Company 401k Plans

Top 60. Jan 22, 1999 8:52 AM

» TimYounkin - fiduciary responsibility

To try and answer Geezard's first questions, the employer still has a fiduciary responsibility. As stated in the DOL's final report bundled services do come with a price. The DOL's report also states that many employers were unaware of the fees being charged by some of these bundled service providers. Does this mean these employers failed in their fiduciary responsibilities? In my opinion, yes or at least partially although I don't know of any court cases yet. To try and answer the second question, your employer must give you a broad selection of funds. I think you have to at least have 4 funds to choose from by law. Usually the plan will consist of a money market fund, a bond fund and a stock fund. Most plans will have more than just 4 funds to choose from. If any of the funds head south I don't think your employer will be responsible. So be sure to do a little research on each mutual fund before investing in it. Your employer does have a responsibility to educate the employees. Sometimes the bundled services provide newsletters that fulfill this fiduciary responsibility. Of course the newsletter will be bias and I am sure they won't disclose their high fees and possible low performance corresponding to benchmarks. If your employer has done their research or has hired a professional fee only advisor to review bidding 401(k) plans you shouldn't have to worry about fees and poor performance mutual funds. Unfortunately, many employers do not choose 401(k) plans in the proper manner.

-- posted by TimYounkin

Top 61. Jan 23, 1999 11:28 AM

» TimYounkin - other forum

I recently asked John Rekenthaler from Ivory Towers about 401(k) fees back on 10/26/98. I thought some others may want to see this forum also.

-- posted by TimYounkin

Top 62. Jan 24, 1999 1:27 AM

» MichaelC_AU - Newspaper story 5k limit proposed on roth IRA

I read in a newspaper story that congress is proposing raising the limit on the roth IRA to $5,000. I'm not up on my civics 101, and I'm not sure what progress has been made, but my impression from the article was that the prospects of the raise are promising.

-- posted by MichaelC_AU

Top 63. Jan 24, 1999 3:27 PM

» TimYounkin - Coming: A Roth 401(k)?

This from the March issue of Mutual Funds magazine page 75. Senator Roth's Retirement Savings Opportunity Act of 1999 would:
- Create a Roth 401(k), similar to the Roth IRA, enabling participants to contribute money on an aftertax basis that could then be withdrawn tax free at retirement.
- Create a Roth 403(b) plan for gov't workers and non-profit group employees paralleling the Roth 401(k)
- Raise annual contribution limits of conventional 401(k) and 403(b) plans to $15,000
- Set annual 401(k) and 403(b) contribution limits at $22,500 for some workers age 50 and older.
- Raise annual IRA contribution limits from $2,000 to $5,000, to adjust for inflation since the $2,000 cap was set 18 years ago, and index the new cap for future inflation.
- Set annual IRA contribution limits at $7,500 for workers age 50 and older
- Restore deductibility of contributions to traditional IRAs for high-income taxpayers with employer-sponsored plans.
- Raise adjusted gross income limits for Roth IRA conversions from $100,000 in the year of the conversion to $1 million.
- Eliminate all income limits for Roth IRA contributions.

Is this to good to be true or what?

-- posted by TimYounkin

Top 64. Jan 25, 1999 1:04 PM

» SteveT - To good to be true

Yes I agree it would be great. It just may pass,it promises everything to everyone. Isn't that how things work in our nations Capital?

-- posted by SteveT

Top 65. Feb 2, 1999 5:39 AM

» geezard - Bundled 401(k)

I appreciate Tim's input as to fiduciary duty governing a 401(k) plan. I am still bumping into many obstacles at work while trying to determine the overall fees in my plan and my superiors appear to be quite evasive only supplying me with expense ratios via the individual mutual funds. I have come to the conclusion through my own research that we are in what is known as a "wrap account" with American Express (AXP). The trust agreement appears to be written in favor of AXP in that employee contributions are held in a pooled trust, incurring management fees, then at some point allocated to the independent employee's mutual fund choices. It appears proceeds attributable to management are taken from the trust plan assets so the employees are virtually paying for their own 401(k), with the possible exception of employer paid recordkeeping. I don't see where there is much difference in a "wrap account" than a so-called variable annuity which I understand is not looked upon favorably by ERISA. Both seem expensive since the trustee is paid a percentage for managing the plan's assets and, at this point, I am not sure what amount that encompasses (1%, 2% or higher) coupled with expense ratios from the various mutual funds, it is understandable why our returns are so low. Again, the only two low-risk options (money market and junk bond fund) carry such low returns and high operating costs, they are hardly worth investing in. The others seem high risk yet I am told we are unable to change these options. Can anyone explain the difference between a wrap account and a variable annuity, and the legality of a wrap in a 401(k)? Many thanks.

-- posted by geezard

Top 66. Feb 2, 1999 11:30 AM

» TimYounkin - Read the DOL's Final Report on 401(k) Fees

"A wrap fee is an all-inclusive fee imposed on the value of the total assets in an account. Wrap fees are typically charged by insurance providers, who package their 401(k) investments in the form of group or individual annuities. In these plans, wrap fees typically include M & E expenses and distribution fees in addition to the cost of plan services and investment management fees." - source page 31 of the Final Report Study of 401(k) Plan Fees and Expenses. You should read starting from section 2.5.1. Insurance Produtcs of the DOL's report. The 72 page DOL's report goes into wrap fees and expenses much deeper and probably can answer any more questions about fees.

-- posted by TimYounkin

Top 67. Feb 9, 1999 8:47 PM

» JenL_3 - Dark Corners

This copied from the BB thread:

Author: JayS_2
Date: February 9, 1999 1:46 PM
Subject: Dark Corners

The path away from cluelessness can be rocky.
I learned this today trying to liquidate a 401K established by a former employer 8 years ago. Back then, I chose to split the investment into "value" and "flexibly managed" funds mostly because the words sounded good. Some was left in their money market.

I now want my money out of their hands and into Vanguard, in GNMAs now, but TSM when the market upswings.
Well.......

Horror 1: Though these funds weren't a total disaster over the years, they underperformed the indexes by about 50%. Last year, they were a disaster, with 4% returns... less than a bank account. Because of how their statements were structured, it was hard to tell what was going on, even if I knew how to compare them to their peers.

Horror II: Expense ratios are above 2%. Even the money market fund has a 2% expense ratio, 1.3% for "insurance"...whatever the heck that is.

Horror III. The funds are 7% load, back loaded on an 7 year schedule. The exit is clear, right? Not exactly. One purchase was made in the second year of the plan. This extended the redemption fees to an 11 year schedule. Even now, I still have a 2% hit to get my money back. Of course, I lose that in fees leaving it in the hands of their incompetent managers each year so its bite the bullet time.

Moral of the story: Know what's going on in every corner of your portfolio ... especially if you didn't set it up.

Jay Scott

Author: JenL_2
Date: February 9, 1999 8:34 PM
Subject: 401K Plan Horrors!

Jay - I appreciate you sharing your 401K Horror Story with us. Horrors in dark corners indeed! We all need to look closer at what is going on in our 401K plans. The Bull Market has masked a lot of incompetent and out-right shark-attack 401K management.

At least Jay, maybe your story will spur others on to examine their 401K plans. I am going to copy your post over to the "Company 401K Plans" thread.

Thanks......J.L.

-- posted by JenL_3

Top 68. Feb 10, 1999 6:15 AM

» BillR_5 - General American

Does anyone have any knowledge or experience with 401K's in the General American Group. They have some of their own funds (S+P 500) and also use funds from other families (Janus, Fido). I'm trying to find out just what the expenses are. The employer provides the Prospectus from the mutual fund, but are there other expenses to the employee? Exactly where would I find them?

-- posted by BillR_5