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Originally Posted by Dennis
Why do co.'s use High cost funds? Maybe their Agent/Broker makes more $ from them? Or The Owners of the Co. are getting Some Other Benefits for doing so? Or There are Less restriictions using High cost Funds for the employer to Steal the $, like They did With Enron and other Co.'s? And Maybe those higher Fee's are going elsewhere , like into the Agents Pocket and then for Free Golf Trips and Cruises for the Owners of the Company? Or Football And Baseball Tickets in a skybox..?
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I think it boils down to money. Our small company (~35 plan participants) has a fidelity 401k that is designed for small companies. Each participant is assessed a $20 fee each year, and I think the company pays another $2000 or so per year in administrative fees. On top of that, there are one time fees to modify our SPD, which I believe is required if we change percent matching and fund choices.
Fidelity gives us a slate of funds that they pick, and they are almost exclusively high cost fidelity actively managed funds. There are two index funds that are good, but both in the domestic equities category. It wouldn't take much to include an international index fund and a low cost bond fund or bond index fund, but myself and one other guy have badgered them about it, and apparently "it isn't an option" at our level of 401k plan.
Why do companies pick crappy 401k providers? The company CEO plays golf with the salesman at Big InsCo that provides 401k's free of charge. Why would you ever incur costs to provide 401k's when you can get a free 401k administered by your Buddy? Believe it or not (  ), CEO's can be unsophisticated when it comes to things like selecting 401k service providers.
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