Author Topic: 401Ks Sorta Suck  (Read 12521 times)

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
401Ks Sorta Suck
« on: June 30, 2014, 01:57:07 PM »
Finally, companies are transparent on the fees. It took me hours to find them last year. This year, I was mailed a document with the information laid out in a chart. The news is out. I pay around $700 per year for the privilege of having a 401k. The more I save, the more I'll pay every. single. year.

Actually, I have not seen clarification if I am charged for money for which I am not yet vested. I hope not.

PS: If you want to know why I say 401ks suck, I think we should be treated like adults and be allowed to put our money wherever we want (and still get the tax advantages). I would be paying a lot less if I could invest this with Vangaurd.


surfhb

  • Guest
Re: 401Ks Sorta Suck
« Reply #1 on: June 30, 2014, 02:01:26 PM »
I agree but do you invest in passive index funds with low ERs?

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #2 on: June 30, 2014, 02:08:03 PM »
I agree but do you invest in passive index funds with low ERs?

As best I can. They group multiple funds into target retirement portfolios, so the options are slim. They actually hide the names of the individual funds, so I had to hunt around to see if I could figure it out.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: 401Ks Sorta Suck
« Reply #3 on: June 30, 2014, 02:30:41 PM »
I agree, but it's hard to pass up the employer match and tax deferral.

I believe we should be able to choose from the entire universe of investment options.

However, there should be some fees since there are required forms, annual reporting, etc. I struggle to understand how the fees should be tied to the value of the accounts though. Is it harder for the plan administrators to file a form 5500 when the assets are $10M vs. $1M? Makes no sense.

Numbers Man

  • Guest
Re: 401Ks Sorta Suck
« Reply #4 on: June 30, 2014, 02:52:49 PM »
I work for a small company with about 150 employees and 401(k) assets under 1 million dollars. I just analyzed all the expenses related to our 401(k) plan since I'm pushing for Vanguard to replace ADP. The company pays 1.20% of the fees as a percent to assets, basically paying for the administrative fees. Each account holder (employee) is paying .95% based on the total assets. So in total, the cost is 2.16% of assets in the 401(k) plan. That .95% is charged against the non vested assets as well.

Of course our middleman from Morgan Stanley says that there's no way that we will get the Vanguard Index Fund that charges only 5 basis points (.05%). He probably has figured out that his days are numbered (that's a .25% savings ).

slugline

  • Handlebar Stache
  • *****
  • Posts: 1169
  • Location: Houston, TX USA
Re: 401Ks Sorta Suck
« Reply #5 on: June 30, 2014, 03:10:19 PM »
If you're interested in this kind of stuff, try to look up the Brightscope.com rating of your company's 401k plan.

$700/year in fees sounds insane. Are you counting both the plan administrator fees and the expense raitios of the funds together? My employer's plan administrator has a flat rate of less than $20/year and it's the same regardless of account balance. Each of the funds I'm in has its own expenses, but I stick to index funds that charge less than 1%.

On the other hand, we don't have company match, so that part does suck.
« Last Edit: June 30, 2014, 03:13:18 PM by slugline »

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #6 on: June 30, 2014, 03:17:29 PM »
I agree, but it's hard to pass up the employer match and tax deferral.

I believe we should be able to choose from the entire universe of investment options.

However, there should be some fees since there are required forms, annual reporting, etc. I struggle to understand how the fees should be tied to the value of the accounts though. Is it harder for the plan administrators to file a form 5500 when the assets are $10M vs. $1M? Makes no sense.

I should clarify my plan, which I will call the Old Toyota (OT) Plan.

In the OT plan, you would get employer match, tax deferral and get to manage your own money. In my plan, the money would go from your paycheck to the investment company of your choice and you would only pay the fees that the fund company has…so you could choose an inexpensive place like Vanguard. In my current situation, I pay for the mutual fund company AND the company that "manages" the process. The OT plan takes out one of the middlemen.

Sadly, it'll never happen because 1) no politician will care 2) politicians are probably paid by most mutual fund companies not to care.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: 401Ks Sorta Suck
« Reply #7 on: June 30, 2014, 03:23:06 PM »
I agree, but it's hard to pass up the employer match and tax deferral.

I believe we should be able to choose from the entire universe of investment options.

However, there should be some fees since there are required forms, annual reporting, etc. I struggle to understand how the fees should be tied to the value of the accounts though. Is it harder for the plan administrators to file a form 5500 when the assets are $10M vs. $1M? Makes no sense.

I should clarify my plan, which I will call the Old Toyota (OT) Plan.

In the OT plan, you would get employer match, tax deferral and get to manage your own money. In my plan, the money would go from your paycheck to the investment company of your choice and you would only pay the fees that the fund company has…so you could choose an inexpensive place like Vanguard. In my current situation, I pay for the mutual fund company AND the company that "manages" the process. The OT plan takes out one of the middlemen.

Sadly, it'll never happen because 1) no politician will care 2) politicians are probably paid by most mutual fund companies not to care.

I like your plan. In order to implement, there would have to be some big changes. I don't think ERISA would like your plan. We audit some 401k's (requirement if > 100 employees) to determine if the administrators are following ERISA requirements. This would be difficult/impossible under your scenario. There are also 5500's, annual reports, etc. I would love to do away with all this BS and just go with your plan, so make that happen OT.

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #8 on: June 30, 2014, 03:23:55 PM »
If you're interested in this kind of stuff, try to look up the Brightscope.com rating of your company's 401k plan.

$700/year in fees sounds insane. Are you counting both the plan administrator fees and the expense raitios of the funds together? My employer's plan administrator has a flat rate of less than $20/year and it's the same regardless of account balance. Each of the funds I'm in has its own expenses, but I stick to index funds that charge less than 1%.

On the other hand, we don't have company match, so that part does suck.

Good questions. Thank, you guys!

The chart doesn't specify so I will have to dig. It says that it charges a certain amount per $1,000 invested. So, some people are charged $6.50 per $1,000 invested. Others are charged up to $9.80 per $1,000 invested.

Come to think of it, this chart is listing out the REAL NAMES of the funds. They never did this before. I looked even more closely and see that the different funds are showing different prices. This is what they should have been sharing all along! I am just so not used to having this level of information that I was blind to part of what I had right in front of me.

If only I'd had this info when I was deciding on the funds way back when. I am guessing it'll be better for me to change out of the expensive funds into the less expensive ones.

I feel like I've seen the light! Or, in this case, at least been given a light so I can see. LOL
« Last Edit: June 30, 2014, 03:25:27 PM by oldtoyota »

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #9 on: June 30, 2014, 03:27:20 PM »
I agree, but it's hard to pass up the employer match and tax deferral.

I believe we should be able to choose from the entire universe of investment options.

However, there should be some fees since there are required forms, annual reporting, etc. I struggle to understand how the fees should be tied to the value of the accounts though. Is it harder for the plan administrators to file a form 5500 when the assets are $10M vs. $1M? Makes no sense.

I should clarify my plan, which I will call the Old Toyota (OT) Plan.

In the OT plan, you would get employer match, tax deferral and get to manage your own money. In my plan, the money would go from your paycheck to the investment company of your choice and you would only pay the fees that the fund company has…so you could choose an inexpensive place like Vanguard. In my current situation, I pay for the mutual fund company AND the company that "manages" the process. The OT plan takes out one of the middlemen.

Sadly, it'll never happen because 1) no politician will care 2) politicians are probably paid by most mutual fund companies not to care.

I like your plan. In order to implement, there would have to be some big changes. I don't think ERISA would like your plan. We audit some 401k's (requirement if > 100 employees) to determine if the administrators are following ERISA requirements. This would be difficult/impossible under your scenario. There are also 5500's, annual reports, etc. I would love to do away with all this BS and just go with your plan, so make that happen OT.

I think the ERISA reqs would be transferred to the mutual fund company. Your own company (the one that employs you) would no longer need to provide a benefits statement because they would not be providing the benefit. We'd all wear our Big Kid Pants and do it on our own. Dreamy dreamin' over here.

marty998

  • Walrus Stache
  • *******
  • Posts: 6377
  • Location: Sydney, Oz
Re: 401Ks Sorta Suck
« Reply #10 on: June 30, 2014, 03:56:44 PM »
I work for a small company with about 150 employees and 401(k) assets under 1 million dollars. I just analyzed all the expenses related to our 401(k) plan since I'm pushing for Vanguard to replace ADP. The company pays 1.20% of the fees as a percent to assets, basically paying for the administrative fees. Each account holder (employee) is paying .95% based on the total assets. So in total, the cost is 2.16% of assets in the 401(k) plan. That .95% is charged against the non vested assets as well.

Of course our middleman from Morgan Stanley says that there's no way that we will get the Vanguard Index Fund that charges only 5 basis points (.05%). He probably has figured out that his days are numbered (that's a .25% savings ).

So each employee currently has less that $6667 on average? Thats going to be a fun retirement.

Middleman form Morgan Stanley? Time to find a new plan 'nuff said

Numbers Man

  • Guest
Re: 401Ks Sorta Suck
« Reply #11 on: June 30, 2014, 04:45:09 PM »
I work for a small company with about 150 employees and 401(k) assets under 1 million dollars. I just analyzed all the expenses related to our 401(k) plan since I'm pushing for Vanguard to replace ADP. The company pays 1.20% of the fees as a percent to assets, basically paying for the administrative fees. Each account holder (employee) is paying .95% based on the total assets. So in total, the cost is 2.16% of assets in the 401(k) plan. That .95% is charged against the non vested assets as well.

Of course our middleman from Morgan Stanley says that there's no way that we will get the Vanguard Index Fund that charges only 5 basis points (.05%). He probably has figured out that his days are numbered (that's a .25% savings ).

So each employee currently has less that $6667 on average? Thats going to be a fun retirement.

Middleman form Morgan Stanley? Time to find a new plan 'nuff said

Most employees have under $500.

AH013

  • Bristles
  • ***
  • Posts: 272
Re: 401Ks Sorta Suck
« Reply #12 on: July 01, 2014, 12:30:26 PM »

Most employees have under $500.

This.  This is the sad reality of why most 401ks "suck".

The average participant gripes about the default 2% being taken out of their paycheck, handles all investment choices, balance inquiries, general griping via phone & mail (on the plan administrators return postage paid envelopes and toll-free numbers) instead of online, and does a 1/N diversification method (meaning $0.25 per month into each of the 50 funds the administrator offers, because owning 20 small cap growth funds instead of just 1 makes you fully diversified).  Then when they quit they want to withdraw their $500 401k balance the minute they quit, paid in a paper check, leaving the plan administrator (who is likely a large brokerage company who would love for you to roll over into an IRA) with absolutely no customer acquisition, and then call in to gripe come tax time when they are hit with the 10% penalty & taxation on "their money".

If everyone operated like the standard mustachian who tries to contribute the annual max, understood how computers worked and did all 401k things online, and rolled their 401ks into IRAs when they changed jobs, plans would be cheap to operate and would be mostly unnoticed as a 0.01% or $5/quarter charge or less per participant that the sponsor (employer) would eat.  Unfortunately, employee behavior drives the average cost to something like $50/year per person, and employers are too cheap to pay it and instead allow load-funds or 2% fee funds into the plan, so they get a kickback on the fees that offsets the plan costs, thus making the 401k "free" or very low cost to the employer.

It sucks, but the only way to change it is to get your fellow employees to be better participants.  And that does actually work.  I've been in a few plans where we got upgraded to better funds (i.e. from investor to institutional or super-institutional share classes, where the expense ratios were cut in half) because more assets-per-person were in the plan meaning the fixed costs could be spread across more assets, so less expenses per dollar of investments.  Rally for people saving more than the default 2-3%.

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #13 on: July 01, 2014, 12:34:48 PM »

Most employees have under $500.

This.  This is the sad reality of why most 401ks "suck".

The average participant gripes about the default 2% being taken out of their paycheck, handles all investment choices, balance inquiries, general griping via phone & mail (on the plan administrators return postage paid envelopes and toll-free numbers) instead of online, and does a 1/N diversification method (meaning $0.25 per month into each of the 50 funds the administrator offers, because owning 20 small cap growth funds instead of just 1 makes you fully diversified).  Then when they quit they want to withdraw their $500 401k balance the minute they quit, paid in a paper check, leaving the plan administrator (who is likely a large brokerage company who would love for you to roll over into an IRA) with absolutely no customer acquisition, and then call in to gripe come tax time when they are hit with the 10% penalty & taxation on "their money".

If everyone operated like the standard mustachian who tries to contribute the annual max, understood how computers worked and did all 401k things online, and rolled their 401ks into IRAs when they changed jobs, plans would be cheap to operate and would be mostly unnoticed as a 0.01% or $5/quarter charge or less per participant that the sponsor (employer) would eat.  Unfortunately, employee behavior drives the average cost to something like $50/year per person, and employers are too cheap to pay it and instead allow load-funds or 2% fee funds into the plan, so they get a kickback on the fees that offsets the plan costs, thus making the 401k "free" or very low cost to the employer.

It sucks, but the only way to change it is to get your fellow employees to be better participants.  And that does actually work.  I've been in a few plans where we got upgraded to better funds (i.e. from investor to institutional or super-institutional share classes, where the expense ratios were cut in half) because more assets-per-person were in the plan meaning the fixed costs could be spread across more assets, so less expenses per dollar of investments.  Rally for people saving more than the default 2-3%.

Yet more reason to let us all do our own plans. I do not want to pay more because of the reasons you listed above (people saving too little, not using computers, etc). Take the employer and the second middleman out of the equation like I mentioned above and the problem is solved.


okashira

  • Bristles
  • ***
  • Posts: 416
Re: 401Ks Sorta Suck
« Reply #14 on: July 01, 2014, 01:36:52 PM »

Most employees have under $500.

This.  This is the sad reality of why most 401ks "suck".

The average participant gripes about the default 2% being taken out of their paycheck, handles all investment choices, balance inquiries, general griping via phone & mail (on the plan administrators return postage paid envelopes and toll-free numbers) instead of online, and does a 1/N diversification method (meaning $0.25 per month into each of the 50 funds the administrator offers, because owning 20 small cap growth funds instead of just 1 makes you fully diversified).  Then when they quit they want to withdraw their $500 401k balance the minute they quit, paid in a paper check, leaving the plan administrator (who is likely a large brokerage company who would love for you to roll over into an IRA) with absolutely no customer acquisition, and then call in to gripe come tax time when they are hit with the 10% penalty & taxation on "their money".

If everyone operated like the standard mustachian who tries to contribute the annual max, understood how computers worked and did all 401k things online, and rolled their 401ks into IRAs when they changed jobs, plans would be cheap to operate and would be mostly unnoticed as a 0.01% or $5/quarter charge or less per participant that the sponsor (employer) would eat.  Unfortunately, employee behavior drives the average cost to something like $50/year per person, and employers are too cheap to pay it and instead allow load-funds or 2% fee funds into the plan, so they get a kickback on the fees that offsets the plan costs, thus making the 401k "free" or very low cost to the employer.

It sucks, but the only way to change it is to get your fellow employees to be better participants.  And that does actually work.  I've been in a few plans where we got upgraded to better funds (i.e. from investor to institutional or super-institutional share classes, where the expense ratios were cut in half) because more assets-per-person were in the plan meaning the fixed costs could be spread across more assets, so less expenses per dollar of investments.  Rally for people saving more than the default 2-3%.

I (company I work for) must be lucky.
401K fee is 0.07%, but we have access to ultra low cost funds not available elsewhere (e.g. vanguard uber-institutional, 100mm minimum funds)
that make the net fee basically nothing when compared to my own account, and in some cases, better.

/brag

msilenus

  • Pencil Stache
  • ****
  • Posts: 517
Re: 401Ks Sorta Suck
« Reply #15 on: July 01, 2014, 01:39:25 PM »
The plan administrator will accept feedback and pass it along to the company.  If you can find out who runs it inside your company, you can push the conversation the other direction and perhaps be more effective at it.  Also lobby your coworkers to lobby for better options.

I'm not saying any of your policy ideas are wrong or bad, but the best thing you can do with the greatest chance of improving your situation is to agitate to reform your own plan.

AH013

  • Bristles
  • ***
  • Posts: 272
Re: 401Ks Sorta Suck
« Reply #16 on: July 01, 2014, 07:06:33 PM »
Yet more reason to let us all do our own plans. I do not want to pay more because of the reasons you listed above (people saving too little, not using computers, etc). Take the employer and the second middleman out of the equation like I mentioned above and the problem is solved.

Hey, I'm in the same camp, just telling you the reality of how things work.  The main problem with what you advocate is the same issue with employer stock in a plan -- with a 401k being a mainstay of people's retirement and the general American having a financial IQ of about 5, if people were allowed to invest in whatever they wanted there would be countless stories of idiots going all-in on gold or timeshares or any other fool's investment fad of the day, and that Uncle Sam needs to prosecute the "advisor" (who made no statement that this was a good investment for their entire life savings) and Uncle Sam also needs to replace their $300k retirement fund so they can continue their lifestyle. As much as I'd give a "tough shit, greedy bastard, sleep in the bed you made for yourself" to those people, the reality is politicians would bail them out on my & your dole.  I'd rather people be forced into subpar somewhat reliable investments than be allowed to gamble on speculative junk and come looking for a handout when they don't become instant millionaires.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: 401Ks Sorta Suck
« Reply #17 on: July 01, 2014, 08:56:45 PM »
Most people are idiots with their money. I would prefer cranking up the Social Security funding by 3% for the employer and 3% of the employee. A lot of future problems would be solved by having a robust and sound Social Security net. I don't look forward to bailing out those that don't save. I also don't want the US to become a third world country where you have the wealthy and the super poor.

I do like what I hear about the Australian plans and their proposals to make them more lucrative. Lock up the money so no one can touch it until retirement.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: 401Ks Sorta Suck
« Reply #18 on: July 01, 2014, 09:27:32 PM »
Tomsang, when you are in charge and implement this plan, please allow an exception for me to opt out completely. I do not wish to participate in your plan. Thank you.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: 401Ks Sorta Suck
« Reply #19 on: July 02, 2014, 11:23:53 AM »
Cheddar Stacker - I fully understand that this plan is not optimal for those that know how to manage their money.  The problem is that most people don't. Those that are smart with their money will be effected by the rest of the population's lack of financial knowledge and planning.  I don't have the heart to tell those who made bad decisions for the first 65 years of their life that they should consider ending their life or face a very painful death living in the slums. Investing in Social Security and subsidized/free health care creates an environment that I would like to support and live in.   

Education from kindergarten through college about personal finance and the impact of delaying immediate gratification now for future gains would help, but from what I have read that there are people that are mentally handicapped with that concept.  Even those that started out sharp can deteriorate to the point of doing foolish things with their retirement savings.  Lock it up!

I am also comfortable paying federal income taxes that are 40 times the amount paid by the average taxpayer to live in a great country. A flat tax would be a huge windfall, but untenable to those on the lower spectrum of income.         

Fortunately for you I don't plan to run for office!     

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: 401Ks Sorta Suck
« Reply #20 on: July 02, 2014, 12:43:42 PM »
Cheddar Stacker - I fully understand that this plan is not optimal for those that know how to manage their money.  The problem is that most people don't. Those that are smart with their money will be effected by the rest of the population's lack of financial knowledge and planning.  I don't have the heart to tell those who made bad decisions for the first 65 years of their life that they should consider ending their life or face a very painful death living in the slums. Investing in Social Security and subsidized/free health care creates an environment that I would like to support and live in.   

Education from kindergarten through college about personal finance and the impact of delaying immediate gratification now for future gains would help, but from what I have read that there are people that are mentally handicapped with that concept.  Even those that started out sharp can deteriorate to the point of doing foolish things with their retirement savings.  Lock it up!

I am also comfortable paying federal income taxes that are 40 times the amount paid by the average taxpayer to live in a great country. A flat tax would be a huge windfall, but untenable to those on the lower spectrum of income.         

Fortunately for you I don't plan to run for office!     

Now most of that I can stand behind firmly (I don't like the 40 times taxes thing very much). I just don't like pumping more money into a system that's already shitty/non-sustainable. Particularly since I will not need it, and don't expect it to be there when I qualify. I do think we need a better social system in place. Education, health, food, these should all be provided for those that can't provide for themselves.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: 401Ks Sorta Suck
« Reply #21 on: July 02, 2014, 02:56:23 PM »
Now most of that I can stand behind firmly (I don't like the 40 times taxes thing very much). I just don't like pumping more money into a system that's already shitty/non-sustainable. Particularly since I will not need it, and don't expect it to be there when I qualify. I do think we need a better social system in place. Education, health, food, these should all be provided for those that can't provide for themselves.

It is sustainable if everyone pays their fair share.  We slashed the tax rates when Bush was in office and ramped up our military complex at the same time.  That doesn't work for a balanced budget.  If we go back to the Clinton rates and bring our military spending down to 50% or lower of the current costs then we would have a very sustainable government.  We currently spend more on the military then the next 10 countries combined and 8 of those are our allies, one our number one trade partner, and Russia's military spending is like 10% of ours.  We make up over 35% of all military spending world wide.

I am comfortable paying such a high dollar amount of taxes as I am fortunate to have a income that supports paying that without much effort. My tax bill is also significantly lower than it would have been over the past 50 years.  70% was fairly common for the top rate for decades with 91% there for those in the .1% club.  Check out the rates, pretty amazing.  You have to account for inflation adjusted dollars.  http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: 401Ks Sorta Suck
« Reply #22 on: July 02, 2014, 03:17:30 PM »
Sorry oldtoyota as this is waaay off topic now.

Ok tomsang, you lost me again. I just saw your other post on the flat tax thread too and liked that one, so kudos.

The sustainable comment was about social security, not the government. If I thought our government was unsustainable I would be long gone. I'm all for less military spending and a balanced budget. I'm all for paying my fair share, and I'm with you in that I know I can afford more than our less fortunate citizens.

I just don't like the idea of propping up social security with higher taxes. We need to do something to fix it, but adding 3% in ER and EE taxes is not what I want. I also don't really like the idea of freezing caps on benefits while extending the limits on the tax base.

What I would prefer would be means testing of benefits, even though most people here would be negatively impacted. If someone has $1M saved in their 401K they don't need $2K/month from SS. It should act as a social safety net, not a pension. I don't care if I pay in $150K during my working career and never see a dime, as long as I know my "spendy" friends/family will not starve in retirement. I don't need it, I'd rather it go to someone who does. Likely not a popular opinion, but I'd prefer that to paying another 3% EE and ER to save the crappy system.

Roland of Gilead

  • Handlebar Stache
  • *****
  • Posts: 1836
Re: 401Ks Sorta Suck
« Reply #23 on: July 02, 2014, 04:14:46 PM »
We must be lucky.  Our 401K charges zero fees for management, company matches 100% on the first 6% and we get access to Vanguard admiral fund rates.  Oh and we can contribute an extra $20K after tax each year and they will do an in plan conversion of it to a Roth however many times we want, tax free (except for small short term gains on the contributions).

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #24 on: July 06, 2014, 07:52:54 PM »
Yet more reason to let us all do our own plans. I do not want to pay more because of the reasons you listed above (people saving too little, not using computers, etc). Take the employer and the second middleman out of the equation like I mentioned above and the problem is solved.

Hey, I'm in the same camp, just telling you the reality of how things work.  The main problem with what you advocate is the same issue with employer stock in a plan -- with a 401k being a mainstay of people's retirement and the general American having a financial IQ of about 5, if people were allowed to invest in whatever they wanted there would be countless stories of idiots going all-in on gold or timeshares or any other fool's investment fad of the day, and that Uncle Sam needs to prosecute the "advisor" (who made no statement that this was a good investment for their entire life savings) and Uncle Sam also needs to replace their $300k retirement fund so they can continue their lifestyle. As much as I'd give a "tough shit, greedy bastard, sleep in the bed you made for yourself" to those people, the reality is politicians would bail them out on my & your dole.  I'd rather people be forced into subpar somewhat reliable investments than be allowed to gamble on speculative junk and come looking for a handout when they don't become instant millionaires.

Oh, yes, I have already considered that.

/shrug/ It happens anyway because people change jobs and cash out their 401ks. I have not looked it up, but I bet you $1 that the average amount saved in 401Ks is verrrry low…and not enough for retirement. If that is, indeed, accurate, then we'll have crappy options AND have to bail out others.


oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #25 on: July 06, 2014, 07:54:38 PM »
Cheddar Stacker - I fully understand that this plan is not optimal for those that know how to manage their money.  The problem is that most people don't. Those that are smart with their money will be effected by the rest of the population's lack of financial knowledge and planning.  I don't have the heart to tell those who made bad decisions for the first 65 years of their life that they should consider ending their life or face a very painful death living in the slums. Investing in Social Security and subsidized/free health care creates an environment that I would like to support and live in.   

Education from kindergarten through college about personal finance and the impact of delaying immediate gratification now for future gains would help, but from what I have read that there are people that are mentally handicapped with that concept.  Even those that started out sharp can deteriorate to the point of doing foolish things with their retirement savings.  Lock it up!
 

Education from kindergarten through college often involves this: Since most others are stupid, you will have to hold yourself back too. Nope. I am not buying it this time in my own Made Up World in Which I Am the Ruler.

Cheddar Stacker is going to be my Chancellor of Financial Affairs.

RyanHesson

  • 5 O'Clock Shadow
  • *
  • Posts: 69
Re: 401Ks Sorta Suck
« Reply #26 on: July 06, 2014, 08:01:55 PM »
I agree, but it's hard to pass up the employer match and tax deferral.

I believe we should be able to choose from the entire universe of investment options.

However, there should be some fees since there are required forms, annual reporting, etc. I struggle to understand how the fees should be tied to the value of the accounts though. Is it harder for the plan administrators to file a form 5500 when the assets are $10M vs. $1M? Makes no sense.

It's probably structured as a percentage because they want people to put even small amounts in, because for most that's all they can put in. If they made the fee $500 a year, a lot of people are just going to say "fuck it" and not use the 401K at all. For the wealthy with large 401Ks, that $500 might not be much, but they need to make up how much they're subsidizing for others somewhere for one, and for the other those with large 401Ks may care less, decreasing marginal utility of money and all that.

Pure guess. I'm not really educated on the subject.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: 401Ks Sorta Suck
« Reply #27 on: July 06, 2014, 08:06:34 PM »
Cheddar Stacker is going to be my Chancellor of Financial Affairs.

Cool. Count me in OT.

BigRed

  • Stubble
  • **
  • Posts: 200
  • Age: 43
  • Location: NJ
Re: 401Ks Sorta Suck
« Reply #28 on: July 07, 2014, 07:27:46 AM »
I agree, but it's hard to pass up the employer match and tax deferral.

I believe we should be able to choose from the entire universe of investment options.

However, there should be some fees since there are required forms, annual reporting, etc. I struggle to understand how the fees should be tied to the value of the accounts though. Is it harder for the plan administrators to file a form 5500 when the assets are $10M vs. $1M? Makes no sense.

I should clarify my plan, which I will call the Old Toyota (OT) Plan.

In the OT plan, you would get employer match, tax deferral and get to manage your own money. In my plan, the money would go from your paycheck to the investment company of your choice and you would only pay the fees that the fund company has…so you could choose an inexpensive place like Vanguard. In my current situation, I pay for the mutual fund company AND the company that "manages" the process. The OT plan takes out one of the middlemen.

Sadly, it'll never happen because 1) no politician will care 2) politicians are probably paid by most mutual fund companies not to care.


This is how our 403(b) plan works, though we don't have the ENTIRE menu of the world available.  Only everything Fidelity, Vanguard, TIAA-CREF, DWS Scudder, Prudential and T. Rowe Price offer.  I'm in nice low cost Vanguard Target Date Funds.  So, the OT plan seems possible and definitely not illegal.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: 401Ks Sorta Suck
« Reply #29 on: July 07, 2014, 08:48:13 AM »
Cheddar Stacker - I fully understand that this plan is not optimal for those that know how to manage their money.  The problem is that most people don't. Those that are smart with their money will be effected by the rest of the population's lack of financial knowledge and planning.  I don't have the heart to tell those who made bad decisions for the first 65 years of their life that they should consider ending their life or face a very painful death living in the slums. Investing in Social Security and subsidized/free health care creates an environment that I would like to support and live in.   

Education from kindergarten through college about personal finance and the impact of delaying immediate gratification now for future gains would help, but from what I have read that there are people that are mentally handicapped with that concept.  Even those that started out sharp can deteriorate to the point of doing foolish things with their retirement savings.  Lock it up!
 

Education from kindergarten through college often involves this: Since most others are stupid, you will have to hold yourself back too. Nope. I am not buying it this time in my own Made Up World in Which I Am the Ruler.

Cheddar Stacker is going to be my Chancellor of Financial Affairs.

So in your made up world, what plan do you have for the "stupid". Do you you kill them outright when they can not support themselves?  If you give them anything then you are creating an entitlement that must be paid by those that are/were smart with their money. Do you slaughter their children if their parents are making bad decisions or do you wait for the children to grow up to become problems?  Do you waste your money schooling the children of the parents that make bad decisions or is an education only available to those that are smart enough to invest and pay for their children's education. 

I realize this is going off topic, but it is very intriguing as it relates to the philosophy of who should pay taxes and how those taxes impact society in general. My financial affairs are in order. Therefore, many of the protections and benefits that the government provides are not beneficial to me when you net the taxes/costs that I pay. I am still good with paying the taxes or having my investments locked up as I realize there is a large percentage of the population that would consistently make the poor financial choice time after time.  I don't have the stomach to execute the stupid when they are too old to support themselves, therefore I don't want them to have complete access to their 401k's, Social Security, education, life insurance, unemployment and Social Security Disability.

I self insure life insurance, disability, and have investments to cover unemployment and retirement on top of that provided by the government. I just don't think it is in our best interest to gut the programs that are available because we could do it better. As we are not the norm. Creating a retirement program that is similar to what Australia has created provides a good balance of owning your asset, forcing retirement planning to the whole population, funding it with employer and employee contributions and locking it up from raiding every time someone wants to buy a toy. 

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: 401Ks Sorta Suck
« Reply #30 on: July 07, 2014, 09:04:17 AM »
Cheddar Stacker - I fully understand that this plan is not optimal for those that know how to manage their money.  The problem is that most people don't. Those that are smart with their money will be effected by the rest of the population's lack of financial knowledge and planning.  I don't have the heart to tell those who made bad decisions for the first 65 years of their life that they should consider ending their life or face a very painful death living in the slums. Investing in Social Security and subsidized/free health care creates an environment that I would like to support and live in.   

Education from kindergarten through college about personal finance and the impact of delaying immediate gratification now for future gains would help, but from what I have read that there are people that are mentally handicapped with that concept.  Even those that started out sharp can deteriorate to the point of doing foolish things with their retirement savings.  Lock it up!
 

Education from kindergarten through college often involves this: Since most others are stupid, you will have to hold yourself back too. Nope. I am not buying it this time in my own Made Up World in Which I Am the Ruler.

Cheddar Stacker is going to be my Chancellor of Financial Affairs.

So in your made up world, what plan do you have for the "stupid". Do you you kill them outright when they can not support themselves?  If you give them anything then you are creating an entitlement that must be paid by those that are/were smart with their money. Do you slaughter their children if their parents are making bad decisions or do you wait for the children to grow up to become problems?  Do you waste your money schooling the children of the parents that make bad decisions or is an education only available to those that are smart enough to invest and pay for their children's education. 

I realize this is going off topic, but it is very intriguing as it relates to the philosophy of who should pay taxes and how those taxes impact society in general. My financial affairs are in order. Therefore, many of the protections and benefits that the government provides are not beneficial to me when you net the taxes/costs that I pay. I am still good with paying the taxes or having my investments locked up as I realize there is a large percentage of the population that would consistently make the poor financial choice time after time.  I don't have the stomach to execute the stupid when they are too old to support themselves, therefore I don't want them to have complete access to their 401k's, Social Security, education, life insurance, unemployment and Social Security Disability.

I self insure life insurance, disability, and have investments to cover unemployment and retirement on top of that provided by the government. I just don't think it is in our best interest to gut the programs that are available because we could do it better. As we are not the norm. Creating a retirement program that is similar to what Australia has created provides a good balance of owning your asset, forcing retirement planning to the whole population, funding it with employer and employee contributions and locking it up from raiding every time someone wants to buy a toy.

Tomsang why do you keep bringing up execution and people "ending their life"? No one else is saying anything like this.

OT is saying she will not let herself become stupid because other people are. She is saving herself first. If she chooses to then save others that's up to her. I don't think she said she would execute anyone who hadn't saved for retirement. I know I didn't say that.

dude

  • Handlebar Stache
  • *****
  • Posts: 2368
Re: 401Ks Sorta Suck
« Reply #31 on: July 07, 2014, 09:20:21 AM »
I'm quite lucky in this regard.  The federal employees' equivalent of the 401k is the TSP, which has a .029% expense ratio on its equity funds (S&P 500, Wilshire 4500, EAFE).  And we also have administrators who took steps to keep idiotic daytrader-type fed employees from driving up costs for everybody else, by limiting the number of monthly transactions people can make into and out of our equity funds.

When I see expense ratios like those offered by my wife's employer -- who uses Northwest Mutual (they charge 0.99% + the selected fund's expense ratio, and until recently had no Vanguard offerings; now they do, so the Vanguard S&P 500 index costs my wife 1.04%) -- I shudder to think of all the money lost to the parasitic brokerages out there.

Last I looked, the industry average was around 1.3% for large cap funds, and 1.5% for small cap funds.  I ran the math on what a $100,000 investment, at 7% over 30 years, would yield net of fees. 

Fee = 0%, balance: $761,226
Fee= 1.3%, balance: $527,533 (that's $233,693 to "the house")
Fee = 1.5%, balance: $498,395 (that's $262,831 in the brokerage's pockets)
Fee = .05%, balance: $750,626 ($10,600 in fees over 30 years)
Fee = .029%, balance: $754,848 (only $6,378 in fees over a 30-year span)

Crazy stuff.

usmarine1975

  • Guest
Re: 401Ks Sorta Suck
« Reply #32 on: July 07, 2014, 09:44:09 AM »
One thought regarding your 401k

Some allow an in-service rollover.  Basically if you have enough in your account you can potentially roll some of your account to your own IRA giving you the ability to take control of your money as you like.  Again you need to look if your's give's you that ability some do and some do not.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: 401Ks Sorta Suck
« Reply #33 on: July 07, 2014, 09:54:36 AM »
@Cheddar Stacker

Old Toyota made you his chancellor of financial affairs because he does not want to be held back on his investments to have a safety net for the financially stupid. This was after I stated that we should beef up social security in a manner that is similar to Australia as it forces retirement savings that is difficult to touch. I brought up beefing up social security so that the stupid are not left out in the cold.

So if he does not want to force retirement savings and he does not want to preserve or beef up social security as it is not optimal to his retirement savings then I was interested in what he was proposing to do with the financially stupid who physically can't work and don't have Social Security or investments due to their stupid choices.  Maybe as Chancellor you know?   We are probably too far OT

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: 401Ks Sorta Suck
« Reply #34 on: July 07, 2014, 10:07:37 AM »
Meh, almost every thread veers off topic.

First, Old Toyota is a lady, so it's she not he.

All she's saying is don't hold her back. If she wants to change the 401K rules so she can cut out the middle man and reduce fees, let's just let it happen (it likely never will anyway, but that's another discussion). Don't derail her plans because someone else might not be capable of managing their own money. Those that aren't capable can find an advisor. Those with too much hubris to hire an advisor might fail. So be it.

Most people that would choose not to hire an advisor would be smart enough to know what they were doing. People with no knowledge of (or fear of) investing would either a) hire an advisor or b) never have saved for retirement in the first place.

This is a compassionate place and people are generally concerned for the overall population, we just don't like being slowed down simply so everyone else can catch up.

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #35 on: July 07, 2014, 11:52:22 AM »
Meh, almost every thread veers off topic.

First, Old Toyota is a lady, so it's she not he.

All she's saying is don't hold her back. If she wants to change the 401K rules so she can cut out the middle man and reduce fees, let's just let it happen (it likely never will anyway, but that's another discussion). Don't derail her plans because someone else might not be capable of managing their own money. Those that aren't capable can find an advisor. Those with too much hubris to hire an advisor might fail. So be it.

Most people that would choose not to hire an advisor would be smart enough to know what they were doing. People with no knowledge of (or fear of) investing would either a) hire an advisor or b) never have saved for retirement in the first place.

This is a compassionate place and people are generally concerned for the overall population, we just don't like being slowed down simply so everyone else can catch up.

This post is why Cheddar Stacker is a chancellor. You get a promotion, kind Cheddar!


frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1662
Re: 401Ks Sorta Suck
« Reply #36 on: July 07, 2014, 12:11:28 PM »
Are you putting just enough to get the match, then filling your roth (if you qualify)? 

You might consider not adding more than the max match amount plus a roth and going with "tax efficient funds" as your "capital gains" bucket since the employer plan sucks so badly. 

Don't count on them changing anything.  They may act sympathetic while considering you to be a troublemaker.  It's all about the corporate interests and the exec bonuses.

msilenus

  • Pencil Stache
  • ****
  • Posts: 517
Re: 401Ks Sorta Suck
« Reply #37 on: July 07, 2014, 05:10:18 PM »
Don't count on them changing anything.  They may act sympathetic while considering you to be a troublemaker.  It's all about the corporate interests and the exec bonuses.

They could also see her working hard to fix something that's broken outside the immediate scope of her responsibilities, and appreciate her helping to make the business better for all employees and even a bit more competitive on the job market.

If you're sufficiently employable, and possessing of FU Money, then I think the best policy is always to work as though you were employed by a good employer.  If they retaliate against you for doing excellent things, then they're ultimately just helping you find a place where you can do excellent things.  There's really no bad outcome.

oldtoyota

  • Magnum Stache
  • ******
  • Posts: 3141
Re: 401Ks Sorta Suck
« Reply #38 on: July 07, 2014, 05:55:30 PM »
Don't count on them changing anything.  They may act sympathetic while considering you to be a troublemaker.  It's all about the corporate interests and the exec bonuses.

They could also see her working hard to fix something that's broken outside the immediate scope of her responsibilities, and appreciate her helping to make the business better for all employees and even a bit more competitive on the job market.

If you're sufficiently employable, and possessing of FU Money, then I think the best policy is always to work as though you were employed by a good employer.  If they retaliate against you for doing excellent things, then they're ultimately just helping you find a place where you can do excellent things.  There's really no bad outcome.

I like my employer. I just do not like the 401K plan's fees. My guess is that the plan fees are not a priority for anyone, and is probably why nothing has been done.

usmarine1975

  • Guest
Re: 401Ks Sorta Suck
« Reply #39 on: July 08, 2014, 06:51:59 AM »
Fee Disclosure is now mandatory

The issue tends to be those who are responsible to set up these accounts at the firm usually don't know enough about them and from my experience trying to work with them to discuss the fee's etc... is that they do not want to be bothered with it. 

They tend to choose the plan by the owner having a buddy that does it or the one that makes the decision knows someone.  Usually very little thought is put into what it cost the employee.  They do consider what it cost the employer.

Talk to you HR, possibly even the plan manager.  You should technically be meeting with that advisor at least once a year.  If not he is not doing what he should.  Request a meeting with him.  Find out why he doesn't have other funds.  Chances are he might be able to add them or switch them.  The fee's well good luck with them.  At my last job they brought in a 401k "expert" to help us advisers sell them.  Basically he knew all the hot button topics to discuss and would hammer the other guy and claim lowest fee's.  I didn't work with him one bit.  I wouldn't trust him with my money, why would I trust him with my clients?

dude

  • Handlebar Stache
  • *****
  • Posts: 2368
Re: 401Ks Sorta Suck
« Reply #40 on: July 08, 2014, 08:48:47 AM »

Talk to you HR, possibly even the plan manager.  You should technically be meeting with that advisor at least once a year.  If not he is not doing what he should.  Request a meeting with him.  Find out why he doesn't have other funds.  Chances are he might be able to add them or switch them.  The fee's well good luck with them.  At my last job they brought in a 401k "expert" to help us advisers sell them.  Basically he knew all the hot button topics to discuss and would hammer the other guy and claim lowest fee's.  I didn't work with him one bit.  I wouldn't trust him with my money, why would I trust him with my clients?

Ah yes, THIS guy -- the Northwest Mutual guy who "'advises" the employees at my wife's company put my wife into 11 different funds, with expense ratios from 1.5% - 2.1%.  Of course, she let him do this because, "hey, he does the boss' too, and the boss is a millionaire."  Yes, he's a millionaire because he very good at what he does -- buying, selling, and leasing commercial real estate -- but apparently he doesn't know the first thing about investing in equities.  As soon as I found out they added the Vanguard S&P 500 fund, I put her 100% in there.  She's got a separate IRA to help diversify, and I've got my accounts (and pension) to balance things out as well.