Author Topic: Are "in-service" direct rollovers ever an option for employees?  (Read 635 times)

HeadedWest2029

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My work is getting a new retirement plan that appears to have a 1% AUM rate for the portfolio balance.  They have some language in the plan around direct rollovers to qualified IRAs, but I assume all plan administrators don't allow this "in-service", IE while currently employed?  I'll of course ask the plan administrator when I meet with them, but I was curious if anyone has found a loophole where you can direct a plan administrator to send contributions directly to a Vanguard IRA as a "rollover".  Or, if you periodically do in-service rollovers to an outside Vanguard IRA to avoid the AUM fee. 
« Last Edit: August 07, 2019, 02:05:50 PM by HeadedWest2029 »

dblaace

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #1 on: August 08, 2019, 08:26:48 PM »
I was able to do it one time when the company I worked for was sold, an was not able to when it happened at a second company.

Something to do with how the plans are done with the transition. I don't remember all the details.

reeshau

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #2 on: August 09, 2019, 02:43:56 AM »
My company's plan allows a one-time rollover of up to 50% of the account value, when you are 50 or over.  (they are with Fidelity)  It is a plan rule, at their discretion.  I do not know any statistics on what is most common, or what the range of possibilities are.

For sure, your company has incentives not to let you do as you have suggested:  those fees you pay are also paying for the administration of the program itself, in whole or in part.  You are asking to escape without having to pay the toll.

ender

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #3 on: August 09, 2019, 05:38:15 AM »
This can be an option for 401k plans yes. It is a key component of the megabackdoor Roth IRA.

Freedom2016

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #4 on: August 09, 2019, 08:39:32 AM »
I don't suppose your company is small enough / at the right point in the process for you to influence the plan details?

I once had the fortunate chance to help design my firm's new 401k plan. I convinced folks to go with Fidelity and made them include a bunch of Vanguard funds.


slappy

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #5 on: August 09, 2019, 11:24:22 AM »
So the new plan has a 1% AUM charge on all assets and you no choice to opt out? That doesn't sound right. Is that even legal?

BrightFIRE

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #6 on: August 09, 2019, 01:11:09 PM »
So the new plan has a 1% AUM charge on all assets and you no choice to opt out? That doesn't sound right. Is that even legal?

It is, but maybe they'd get some traction by suggesting the employer isn't upholding their fiduciary duty by allowing these predatory fees.

slappy

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #7 on: August 09, 2019, 01:49:46 PM »
So the new plan has a 1% AUM charge on all assets and you no choice to opt out? That doesn't sound right. Is that even legal?

It is, but maybe they'd get some traction by suggesting the employer isn't upholding their fiduciary duty by allowing these predatory fees.

I'm curious if it's really an AUM fee. My husband's old employer had TDFs that had expense ratios of almost 1.5% (this was before we knew about index investing). I just figured that the match was covering the expense ratio and did not put in anything about the matching amount to that plan.

HeadedWest2029

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #8 on: August 10, 2019, 02:48:14 PM »
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I don't suppose your company is small enough / at the right point in the process for you to influence the plan details?

Unfortunately no.  This was a decision made by the board of directors.  I'm just a wee minion, but I did point it out to my boss.  People were all jacked because the company was going to pay the flat, administrative fee...something like $30 per employee.  Which, yeah that helps, but you're missing the much bigger cost

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So the new plan has a 1% AUM charge on all assets and you no choice to opt out? That doesn't sound right. Is that even legal?

It would appear so.  I'd love to be proven wrong here, but this percent of assets thing is apparently silently going on behind the scenes.  I was surprised too, and then I looked at our current, soon to be old plan, and found out they were quietly taking 1.4% of assets under management.  So it's an upgrade I guess.  We have a plan administrator (local bank) who will apparently manages it all for us and in turn at least offers nice Vanguard index funds.  Believe me, I'll check with the bank representative to make sure I'm understanding this 1% AUM correctly and will report back.  The thing is I at least see when an administrative fee is deducted with the current plan.  But this percentage of assets thing seems totally sneaky IMO

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those fees you pay are also paying for the administration of the program itself, in whole or in part.  You are asking to escape without having to pay the toll.

I'm totally on board with paying a transparent administrative fee.  I'm not sure I'm on board with a fine print AUM% swipe.  It's not all bad, we get legit index fund options, company is covering the administrative fee, but I just can't get past this 1% AUM fee, unless I'm incorrect.  Once a senior employee's balance gets massive you start to incentivize people to leave.  Not that many people bother looking at the fine print.  Looking forward to the meeting to bring this up!  Also, the AUM% does decrease once the entire plan balance reaches a certain threshold.  Chalk up another reason to FIRE

HeadedWest2029

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Re: Are "in-service" direct rollovers ever an option for employees?
« Reply #9 on: August 14, 2019, 01:22:26 PM »
Confirmed that we will pay 1% AUM for the bank to manage the plan for us...ugh
No in-service rollovers other than hardship or to borrow against the plan