Do you have a 401k, how good is it, and are changes coming July 1?

[jIMOh]

Curious how many of you have a 401k, and if you know if any changes are being made because of the rules which go into effect on July 1?

 

[LOL!]

I have a 401(k). I am on the 401(k) committee at work and am a fiduciary of the plan. There are absolutely no changes coming up.

In our plan there have never been any hidden charges or fees paid by the plan participants. We have a number of Fidelity Spartan Advantage index funds in the plan plus a number of actively-managed funds. The published expense ratios and NAVs are what participants actually get. So the "fee-disclosure" rules are a non-event for us.

The employer picks up the costs of administering the plan which is about $20 a participant annually.

 

[growing_older]

We have a terrible 401k plan at work. No direct fees that will be affected by the new rules, but all the investment choices are 2% to over 3% annual fee funds. I've talked to the person responsible for choosing this plan and they want to stay with this provider one more year, then look for a low cost plan. I'm glad they are considering a change, but not happy it will take so long. Also, at least a little apprehensive that since we "chose" this plan at one time, the new choice may not be as good as I might hope.

 

[Finance Dave]

Don't know of any changes to ours. I think ours is above average, but not great. MegaCorp matches 100% on first 1%, then 50% on next 3%. We have about 20 investment options, although they are mostly Vanguard low-fee funds. We can borrow from it (I would not advise that), have a web-interface for tracking and reallocating, and so on. Overall I'd give it an 8 out of 10.

 

[Lisa99]

Mine went from terrible to great when the 401k management was switched to Fidelity. No idea if there will be changes in July.

 

[Texas Proud]

I have a 401(k). I am on the 401(k) committee at work and am a fiduciary of the plan. There are absolutely no changes coming up.

In our plan there have never been any hidden charges or fees paid by the plan participants. We have a number of Fidelity Spartan Advantage index funds in the plan plus a number of actively-managed funds. The published expense ratios and NAVs are what participants actually get. So the "fee-disclosure" rules are a non-event for us.

The employer picks up the costs of administering the plan which is about $20 a participant annually.

Agree.... when I saw the proposed statement that will be sent to the participants I was struck by how there is no new information in the disclosure that was not disclosed before....

Our company pays the fees for current employees, but not for people who left... and that was disclosed to everybody... so a big non-event IMO....

 

[EvrClrx311]

I've been more than happy with our 401k... we have Vanguard with access to about 75 funds with some of the lowest expenses you can find.

 

[jIMOh]

as an FYI, the costs of the mutual funds are NOT the costs which I was asking about- someone, somewhere, is paying the cost of administering the plan- it could be taken out of participant accounts before returns are reported, it could come from 12b1 fees on mutual funds, or other expense ratios. These could be fees of $10k-$50k per plan, and those fees come from somewhere.

 

[H2ODude]

I had 457 plan back in the 80's and early 90's which I believe were all by insurance companies. They stunk. Then when I had my local government job I retired from last year they had one that....stunk. Many of us suspected there were shenanigans in their selection, it was so bad. So the finance director tried to oust them and it took two years. The one they had when I left was fine. What was really cool is we had the 457 and could also access State 401k. Being over 55 I could dump over $42k a year into it.

There is NO EXCUSE for bad plans, 401k or 457, whatever. I'd do some research, question, and band together with with like minded co workers and demand answers as to why you have a plan that sucks. That's pretty much how we got ours changed at last job. It wasn't easy though. I mean, it was so bad I almost didn't use it...but for the tax advantage.

 

[plex]

My 401k is amazing, .02%-.06% expense ratios, plan to max it out every year. My HSA on the other hand is quite bad, mostly JPMorgan 1-1.5% loaded funds, and one near 0% money market, but there is luckily one unloaded SP500 index choice in it, though probably only because regulations require it to be there.

 

[sunnysideup]

Funny you should ask. I work for a small company that is fairly young. I am not impressed with our 401k choices, so recently I asked the Benefits person about fees (who is paying them), and about adding a Roth 401k. He couldn't answer the fees questions, and asked my why anyone would want a Roth. I explained the benefits, especially for younger folks, and he asked me a second time.

He also told me our plan custodian Trowe, would be here to answers questions and I should direct my questions to them. I am definitely looking forward to more transparency.

I don't understand why we don't have lower cost funds in the plan--we are in a TRowe account with no TRowe funds--we employees are paying big-time for poorly performing funds. But with an HR person who doesn't even understand the benefits, I don't see any changes anytime soon.

Here's my hoping that in 2 years I can move my monies where I want...

 

[MooreBonds]

We have a terrible 401k plan at work. No direct fees that will be affected by the new rules, but all the investment choices are 2% to over 3% annual fee funds. I've talked to the person responsible for choosing this plan and they want to stay with this provider one more year, then look for a low cost plan. I'm glad they are considering a change, but not happy it will take so long. Also, at least a little apprehensive that since we "chose" this plan at one time, the new choice may not be as good as I might hope.

I share your pain. When I asked the go-to guy in my employer (150 person firm), I had an irate guy exclaim back "Why does everyone keep saying that they're expensive funds? You're not paying that fee!". Some people just don't get it! I suppose they think the mutual fund managers have some special power that enables them to magically earn that 1% per year extra to pay the extra fee!

My excitement of seeing a few Vanguard Index Funds among our new provider's list suddenly turned to bewilderment, as I tried to understand how the 'account' with the 0.15%-0.20% Vanguard funds had a total expense ratio of over 1%! Sure, there are some funds with 1.5%-1.7% total expense ratios, but hearing other posters reference their over 2% and even 3% funds don't make me feel so bad.

My 401k is amazing, .02%-.06% expense ratios, plan to max it out every year. My HSA on the other hand is quite bad, mostly JPMorgan 1-1.5% loaded funds, and one near 0% money market, but there is luckily one unloaded SP500 index choice in it, though probably only because regulations require it to be there.

Don't forget that you can make your own annual contributions to an annual HSA plan and deduct it off of your income taxes on line 25 - you don't need to do it through your employer. The only benefit of making HSA contributions through your employer is saving on the 7.65% SS/Medicare pre-tax benefit - unless your employer matches some of your contributions (but even then, the one-time 7.65% savings may not be worth it with the excessive annual expense ratios).

Also, while I'm not 100% sure of this, I believe you are entitled to transfer out your HSA account to another provider while still employed with your employer. I think HSAs are under different rules that most 401ks, which don't allow you to roll over your account until you separate from service (but check w/ your HR department and read the fine print).

 

[clifp]

I was curious how the new reporting requirement would work out. It seems like it is mostly a non-event.

Did anyone find out more details about the expenses of their 401K? Were they surprising?

 

[Good_Life]

I'm on our retirement plan committee at work, which is great because it allows the finance people who may be more in tune with this benefit than HR to ensure that our plan is administered well. Seems like such a committee would definitely help at some of these high cost plans that everyone has been talking about especially if HR may not be very well educated on these matters. I believe setting up these committees is also considered a best practice from the Dept of Labor for employer 401k plan administration.

The rules changes were actually a benefit to our plan as it forced our provider to disclose how much money they were making off of us. We discovered that they had too high a profit and to make up the shortfall they are placing all the funds that they offer us that are non-proprietary in a lower fee share class. Took about 10 bps off of expenses for a good portion of the funds that are offered in our plan.

 

[clifp]

I'm on our retirement plan committee at work, which is great because it allows the finance people who may be more in tune with this benefit than HR to ensure that our plan is administered well. Seems like such a committee would definitely help at some of these high cost plans that everyone has been talking about especially if HR may not be very well educated on these matters. I believe setting up these committees is also considered a best practice from the Dept of Labor for employer 401k plan administration.

I hadn't really consider this but you are right. As a gross generalization you want HR people to have good soft skills and they often aren't really good with numbers.

In contrast the retirement plan committee needs people not only who are comfortable with numbers but are knowledgeable. While this is most likely to be people in fiance it isn't necessarily true. For instance, even taking the handful of investment oriented course, I learned very little about investing when getting my MBA. Many of the finance people I knew were very smart about corporate finance but pretty clueless about personal finance.

My guess is if you been following the forum for a year or two, read some of the books on the lists, and work for 100-500 person companies, odds are you know more about investing than all but 1/2 dozen or so your co-workers. You can probably do both yourself and your co-workers a favor by starting a retirement committee.

 

[Good_Life]

I hadn't really consider this but you are right. As a gross generalization you want HR people to have good soft skills and they often aren't really good with numbers.

In contrast the retirement plan committee needs people not only who are comfortable with numbers but are knowledgeable. While this is most likely to be people in fiance it isn't necessarily true. For instance, even taking the handful of investment oriented course, I learned very little about investing when getting my MBA. Many of the finance people I knew were very smart about corporate finance but pretty clueless about personal finance.

My guess is if you been following the forum for a year or two, read some of the books on the lists, and work for 100-500 person companies, odds are you know more about investing than all but 1/2 dozen or so your co-workers. You can probably do both yourself and your co-workers a favor by starting a retirement committee.

Our current HR Director is probably more knowledgeable on these things than our last one, but it really is not their forte and I would agree it probably isn't for most HR personnel. I would also agree with you that an MBA certainly does not make you wise on personal investing, and I've learned way more on reading books and this forum than any econ classes I ever took. Its really interesting the type of people that follow personal investing where I work and how they are not necessarily in the field where you would think and those that are in a complementary field to finance don't seem to care about it to near the degree.

I'm not a huge fan of a committee for everything as they can quickly turn into time sinks for everyone involved, but a retirement committee can be a huge benefit and not waste a lot of time. You really only need to meet maybe twice a year to just review your plan, investment options, fees, employee feedback, etc and if composed of the right people it can be a big benefit to employees and a nice asset for your HR department as well.

 

[nun]

I have a 401a with TIAA-CREF, the fees are around 0.4%, a 403b with Vanguard, the fees are 0.07%, and a 457 with fees of 0.06%. My employer kicks in 5% of my salary to the 401a and mandates that I contribute 11%. As I am over 50 and max out all contributions I defer ~$65k into retirement accounts each year.

 

[Texas Proud]

I'm on our retirement plan committee at work, which is great because it allows the finance people who may be more in tune with this benefit than HR to ensure that our plan is administered well. Seems like such a committee would definitely help at some of these high cost plans that everyone has been talking about especially if HR may not be very well educated on these matters. I believe setting up these committees is also considered a best practice from the Dept of Labor for employer 401k plan administration.

The rules changes were actually a benefit to our plan as it forced our provider to disclose how much money they were making off of us. We discovered that they had too high a profit and to make up the shortfall they are placing all the funds that they offer us that are non-proprietary in a lower fee share class. Took about 10 bps off of expenses for a good portion of the funds that are offered in our plan.

I hadn't really consider this but you are right. As a gross generalization you want HR people to have good soft skills and they often aren't really good with numbers.

In contrast the retirement plan committee needs people not only who are comfortable with numbers but are knowledgeable. While this is most likely to be people in fiance it isn't necessarily true. For instance, even taking the handful of investment oriented course, I learned very little about investing when getting my MBA. Many of the finance people I knew were very smart about corporate finance but pretty clueless about personal finance.

My guess is if you been following the forum for a year or two, read some of the books on the lists, and work for 100-500 person companies, odds are you know more about investing than all but 1/2 dozen or so your co-workers. You can probably do both yourself and your co-workers a favor by starting a retirement committee.

Our current HR Director is probably more knowledgeable on these things than our last one, but it really is not their forte and I would agree it probably isn't for most HR personnel. I would also agree with you that an MBA certainly does not make you wise on personal investing, and I've learned way more on reading books and this forum than any econ classes I ever took. Its really interesting the type of people that follow personal investing where I work and how they are not necessarily in the field where you would think and those that are in a complementary field to finance don't seem to care about it to near the degree.

I'm not a huge fan of a committee for everything as they can quickly turn into time sinks for everyone involved, but a retirement committee can be a huge benefit and not waste a lot of time. You really only need to meet maybe twice a year to just review your plan, investment options, fees, employee feedback, etc and if composed of the right people it can be a big benefit to employees and a nice asset for your HR department as well.

I am surprised that a number of people do not think that it is in the HR dept wheelhouse to handle the 401(k).... Heck, that IS part of their job... along with all the various insurance and employment laws.... if they are not doing it well, that means they are not doing their job well....

It is not the company's finance depts job... as mentioned, their job is to take care of the companies finances...

 

[FinanceDude]

I think companies like Principal are going to have a rough couple of years. Once those "annuity units" expenses are broken down, the 401K committee can see how much they have been paying. Lots are in the 2-3% range..........

 

[rodi]

I had a horrible 401k plan at a previous employer - it was 100% load funds... that didn't perform well. The office manager (who doubled as HR) said it was the only deal she could work out for such a small office (about 30 people.) I rolled it as soon as I escaped that company... paying loads on the way out, too. Ugh.

My current megacorp used to have Vanguard - and I really liked the 10 or so Vanguard funds we had access to. Then we were acquired by a bigger megacorp and moved to Northern Trust. I dislike the lack of transparency. The fund selection is very limited. The expense ratios that show on the prospectii are semi low (most are under 1%) but I have strong suspicions there are fees that will be disclosed in July. Their cash fund (money market equivalent) has "broken the buck". And their balanced funds are particularly lousy. But, current megacorp is being acquired by yet a bigger megacorp. It appears the bigger megacorp uses Vanguard... so hopefully we'll be switched back.

(Worked for the same company for decades... but the name keeps changing due to being split into pieces, being acquired, etc... Fun fun fun. NOT)

 

[martyb]

Federal employee, and I participate in the Thrift Savings Plan (TSP). I'm very happy with it, even though I'm an employee who's been around since way back, therefore I am covered under the older Civil Service Retirement System, meaning I do not get any matching funds to go along with my own contributions. This is because my COLA pension will be approximately twice the amount of those newer employees who are covered under a different system, called FERS. Those employees do get up to 5% match. Even with no match, I'm satisfied with my TSP and the options available to me for investment. I have been maxing my TSP for several years, including the age 55 catch-up amounts as soon as I became eligible for that, 4 years ago. I intend to leave my money in the TSP when I do retire, because I will be able to withdraw penalty-free anytime starting in 8 months from now, if I retire. If I switched my money to an IRA, I would lose that option. I'm happy, few if any complaints.

 

[LOL!]

Funny you should ask. I work for a small company that is fairly young. I am not impressed with our 401k choices, so recently I asked the Benefits person about fees (who is paying them), and about adding a Roth 401k. He couldn't answer the fees questions, and asked my why anyone would want a Roth. I explained the benefits, especially for younger folks, and he asked me a second time.

Be careful what you ask for. Our analysis of a Roth 401(k) showed that only the wealthiest folks in the company would benefit.

The rank-and-file:
1. Would be be totally confused and probably not choose the more beneficial traditional 401(k) option
2. Could use a Roth IRA outside of the company plan anyways
3. Would not save more than the limit of the outside Roth IRA anyways
4. Would increase their taxes because they wouldn't know about certain phase-outs due to higher adjusted gross income
5. Would be in a much lower income tax bracket in retirement anyways since they were not saving enough for retirement anyways.

 

[Texas Proud]

Be careful what you ask for. Our analysis of a Roth 401(k) showed that only the wealthiest folks in the company would benefit.

The rank-and-file:
1. Would be be totally confused and probably not choose the more beneficial traditional 401(k) option
2. Could use a Roth IRA outside of the company plan anyways
3. Would not save more than the limit of the outside Roth IRA anyways
4. Would increase their taxes because they wouldn't know about certain phase-outs due to higher adjusted gross income
5. Would be in a much lower income tax bracket in retirement anyways since they were not saving enough for retirement anyways.

I don't understand why the rank and file would not want to do a ROTH...

Most are in a much lower tax bracket right now... so they would not be in even a lower one when they retire as you have in #5...

Maybe your rank and file is in an industry where most people get paid a lot and are in the 25% or higher bracket... but where I work all but one is paid pretty well and most are in the 15% bracket when you factor in a wife and kids, home and tax deductions and their 401(k) and insurance deductions...

 

[LOL!]

If they are in the 15% tax bracket now, they will be in the 0% tax bracket in retirement. 0% is much lower than 15%. If they are in the 15% tax bracket now, they are not saving gobs of money for retirement.

If they are set on a Roth, they can simply get the company match while saving on taxes by investing in the traditional 401(k), then contribute to a Roth IRA outside of the 401(k) plan.

I'm in the 25% tax bracket now. I will be in the 0% tax bracket in retirement.

A Roth 401(k) is great for folks who contribute the maximum to their 401(k)s and to their Roth IRAs and have a pension plan and who will work to age 70. That is, the wealthy folks. For who retire early and with no pension plan will usually if not always do better in the traditional 401(k). That's because they can still convert to a Roth after they stop working when they are in a lower tax bracket.

 

[growing_older]

Except in the year they retire. I hope to switch to the Roth 401k and work a part year on my way out. Putting as much as I can in the tax free Roth, but being in a low bracket because of the partial year working.