Need input from employer 401k plan participants

dafischer · 11-08-2006, 05:40 PM

A couple of weeks ago, all employees received a letter from the institution that handles our 401k, informing us that we would now be paying the administrative fees on our plans, which were previously paid by our employer.

So today, meetings were held with a rep from the 401k company to explain the "Enhancements" to our plan to the Great Unwashed (aka us). The "Enhancements" turned out to be that we would be paying fees, as of 1/1/07, nothing more. Our company has eliminated coverage of them as a cost cutting measure.

Anyway, it's presented up front that the fee would be 1/2% of our plan balance, deducted from our accounts quarterly. Here's where it gets good.

Next, it's that the 1/2% is the average management fee of the various funds we have to choose from in our allocation. Moving right along, they won't disclose the loading rate on the individual funds to discourage people from basing their investment elections on low fees. Finally, the the total quarterly fee won't be broken out seperately on our statements, but reflected in our net ending balance.

My questions...

Whose companies don't cover the management fees for your plans?

And if they're not covered, are the fees charged broken out as a seperate line item, and if so, is it broken down by fund, if you have choices?

Flatbutt1 · 11-08-2006, 05:54 PM

my employer plan fees are covered but of course I pay the fees on my other personal funds. I believe they are required to reveal those fees.

MBAtarga · 11-08-2006, 05:55 PM

Mine are covered by my employer. Never heard of it being handled as you describe.

dafischer · 11-08-2006, 06:01 PM

Neither did we. The meetings went over like a fart in church, since 3/4 of our employees are manufacturing shop floor guys, and they didn't seem too keen on it.

Needless to say, they got a little raucous, and we had people leaving their meetings to grab others to come and see the stink that was being kicked up.

Joeaksa · 11-08-2006, 07:14 PM

Not sure that its legal to refuse to disclose any of the details on the costs associated or other info on the funds.

Would talk with someone who really knows about this, like an independent investment person. How about getting Bob in Tucson (moneyguy) to chime in on this?

Joe

masraum · 11-09-2006, 04:56 AM

That's really odd. I've never heard of that.

JeffO · 11-09-2006, 05:19 AM

Do you have a pension plan also ? Is the 401k your only retirement plan in that company? If so then watch out because that is not a good sign of the financial well being of your employer.

kang · 11-09-2006, 07:23 AM

That sucks. 1/2% of your balance? Yikes!

How much matching contributions does your company make? If it is small, consider an IRA or deferred annuity.

dafischer · 11-09-2006, 08:32 AM

To answer some questions, we only have a 401k, and no pension. With regard to the financial well being of the company, I'm pretty intimately involved in that being in financial management here. It ain't so great right about now, owing to some bonehead deals our former (emphasis on former) CEO entered into.

We do get good contributions, though. 3% to everyone, plus a matching of up to 7%. I'm not so ticked off at the fees, as much as at the secrecy of them.

MRM · 11-09-2006, 08:39 AM

My wife and I have worked enough places that we have a couple of 401(k)s around, and I have a 403(b). I can tell by the returns I have received which plans have the administrative fees taken out of the fund and which have the administrative fees paid by the employer.

There are always administrative fees in the mutual fund itself, so it is important to pick a low fee fund, but what we're all concerned about here is the administrative fee for having the fund in a 401(k).

Anyway, who pays the administrative fee makes a huge difference. My 403(b) is almst 15 years old. It was worth about $7,500 when I left that employer, it's about $8,500 now. My next employer had a Keough. Same story. I had about $7,500 in it when I left, it's about the same now, ten years later.

My most recent employer was an insurance company that either was able to negotiate the fees away or paid them. The performance of that 401(k) is excellent. The difference between my various accounts is astonishing.

My wife has two 401(k)s. You can see the same thing happening. Fortunately her employer pays the administrative fee. But . . . they just contracted with an investment advisor firm who will put your entire account into one of several "pre-mixed portfolios". Basically a mix of mutual funds and bond funds based on your age. They want to charge the 1/2% fee just to put you into one of these funds. No advice, not trading for you, no nothing.

So, I can't offer any direct advice on the employer paying the administrative fee, I can tell you from personal experience that you paying the fees will make a huge difference in the value of your retirement account. Depending on the employer match you might be better off with your own IRA or a Roth IRA.

Bill Verburg · Bill Verburg's Garage

Quote:

Originally posted by kang
That sucks. 1/2% of your balance? Yikes!

How much matching contributions does your company make? If it is small, consider an IRA or deferred annuity.

No matter what, you should only contribute to the employer matching amount in the 401, then max your Roth, then if you have more to invest add to the 401.

Remember that the utility of a 401 is defered taxes, and that only works for you if your tax rate at withdrawel is less than your tax rate when invested.

kang · 11-09-2006, 03:18 PM

Quote:

Originally posted by Bill Verburg
No matter what, you should only contribute to the employer matching amount in the 401, then max your Roth, then if you have more to invest add to the 401.

Remember that the utility of a 401 is defered taxes, and that only works for you if your tax rate at withdrawel is less than your tax rate when invested.

Deferred taxes is not the only utility of a 401(k). You are contributing pre-tax money to a 401(k). That can save you a lot on your taxes. With a Roth, you are contributing after tax money. That’s why most advisors will say max out your 401(k) first, and then add to your Roth, or, if you are not eligible for a Roth, add to a deferred annuity.

Icemaster · Icemaster's Garage

Can you periodically transfer your 401K balance to a SDIRA? This is what I ended up doing when I changed employers and needed to roll over.

dafischer · 11-09-2006, 05:29 PM

My biggest question is if you're being charged an administrative fee on the plan, does the fee have to be broken out as a distinct charge, or can it be just rolled into the net balance with no disclosure

It really torqued everyone off to be told that the fee wouldn't be shown, and that it certainly wouldn't be shown by fund, "to prevent people from mis-investing by choosing only low load funds."

The rep then proceeded to inform us that 90% of the people enrolled in the plan had absolutely no business selecting which funds they wanted to invest in by themselves! Talk about talking down to an audience. Needless to say, the snot took his lumps.

So, any input on the legalities of fee diclosure?