talk about zeitgeist! Yesterday I was comparing the fees of two of the providers of my defined contribution retirement plan, TIAA and Fidelity, and this morning NPR has a bit about high expenses in 401k plans. They mentioned expense ratios like 1.5% which made me feel a little better about my plan options. However, the fees are still higher that I'd like. I'd be interested to know the fees in your employer retirement plans.

Fidelity offers a range of equity funds, midcap, value etc with expenses of around 1%, not good! its Freedom Funds for between 0.5% and 0.8% and then its Spartan 500 Index at 0.1% and Vanguard Bond Index at 0.22%...but they are the only inexpensive choices.

I'm currently invested in TIAA-Cref's mostly for simplicity as I have a TIAA traditional account there from another employer. I have access to the variable annuity index accounts and also to the TIAA-Traditional, Institutional Lifecycle and mid-cap, small cap, value etc funds. The expense ratios on these are all between 0.4% and 0.5%.

So on average TIAA-CREF is cheaper, but if I moved to Fidelity and kept to Spartan 500 and Vanguard Bond index I'd pay less in fees, but to keep them low I'd be severely limited in my investment choices.
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Old 06-09-2011, 07:34 AM   #2
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Over at Bogleheads the traditional advice is to take the best options in your 401(k) then round out your AA in your taxable and IRA accounts.
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Old 06-09-2011, 07:46 AM   #3
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Over at Bogleheads the traditional advice is to take the best options in your 401(k) then round out your AA in your taxable and IRA accounts.
This is what I did. I retired 4 years ago, but my MegaCorp employer at the time had a choice of maybe 15 funds, and only 2 were low cost index funds, both from Vanguard, with expenses under 0.1%. So I focused on these for my 401(k) investing. Even the 1 or 2 bond funds in my 401(k) were expensive.

In order to achieve a proper asset allocation, I ended up having to buy some Munis in my taxable for bonds. And then regular stock index funds. And I was doing a post-tax traditional IRA contribution each year (since I was ineligible for a ROTH).

This is harder for someone whose wealth is concentrated in their 401(k). One should almost always roll a 401(k) into a traditional IRA when you change jobs instead of leaving it there or rolling it another 401(k) at the new employer. This gives you maximum flexibility and lower costs.
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Old 06-09-2011, 08:16 AM   #4
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If you are a Morningstar subscriber (M*) you can get a breakdown on you, your SO, and a combination of both (or more) to see what your actual fees are, regardless of fund management company.

For instance, when looking at our (DW/me) joint retirement portfolio, held in TIRA/Roth IRA's, Rollover IRA, and 401(k) our expense comes out to .51%.

True, not as low as a strictly low cost provider (such as VG, or FIDO Spartan), but "good enough" to provide us with our target results.

You can go with one company (e.g. VG) looking at just costs, but for us, the idea of costs along with returns means more. That's why we are slice/dice investors (along with an SPIA - just added to crank some folks up)...

BTW, as a FIDO customer, my M* subscription is $115/year (or $.31/day); it's worth it to us to manage our portfolio.
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Old 06-13-2011, 03:15 AM   #5
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You can always take a look here to get a rating from Brightscope on your employer plan if it is listed.

BrightScope Ratings

When I RE'd I kept my 401(k) for a year or so while I converted by tIRA to a Roth so I could maximum $'s converted a for minimum tax hit as the basis in the tIRA was very high (I was never able to make deductible contributions).

Even though my company's 401(k) had the lowest fees in its category, its fund choices were limited.
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Old 06-13-2011, 07:25 AM   #6
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You can always take a look here to get a rating from Brightscope on your employer plan if it is listed.

BrightScope Ratings

When I RE'd I kept my 401(k) for a year or so while I converted by tIRA to a Roth so I could maximum $'s converted a for minimum tax hit as the basis in the tIRA was very high (I was never able to make deductible contributions).

Even though my company's 401(k) had the lowest fees in its category, its fund choices were limited.
Nice site, unfortunately my plan isn't a 401k. It's the state's Optional Retirement Plan (ORP). You can choose between the state's final salary program and a defined contribution plan. I went with DC as the DB plan had 10 year vesting and I started working in my mid 40s so i wouldn't have got the big returns out of the DB plan.

Another wrinkle for me is that my retirement money goes in after state tax but federal tax deferred so rolling it into an IRA makes things complicated. I already have some after tax money in my IRA and to include some after state tax too will start to make the tax basis calculations complicated.
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Old 06-13-2011, 07:36 AM   #7
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Our mega-corp has a great 401(k) which provides more options and lower fees than we can get in an IRA.

So, this advise is too general. Your mileage may vary.
While I'd agree with evaluating both 401k's if you're going to roll from one to another, there are very few 401k's that offer as many options or lower fees than a Vanguard, Fidelity, Schwab (and others) brokerage rollover IRA. You can buy most any stock or fund...I've never seen a 401k that didn't limit fund choices, most quite limited. DFA funds in a 401k would warrant serious consideration, but I've never seen that option (not doubting your plan, but that's pretty rare, I'd say your situation is very unusual).
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Old 06-13-2011, 04:59 PM   #8
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Fidelity offers a range of equity funds, midcap, value etc with expenses of around 1%, not good! its Freedom Funds for between 0.5% and 0.8% and then its Spartan 500 Index at 0.1% and Vanguard Bond Index at 0.22%...but they are the only inexpensive choices.
...
So on average TIAA-CREF is cheaper, but if I moved to Fidelity and kept to Spartan 500 and Vanguard Bond index I'd pay less in fees, but to keep them low I'd be severely limited in my investment choices.
I have a 403(b) at TIAA-CREF and a 401(k) at Fidelity. Fidelity is cheaper for me with expense ratios between 0.1% and 0.22%. I have access to 4 Fidelity Spartan index funds that cover all US stocks, large-cap foreign developed, and the US bond index. One doesn't really need much else, but get the missing stuff in an IRA or taxable account easily, cheaply, and tax efficiently. I avoid the Fidelity actively-managed funds along with their higher expense ratios.

PS: Isn't your Fidelity "Vanguard Bond Index" is really Fidelity US Bond Index: FBIDX which has recently been renamed the Fidelity Spartan US Bond Index fund?
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Old 06-13-2011, 06:12 PM   #9
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I have a 403(b) at TIAA-CREF and a 401(k) at Fidelity. Fidelity is cheaper for me with expense ratios between 0.1% and 0.22%. I have access to 4 Fidelity Spartan index funds that cover all US stocks, large-cap foreign developed, and the US bond index. One doesn't really need much else, but get the missing stuff in an IRA or taxable account easily, cheaply, and tax efficiently. I avoid the Fidelity actively-managed funds along with their higher expense ratios.

PS: Isn't your Fidelity "Vanguard Bond Index" is really Fidelity US Bond Index: FBIDX which has recently been renamed the Fidelity Spartan US Bond Index fund?
It may not be. I have the Vanguard TBM Index fund - institutional version - in my Fidelity 403b/a.

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Old 06-13-2011, 07:09 PM   #10
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The one thing I see in many 401K plans is access to lower expense PIMCO funds. I've never owned PIMCO funds because the ER on most retail funds is pretty high especially compared to the ER for institutional PIMCO funds.

If you plan on having a high bond exposure than leaving money in your 401K makes sense for funds like PIMCO as well as DFA.
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Old 06-13-2011, 07:44 PM   #11
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Since I ER'd two weeks ago, I automatically assumed that I would roll my Fidelity 401k into my IRA, since I wanted more investment options and I wanted to reduce costs. So this morning, I spent several hours looking at each of my 401k funds - both their expense ratio's and performance over 1,3,5 and 10 years (if available). I was very surprised - twice. First my expense ratio (of 6 funds) computed to a weighted average of .85% (none are Fidelity funds and none are index funds) which was a little higher than I thought. Then I looked at the perfomrance figures and was amazed to see that in 22 total performance measurement periods, my 401k funds beat the benchmark 19 times.

So, the moral of the story is not to jump the gun on an automatic rollover. My 401k has some excellent institutional funds that do very well, in which I couldn't invest in individually.

My 401k also allows for partial rollover's, so I may look at that option. Plus being 55 this year, I am eligible for withdrawals between now and 59.5 without the penalty, but only if I don't roll it into an IRA. Like many financial decisions, a few things to think about.
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Old 06-13-2011, 09:46 PM   #12
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It may not be. I have the Vanguard TBM Index fund - institutional version - in my Fidelity 403b/a.

DD
Yes, it's the same with my state DC plan with Fidelity. They offer Vanguard TB Index which I thought was weird, but it's there in black and white. The ER is 0.22% and the only other inexpensive fund they offer is Fidelity Spartan 500 at 0.1%. If I was to transfer from TIAA to Fidelity they would be the only two funds I'd buy as all the others have higher ERs than the TIAA equivalents.

My current TIAA funds have ERs around 0.44% and I get quite a bit of choice. I also have access to the ultimate stable value fund in TIAA traditional and as I might be buying an annuity to cover basic expenses I think I'll stay with TIAA as the annuity path is simple and low cost with them.
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