Company 401k Plans

Top 640. Sep 18, 2005 4:19 PM

» allancoleman - Re: Ras...

In response to Ras... posted by AL_W:

hi AL ,

if that was Ras , i think he was probably talking to the wrong advisor for 403b rollovers to IRAs cause bob brinker often isn't on top of those issues . and usually the custodian will have final say over those matters . and bob will often refer those people either to an accountant or their custodian for that answer .

and i believe that Ras wasn't actually leaving his employer , in which case he definitly could roll over his 403b to an IRA and put it in anything he wanted under that investment vehicle ; but in fact his employer was changing their plan and Ras wasn't leaving employment . which complicated the issue .

i , too , often wondered how Ras fared in his quest . i bet his new custodian drags their feet though . smile . it's to their benefit to prevent Ras from doing exactly what he wants to do . which i believe was to go with Vanguard .

-- posted by allancoleman

Top 641. Sep 18, 2005 6:07 PM

» rasputin - Re: Re: Ras...

In response to Re: Ras... posted by allancoleman:

No, that wasn't me. If I'd have called in, I would have asked if we were still in a secular bear market (albeit, a cyclical bull within said bear market).

Haven't done anything yet. I'm thinking we'll be able to keep the Vanguard accounts in place and just use new money to go into the Valic account. After looking again at what Valic is offerring, I don't feel so bad. The funds they're offerring seem ok and there's some kind of mechanism ("window") to allow for access of numerous other funds. Fine. Thanks for thinking about me guys. Our meetings with the old and new guys are coming up.

-- posted by rasputin

Top 642. Sep 18, 2005 6:38 PM

» allancoleman - Re: Ras...

In response to Re: Re: Ras... posted by rasputin:

hi ras ,

my 401(k) has a " other market place window " too with regular mutual funds from many mutual fund families in it . only problem going that route is you then give up the daily switching option and come under that mutual fund families' restrictions for having to leave your money there a certain length of time such as three to six months to a year depending on the fund family .

let us know how you do . others are interested too i'm sure as many others probably face the same issues or will at some point in the future .

-- posted by allancoleman

Top 643. Oct 16, 2005 9:05 AM

» bob90245 - Companies can still play part in retirement savings

Coffeehouse Investor: Companies can still play part in retirement savings
2005-10-16
by Bill Schultheis

What do Lockheed Martin and Hewlett-Packard have in common? They are just two of the many companies across America that are eliminating ``defined benefit'' pension plans for new employees, to be replaced with self-directed ``defined contribution'' plans. In short, these corporations are requiring workers to be responsible for funding and managing their own pension plans.

What can companies do to make it easier on employees to accomplish such a daunting task? To answer that question, I put a call in to Steve Juetten, a Bellevue resident who for the past 25 years has been offering sage advice to corporations as an employee benefits communications consultant. Here is what he had to say.

Our country is facing a ``retirement crisis,'' and the numbers are staggering. Twenty-five percent of the workers who are eligible do not participate in company sponsored retirement plans, and the employees who do participate save only about 5 percent of their pay -- a far cry from the 10 percent or more needed to prepare for retirement.

Since individual retirement plans such as 401(k) and 403(b) plans cover more than 43 million workers today, these statistics lead to a disturbing conclusion: Many workers will not be able to retire with income anywhere close to what it takes to sustain their current lifestyle. If a company wants to boost the participation and savings rates in its retirement plan, here are some steps they can take.

* Use an automatic enrollment feature in your retirement savings plan. Automatic enrollment -- also called negative enrollment, or ``opt out'' -- requires eligible employees to elect not to have their pay contributed to 401(k) or 403(b) plans. Only about 20 percent of retirement plans use this approach now.

The Internal Revenue Service has ruled that automatic enrollment is allowed as long as employees are notified of this feature and their rights to contribute at a different rate or not at all. The IRS has also ruled that employers can use automatic enrollment for existing eligible employees as well as newly eligible employees.

* If you start automatic enrollment, you will also want to introduce automatic savings rate increases. Typically, employees who are either automatically enrolled, or enroll on their own, start at a contribution rate that is too low, often only 2 to 3 percent of pay.

With an automatic increase feature, the percentage of an employee's pay that is contributed to a retirement savings plan increases each year by a certain amount: for example, by 1 percent on the employee's anniversary date. The automatic increases would continue until an employee is saving at a predetermined level, for example, the amount necessary to receive the employer's maximum matching contribution.

* Default investments must be good ones. A study by Hewitt Associates showed that more than 50 percent of employees never change the investment choice they first make. If the initial investment is too conservative (a stable value or money market fund, for example), employees will not accumulate enough savings.

* Low-cost index funds are a must for investment plan options and sponsors should consider offering target retirement funds as options as well. A target retirement fund changes the asset allocation mix depending on how close an employee is to retirement -- more aggressive early in a career and less aggressive later.

* Offer consistent and relevant financial education that reinforces the right savings behaviors. For example, if you want to increase retirement savings, employees should be discouraged from taking loans and hardship withdrawals from retirement plans. On top of that, every plan should include annual statements that highlight how much the employee should be saving today to reach a predetermined goal at retirement.

If you want to help head off the tidal wave of employees who are not prepared for retirement, you must take bold steps now to help your employees prepare for retirement.

Bill Schultheis is the author of ``The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street and Get On With Your Life'' (Longstreet). He is also an investment adviser with Pacific Asset Management in Kirkland. His column appears Sundays. He can be reached at billschultheis@pacificasset.net or at 425-820-1769.

-- posted by bob90245

Top 644. Nov 6, 2005 2:42 PM

» rasputin - Vanguard vs. Valic

I've mentioned the issue of the company that bought our group wanting to offer only Valic for our retirement plan. Here's the letter I wrote to one of the people in charge...names changed to protect the innocent.

October 28, 2005

Dear Mr. Smith:

First of all, I’m sorry to hear about the death in your family.

I appreciate your continued interest in our pension plan issues. This is the current situation as I understand it. As you know, within the past few weeks we have met with representatives from Valic and Vanguard. Included in those meetings were our CEO, our CFO, another administrative staff member and I.

We were informed that Vanguard’s administration costs are $5,000 per year. Half of this amount is paid by the employer and half is assessed to participants, in proportion to their account balances. Valic’s administrative costs are .09% of assets under management. For the sake of comparison, our plan’s balance is approximately $30 million. Doing the math yields a result of $27,000. In fairness, I believe Valic said that the .09% is figured on only those monies not invested in their fixed fund. This fund is comparable in terms of investment objectives to Vanguard’s Retirement Savings Trust and certainly our employs have money invested in this fund. Nonetheless, it is obvious that Valic’s administration fees are significantly higher than Vanguard”s.

The second area of interest is the subject of expense ratios. I did a quick calculation of average expense ratio for Valic versus Vanguard. It is well known in the industry that Vanguard has the lowest average expense ratios in the country. The representatives from Valic admitted this. The results of my comparison indicated that Valic’s expense ratios were on average .40% higher (almost three times the expense ratios of Vanguard funds). Again, in fairness to Valic, I excluded from these calculations the Pacific Stock Index, PBHG and the T. Rowe Price Science and Technology funds. These are not Vanguard funds and were added largely due to Dr. John Green's interest in these investment areas. There is only a small amount of monies invested in these funds. In summary, if you again do the math, .40% (the difference between Valic expense ratios and Vanguard’s) and multiply this times $30 million, this yields an additional $120,000 of expense to participants.

I did not do a comparison on fund performances. Again, it is well known in the industry that index funds outperform 80% of all other funds. Vanguard is the premier company for index funds.

I have included the lists of funds offered by Valic and Vanguard. Just for example, let’s look at the numbers for a few funds. A lot of investor money gets invested in the S&P 500, the Wilshire 5000 (Total Market Index) and the fixed investment fund. The expense ratio for Vanguard’s S&P 500 fund is .18% versus the expense ratio of Valic’s S&P 500 of .71%. Valic offers a second fund that they compare to the S&P 500 which has an expense ratio of .50%. Let’s do a similar comparison with the Wilshire 5000 funds. Valic’s fund has an expense ratio of .40% while Vanguard’s is .19%. Valic does not list an expense ratio for their Fixed Interest Option. Their representatives acknowledged that these costs are charged to the fund. You will notice that Vanguard’s Retirement Saving Trust outperforms Valic’s.

You wondered why the consulting firm you used may not have considered Vanguard. From what I have been able to glean from various conversations, it may be that the average pension plan account balance of your 14,000 employees may not reach the threshold required by Vanguard in order for them to operate economically. As I understand it, the nationwide average for pension plan accounts is $60,000. At our group, the average account balance is $120,000. This obviously meets Vanguard’s threshold.

I would propose that our employees and doctors be allowed to continue with Vanguard. Given the information I have provided it would seem that do otherwise would be a disservice to said employees and doctors. It is my understanding that as long as we remain an LLC (versus a department of your company) we can maintain the Vanguard plan. Even if we do become a department of your company it would seem that we could be partitioned from other SSFHS employees. Vanguard does offer 403b plans.

I hope this has been helpful and again, thank you for your interest.

Sincerely,

rasputin
Plan Administrator

-- posted by rasputin

Top 645. Nov 6, 2005 3:22 PM

» AL_W - Re: Vanguard vs. Valic

In response to Vanguard vs. Valic posted by rasputin:

RAS, this looks like good news. The fact that they listened, looked, and made a level headed decision tells me they may be a pretty good group to work for.

-- posted by AL_W

Top 646. Nov 6, 2005 5:38 PM

» rasputin - Re: Re: Vanguard vs. Valic

In response to Re: Vanguard vs. Valic posted by AL_W:

We'll see. The new company sometimes moves at a glacial pace, which could be a plus actually. I did what I could to document the advantages. Up until now, I was pretty much working behind the scenes gathering information. But recently I began lobbying a bit with a few of the influential members of our company. They have been very satisfied with Vanguard and hadn't heard about the proposed change. I haven't heard back from the HR guy ("Mr. Smith"). I believe he is the one who can make the decision. I'm figuring nothing will happen before July, '06 if then. A lot of things seem "up in the air", with information when available being vague. Also there seems to be a bit of a power vacuum. Sometimes this too can be a plus. All will be known in the fullness of time.

-- posted by rasputin

Top 647. Dec 12, 2005 10:51 AM

» rasputin - Re: Vanguard vs. Valic

In response to Vanguard vs. Valic posted by rasputin:

Well,

It worked. We will be able to remain with Vanguard. I guess it was hard to argue with saving about $130,000 per year.

You may also find it interesting that eight years ago, I single-handedly spearheaded a move from Massachusetts Mutual to Vanguard, saving us $55,000 per year in administrative costs alone.

Thanks for the interest and support.

-- posted by rasputin

Top 648. Dec 12, 2005 12:58 PM

» allancoleman - Re: Vanguard vs. Valic

In response to Re: Vanguard vs. Valic posted by rasputin:

congradulations . smile . i'm sure not all employees / retirees will fully appreciate your efforts as most investors don't realize how inexpensive Vanguard . including administrative costs too it appears .

-- posted by allancoleman