Company 401k Plans

Top 100. Apr 2, 1999 7:35 AM

» TimYounkin - Fees response

Bill, you’re absolutely right. Everyone is unique and really have to crunch their own numbers to see which is better. I made a spreadsheet that people can download from my web site. My spreadsheet of course isn’t 100% accurate but no spreadsheet will be. I would recommend consulting a qualified fee only advisor CFP to crunch the numbers.

It has already been stated by financial advisors that fees should not exceed 1% in retirement plans.

There are lots of variables,… your tax bracket, your age, your retirement age, how long you will be employed in the 401(k) plan, the fees of the 401(k) plan versus the fees in a taxable account, and I am sure many more variables.

-- posted by TimYounkin

Top 101. Apr 2, 1999 7:36 AM

» TimYounkin - Kiplinger's 401(k) Article

4/2/99

Looking for a pretty good article on 401(k) plans? Kiplinger’s personal finance magazine May 1999 has an article titled Max Out on Your 401(k) by Mary Beth Franklin. The ins an outs of 401(k)s are pretty well explained. Topics covered are eligibility, employee contributions, matching contributions, vesting, loans, early withdrawal, chashing out, company stock, and mandatory withdrawals. There is also a small chart showing the average 401(k) plan versus the top of the class plan.

What interested me were these statements … If you don’t like your company’s plan - whether because of limited investment choices, poor fund performance, high fees or restrictions on moving your money around – don’t suffer in silence. Let plan officials know your gripes, and persuade your colleagues to voice their concerns. Be persistent. Your boss may be persuaded that improving the company’s 401(k) plan now may help it retain employees and protect the company against future lawsuits initiated by disgruntled workers, who claim that better choices would have given them bigger retirement savings. Chances are your boss will benefit from an improved plan, too.

In March 1999 Kiplinger’s Page 18 has written “Sizable income disparities among retirees could result in a rash of lawsuits against employers by participants claiming they were ill-equipped to take on the responsibility of making investment decisions. There has to be an aggressive push for managed options as a default for people who don’t know a stock from a bond and don’t want to know”

Where does this all lead to? I think people are coming to terms that next to the Roth IRA your 401(k) is probably the next best place to invest. Many articles are stating to max out your job’s retirement plan however employees are starting to demand better options. Now with the threat of legal action, many employers should be more concerned when selecting a 401(k) vendor. If employers don’t properly address concerns of a poor retirement plan it just may come back in the form of a court fees which nobody wants.

On another topic, Kiplinger’s April 1999 has a good article on Annuities titled, “Boy, have they got a deal for you” by Kimberly Lankford. I recently read that 90% of people currently in annuities should not be.

-- posted by TimYounkin

Top 102. Apr 2, 1999 8:50 AM

» Maddog - Payment of Plan Expenses

I have received word that a proposal is on the table at our company, which works as follows:

The company will pay ALL plan expenses from the company's general assets. Then, the plan administrator will determine which plan expenses would be properly payable by the plan. The plan would then reimburse the company for these expenses.

Assuming we overcome the fiduciary hurdle of properly determining the expenses that could be paid by the plan, do we run afoul of ERISA's prohibited transaction rules since technically, there is an exchange of assets between the plan and a party in interest? Any other concerns?

-- posted by Maddog

Top 103. Apr 2, 1999 11:50 AM

» TimYounkin - ERISA message boards at Benefitslink.com

Maddog,

You didn't say how much the expenses were. I would first find out just how much the company would have to pay first and if that would be deducted from the employees investments within the plan.

As for the ERISA question... I would refer you to the message boards at www.benefitslink.com I think the address is http://www.benefitslink.com/benefits-bin...

You will find professional expert advice on ERISA matters there.

-- posted by TimYounkin

Top 104. Apr 9, 1999 4:45 PM

» geezard - still digging

Tim, I hope you enjoyed your vacation. I'm still digging for answers regarding our poor plan. I have determined that employer pays recordkeeping and trustee's fees only. The trust plan assets pays all other fees. Still can't find out how much. Funds are mediocre at best. We do have an index fund but it is not a mutual fund and is a collective trust fund so we have a trust within a trust. Expense ratio is .35 assessed daily and paid every 30 days. I might try it but I'm leary of something so difficult to follow. When I checked on it, the info given me as to returns was current as of 2/28 and I called 4/5. I talked to another vendor, Fidelity, and the sales agent told me he tried to bid on us but couldn't place us in a plan because we actually "stink" (not his words) because we have too much company stock in our plan and a lot of people contributing next to nothing. In otherwords very little in the pot to manage and these guys don't make much off recordkeeping. He said our best bet is to rally for better performing funds and maybe the fees won't be so recognized. We have a co. stock match but only 1 1/4 percent (25% of the first 5%), and we have a company stock fund in our plan which appears to be more of a problem to us since many folks have everything in our own stock so I can certainly understand his reasoning here. If out of 14 mil, only 8 mil would be in Fidelity investments. The restaurant industry has a lot of transient younger folks who don't stay long and many don't consider retirement needs as important as others. Also, we have ability to have as many as 3 loans per person and, as the Fidelity man told me, this is ridiculous as people are using this like a savings account. The company really isn't giving us much incentive to get in the plan either with the poor choices and low match being in company stock. If we went unbundled as opposed to our current bundled plan with American Express would the company stock issue and underfunded asset pool present the same problems? I know employer is paying quite a bit for recordkeeping for the 4000+ folks. Somewhere in the area of $40.00 per person. To add a fund will cost them $35.00 per person per additional fund so they said "no way" we stuck with these choices for at least 1 year. I'm trying to talk to other vendors to see if there is a solution. I was told a third plan can't happen as it may discriminate against restaurant personnel. Any thoughts are again appreciated. Thanks.
P.S. In case you didn't have it already there is a neat cost calculator at www.sec.gov to evaluate mutual funds, but you must know the expense ratios first.

-- posted by geezard

Top 105. Apr 11, 1999 3:24 AM

» TimYounkin - Links to evaluating fund costs

Geezard,

Thanks for keeping us informed. With 4,000+ employees in a retirement plan I am surprised many vendors aren't knocking on your door trying to sell you their plan. I don't think going to an unbundled plan would cause any significant problems just because your company offers their stock as an option. However, your research into finding an unbundled plan may turn up something different. Why would a third plan discriminate against restaurant personnel?
Thanks for the link on evaluating mutual funds. It has been in the news for a couple of days now. It is also available through the Web site of the Investment Company Institute, the mutual fund industry's trade group at http://www.ici.org/ or directly at http://www.sec.gov/mfcc/mfcc-int.htm

-- posted by TimYounkin

Top 106. Apr 11, 1999 4:38 AM

» TimYounkin - cost comparison spreadsheet

I just tried out the SEC calculator. It is pretty good but it doesn't let you input annual contributions nor does it let you increase those contributions to adjust for the cost of living. For those of use that continuously contribute to a fund each year, we need a better cost comparasion spreadsheet or program. I am quickly tossed up such a spreadsheet but it still needs work.

-- posted by TimYounkin

Top 107. Apr 11, 1999 10:09 AM

» geezard - cost calculator

Tim, I also tried the calculator and the other problem I found that may make it difficult to ascertain returns is that money in a 401(k) is fed into the plan at intervals through dollar cost averaging. I calculated it using a $2000 figure over 10 years, but actually it would be much more than $2000 through automatic monthly contributions. As to my own plan, I don't believe the third-party (advisor) is discriminating against restaurant personnel, only that we have 14 mil in a plan for 4,000 people and I am told 4,000 people would usually generate more like 50 mil.We are underfunded. Another thing I am curious about is when we get our statements it seems they don't reflect our contributions through that quarter as we are always lagging behind in the reporting area making it difficult to ascertain what gain, if any. I keep hearing about lawsuits now stemming from some accounting procedures now used in 401k plans (cost fowarding or balance forwarding or something along that line), do you know of this? One man alleges he lost $400,000 on his plan due to this procedure. I know my company gets our money within the 15 day time period to our trustee, but it may sit in this collective trust for a period of time (?) before allocation to our individual accounts. We pay management fees ourselves thru this collective trust over and above the expese ratios. This lack of disclosure as to how much has been a most frustrating issue. I am sure upper management had to invent the second plan for themselves as they would never get close to being able to reach their 10k deductible cap since lower paid employees are putting in such extremely low ratios. This factor is why we are unattractive to a larger low cost provider and I hear is typical in my industry. I have a conference call set up with Vanguard this week and will discuss the unbundled approach, but fear we still present the same problem of low assets. My company gives us a very nice profit sharing check so I don't want to fuss at them too much for not better funding our 401(k) with employer match in cash. But that, along with the not-so-great funds is keeping this plan in the "below par" status and I feel our best solution is to try to get the better ranking funds. Thanks Tim. I'll try your spreadsheet.

-- posted by geezard

Top 108. Apr 11, 1999 12:50 PM

» TimYounkin - deposit limit for benefit plan trust

Probably the best way to figure out just how much gains you are getting from your 401(k) plan is to just enter it as a fund in something like Quicken or Microsoft Money. For me, it is real easy because I just have one fund. When I get my quarterly statement I enter all the values into Quicken. I let Quicken do all the complicated calculations and trust Quickens figures are correct when I generate a report. I know Quicken will let you enter more than just one fund in a 401(k) or 403(b) account but I found it a little difficult.

Your right about investing in a 401(k) account, it does use the dollar cost averaging method. However, when you are doing long term projections I think the answers you are looking for will not be very much off. I simplified my spreadsheet by stating your contribution goes in just once a year and you will get the full gains off that contribution. Of course this never happens in real life when you are actually using dollar cost averaging.

I reread a web page that states the plan deposit time limits and it does state that the limit is addressed to the employee benefit plan trust. So I guess the next question is when should that money really be hitting your actual investment or mutual fund. I'll have to ask around because I don't even know. I always thought the money had to be invested into my investments no later than the 15th business day of the month following the month in which the participant contribution amounts were withheld from the employees paycheck which actually makes more sense than just saying to have it in a plan trust. What good does it do there? Maybe if you’re lucky the plan trust is accruing interest that gets divided among the employees but I won't count on it.

Good luck with your conference call with Vanguard. I am interested in what they have to say.

-- posted by TimYounkin