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Why limit 401(k) choices
Old 11-04-2014, 12:31 PM   #1
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Why limit 401(k) choices

I still have my 401k with my previous employer. It's probably considered a mid-sized co, 750employees. A small group of employees pick the 10 fund choices, which were always pathetic. Why don't the different 401K fund groups have the ability to get real financial managers to manage the groups funds say like the company owner has? The co owner and many other wealthy business men have the financial managers that consistently boast at least 15% returns on their money even after all expenses. Can't remember the amount but as a group there was in the millions for this groups particular 401K.

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Old 11-04-2014, 01:09 PM   #2
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Some companies outsource the 401k fund selection, some use internal committees. Unfortunately, the folks on internal committees usually don't have to be knowledgeable.

Having had several 401ks through the years I've seen employers offer a subset of Vanguard funds, offer institutional northern trust funds (both were mega corps). Smaller employers (less than 50 employees) offered loaded legg mason funds and loaded principal funds. I'm convinced there was some benefit to the company for the latter - like waiving the administration costs because they brokerage was getting their money in the form of loads.
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Old 11-04-2014, 01:30 PM   #3
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I wonder what all is behind the 401K selections. My megacorp has Fidelity administer the 401K program. They have funds of funds for most selections, so I'm thinking perhaps they get a management fee and then another management fee. The funds all are hard to get at underlying investments as the mix of the underlying funds change. I've tried to move most of my $$ to index funds, but even those I'm not sure how many layers of management fees are charged.

Perhaps someone on the board can shed some light on why employers don't just offer a self directed 401K with a large fund manager.
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Old 11-04-2014, 02:51 PM   #4
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Previous employers 401K is through Prudential but is outsourced through another company directly to the employer. This company that manages the 401k basically suggest where they think you should put your money in those 10 funds based on your age and ride every down market out with only very periodically adjusting your funds. And push contributing the max. Heck I can do that on my own through Prudential. My question: With the large amount of $ in that companies 401k plan, shouldn't that be enough $ to be properly managed by a real financial manager like the really wealthy are able to use? I was told by an Edward Jones FM that if I were to invest over 500k, my funds would be managed much more appropriately than with investing a smaller amount.
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Old 11-04-2014, 02:58 PM   #5
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I can't tell you why (I don't know) but I have wondered about it myself. When I worked for Mega-Crop, I watched the investment options change over the years. When I retired, I just left the money in their plan since at that point, they had more options than I cared about and the management fees are almost nothing.
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Old 11-04-2014, 03:13 PM   #6
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I still have my 401k with my previous employer. It's probably considered a mid-sized co, 750employees. A small group of employees pick the 10 fund choices, which were always pathetic. Why don't the different 401K fund groups have the ability to get real financial managers to manage the groups funds say like the company owner has? The co owner and many other wealthy business men have the financial managers that consistently boast at least 15% returns on their money even after all expenses. Can't remember the amount but as a group there was in the millions for this groups particular 401K.

Hyper
Not all 401ks are created equal. This is why many people argue that we need to change or expand the retirement savings method in this country.

401ks have improved some but many companies still offer 401ks that are a joke with high fees and poor investment selections.

Seems ridiculous that contribution limits for IRAs are still at $5500 and its now 18k for 401k contributions.

Why not just allow people the option to put 18k into a IRA of their choice
instead of a bad company 401k.
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Old 11-04-2014, 03:14 PM   #7
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Interesting thing about the management fees. I was recently told by a Prudential rep that I needed to move the $ from the previous employers 401k because the employer actually gets paid a management fee from the employees 401k funds. I had never heard that before and I didn't really notice the management fees being much higher than anywhere else. Nowhere near what American funds used to charge. If I would have heard that when I was still working at that co, I would have inquired about it.

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Old 11-04-2014, 05:05 PM   #8
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Fees are getting lower and, in my opinion, it's best to either be with Fidelity or Vanguard, In the past employers reduced costs by only allowing high expense managed funds in the 401k and offsetting expenses through receiving a portion of the high fees. Now this needs to be disclosed and less of it is done. Also, an employer has a responsibility to only offer reasonable choices and then reviewing the choices to make sure they continue to be appropriate. So, most employers limit the number of funds, review each funds performance yearly and replace under performing funds with new funds. Fidelity usually has a couple of low cost stock index fund and one low cost bond fund.....again, with corporate and Fidelity approval. Vanguard has more index and low cost funds but in most cases, either is good for the employees. There are laws governing 401 k selections and employee disclosures.....I would try to stay away from 401 k plans run by insurance companies.....usually, their costs are far higher.......not always but usually.
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Old 11-04-2014, 05:50 PM   #9
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Interesting thing about the management fees. I was recently told by a Prudential rep that I needed to move the $ from the previous employers 401k because the employer actually gets paid a management fee from the employees 401k funds. I had never heard that before and I didn't really notice the management fees being much higher than anywhere else. Nowhere near what American funds used to charge. If I would have heard that when I was still working at that co, I would have inquired about it.

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It's more likely the employer is PAYING a fee to the fund management company to host the employee 401K program, if the funds are good, low cost choices.

A Prudential rep, you say? Gosh. I wonder where his income comes from? I'll bet he'd like you to roll over your 401K into a nice IRA, perhaps into some nice variable universal life policy inside the IRA, or some selected loaded funds ("They're the best; People pay us to try and get in on these babies!").

Prudential is not noted for their low fees and expenses.

If you are considering rolling over your 401K, I'd suggest using a cheaper service specializing in investment accounts. Fidelity, Schwab, and Vanguard all offer low expense mutual funds and ETFs and different types of advisory services should you need them.
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Old 11-04-2014, 06:25 PM   #10
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As others have suggested roll over into an IRA , Fidelity , Schwab, Vanguard, E-Trade , TD ,ETC.

You may have to sell the funds you are in to do so.

You mentioned Ed Jones , surprised the "runaway from Edward Jones" camp has not chimed in yet.
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Old 11-04-2014, 06:53 PM   #11
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...snip...

You mentioned Ed Jones , surprised the "runaway from Edward Jones" camp has not chimed in yet.
I thought he was being funny.

E.D. Jones helped a lot of farmers back last century before internet. They were in every small town and gave the locals the ability to invest, just never mind about high costs.

It's not last century, we have internet and the knowledge of what fees really cost. So run away, far away, it helps if you have something to throw at them.

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Old 11-04-2014, 09:56 PM   #12
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I didn't give E.D. Jones any $ but did talk to them a while back. I haven't thought much about it this way but the Prudential rep has called and emailed many many times wanting me to move and has asked many times about the wife's 401k.
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Old 11-04-2014, 11:49 PM   #13
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One of the reasons a 401(k) has limited investment options is that there has been studies done showing that if you have too many funds people do not know what to do....


I picked the funds at my last small company.... they had recommended 10 besides the fund of funds that are required... I picked 40... we had smarter people... BUT, the funny thing is that almost 95% of the money was in 10 of the funds...


As to fees... the companies are not getting paid... it cost them to have the plan... they can push a good portion of that expense to the individuals, but not all....
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Old 11-05-2014, 05:59 AM   #14
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I was a fiduciary for my employer's 401(k) plan and thus helped select the funds that were available to participants.

The funds were first suggested by real financial managers (CFAs) from Fidelity. The problem with that is that these folks are often clueless themselves and selected funds that are actively-managed and high fee and make lots of money for the 401(k) provider. One thing I am proud of is that I made sure that there were 4 index funds with low fees that were included in our plan.

As for the wealthy having other plans that boast 15% returns, that is a joke, right? Boasting is not the same as actual returns. Those guys are also getting taken to the cleaners by salesreps and their brothers-in-law. For instance, the return in 2013 of a typical US stock market index fund was over 33%. I would not be satisified with a mere 15% in 2013.
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Old 11-05-2014, 07:05 AM   #15
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I had an interesting 401K experience at my last company. I was fired and I expected I would have to roll my 401K into an IRA. But it turned out I could keep my 401K at the company. The 401K administrator was trying to get me to move to an IRA with them. I wanted to keep the 401K so I did. (More safety from lawsuits than IRA, supposedly). They have a good selection of funds, including a Vanguard stock index with a tiny .05% annual ER.

Another interesting thing. The executives of my company picked the funds in the 401K. About a year before I left, they added a lot of funds, one of which was a Stable Value fund. It started at 3.0 percent. I invested a lot in it and watched it. I noticed they changed the name of it one day, and also noticed the daily increase was smaller. Turned out they changed it to a lower interest version of a SV fund. Now it was only getting 2.5 percent! The 3.0 percent version of the SV fund still existed, but I could not invest in it. I wonder where that half a percent went.
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Old 11-05-2014, 09:40 AM   #16
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.

About a year before I left, they added a lot of funds, one of which was a Stable Value fund. It started at 3.0 percent. I invested a lot in it and watched it. I noticed they changed the name of it one day, and also noticed the daily increase was smaller. Turned out they changed it to a lower interest version of a SV fund. Now it was only getting 2.5 percent! The 3.0 percent version of the SV fund still existed, but I could not invest in it. I wonder where that half a percent went.
The stable value fund at my former employer recalculates the interest twice a year. It's been declining but is still higher than CD rates. I assume when interest rates eventually rise the SV fund will lag that.



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Old 11-05-2014, 01:33 PM   #17
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The stable value fund at my former employer recalculates the interest twice a year. It's been declining but is still higher than CD rates. I assume when interest rates eventually rise the SV fund will lag that.



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This particular SV is now all the way down to 1.0 percent. But I'm "happy" to keep more than half of the 401K money in the SV. Fortunately this same 401K has the Vanguard Stock Index and I have some money there but I'm just too conservative to move much into it.
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Old 11-05-2014, 09:39 PM   #18
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I was told by an Edward Jones FM that if I were to invest over 500k, my funds would be managed much more appropriately than with investing a smaller amount.
The FM may have been referring to the lower up-front charges on American Funds that you pay when you invest that much - something like 2.5 % rather than 4.75%.

For me, 401(k) results have been mixed. In the early years, the one where I worked at a sub of Prudential and one at a GE sub were miserable; the choices were weird proprietary funds, not publicly traded. I also had disastrous results with a small consulting firm's plan. Sadly, I'd rolled over $200k from a previous employer's plan. My funds were about 1/3 of the total.

My last 2 employers had much better plans- well- regarded funds with no load.
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Old 11-06-2014, 05:54 PM   #19
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I am a cynic. I see limited company 401k investment choices as a lazy or misinformed decision by management. Checking online, for example it looks like if a company used Charles Schwab as the 401k custodian, the plan could be written such that employees could invest in ANYTHING that Schwab as a broker handles.
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Old 11-06-2014, 06:10 PM   #20
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I am a cynic. I see limited company 401k investment choices as a lazy or misinformed decision by management. Checking online, for example it looks like if a company used Charles Schwab as the 401k custodian, the plan could be written such that employees could invest in ANYTHING that Schwab as a broker handles.
That is not what I would call bad 401k plan since Schwab has many very low cost/high quality ETFs.

But great company would have something like S&P 500 at 2 cents on 100 dollars via "Institutional" class of funds versus standard Schwab ETF at 4 cents on 100 dollars.

BTW you only need 2 funds equivalent of VTI and VXUS to have what I would call pretty good 401k plan which you can get with Schwab via 3 of their ETFs.

Most people would do better if that had choice of SINGLE s&p 500 index fund.......
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