Poor investment options in SIMPLE IRA plan - critique my plan?

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I recently changed jobs from a much larger company to another, much smaller firm. To sweeten the deal, my new employer agreed to set up a SIMPLE IRA plan to soften the blow of losing access to a 401(k) the old job provided. I did some research, and after confirming that I'd be able to contribute to both a SIMPLE and my Roth, I calculated that with the new salary I'd be coming out ahead net of taxes and insurance costs. Sweet deal!

Here's where things become less rosy. New boss is extremely busy and will look to outsource things with a high premium on convenience. The SIMPLE IRA plan is set up in the most convenient way possible, through our payroll provider, as a 5305-SIMPLE using American Century as the Designated Financial Institution (DFI). Have a look at these expense ratios, and you'll see why I'm fairly peeved:

https://www.americancentury.com/content/americancentury/direct/en/fund-performance/performance.html

I filtered it for just stock funds, since I am ~100% stock in my AA and feel comfortable with that for now. This is consistent with my written IPS.

Compared to what I'm used to seeing, those are outrageous. Furthermore, I called to talk to a representative, who confirmed that they categorically do not offer low-fee index funds. "Our funds are actively-managed, and seek to beat the indices to which they're benchmarked..." Not sure I'm sold on their ability to do that. The range of funds offered within the IRA is even narrower still, so the closest fund I can find to behaving like VFINX (or similar) carries a 1.16% ER. Not great.

Perhaps understandably, it appears that very little (if any) research went into deciding to set it up this way. I've been busy myself lately, and haven't had time to really follow up on this either - but now that I can really focus on it, I've come to the conclusion that for anyone focused on investing, these fees are a ripoff. Keeping in mind that not everyone is knowledgeable about or even cares about investing/finance topics, I'm trying to not get too riled up over this - my boss may not understand my frustration.

So, I've taken it upon myself to control the aspects of this situation that I can, without having to ask for major changes to a plan that has only just finished being set up. Here's my action plan, and feel free to chime in if there are other options I haven't yet considered.

- Invest in the lowest-ER stock fund available. Get the employer match contribution of 3%
- Set up a "frozen" SIMPLE IRA account through Vanguard (accepts rollovers, but no contributions).
- Periodically, transfer assets that have accumulated in the employer SIMPLE to the Vanguard one. I asked the rep, and there do not appear to be any transfer fees that would apply at either end. (advice about frequency of transfers would be appreciated, don't believe there are any limits to doing this)
- Since the account balance will be below $10k in the American Century account, a $15/yr. custodial fee would apply

For the time being, we should assume that this plan will remain in place until there is enough of a lull to address administrative things in addition to our usual billable work.

Any suggestions or feedback on this approach would be very helpful.

Thanks!

[letthelightin]

My employer also offers only a SIMPLE IRA, and ours is the same- high ERs, plus ours has an upfront "sales charge" on most funds that is around 2%. Very frustrating.

If I were you, I would check to see if there is a sales charge on the funds you are thinking about investing in with American Century. In my case, the 2% sales charge was taken right off the top of any contributions I made- if I put in $10.00, only $9.80 was actually used to purchase funds. The sales charge applies to all of our funds except for the money market fund, which has a 0% sales charge (and a lower ER than the stock funds).

Once I realized that, I decided to put all contributions going forward into the money market fund. I've had my SIMPLE IRA for over 2 years, so I can transfer the funds into my traditional IRA at Vanguard as often as I want (I didn't have to open another SIMPLE account). Because the money in my SIMPLE is just sitting in a money market fund, and is not gaining or losing with the stock market, I try not to let it sit there too long- I typically transfer as much as I can to my tIRA quarterly, so that it can be invested "properly". However, I think the immediate 2% "savings" I'm getting by not paying a sales charge on my initial contributions is worth the hassle and the 0% return while it's in the money market funds.

Your plan sounds solid to me, but I would definitely check into what sales charges (if any) might apply to your contributions in your SIMPLE. You may also want to take into account any annual fees Vanguard might charge you for the SIMPLE IRA. 
 
I hope this helps! Good luck!

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My employer also offers only a SIMPLE IRA, and ours is the same- high ERs, plus ours has an upfront "sales charge" on most funds that is around 2%. Very frustrating.

If I were you, I would check to see if there is a sales charge on the funds you are thinking about investing in with American Century. In my case, the 2% sales charge was taken right off the top of any contributions I made- if I put in $10.00, only $9.80 was actually used to purchase funds. The sales charge applies to all of our funds except for the money market fund, which has a 0% sales charge (and a lower ER than the stock funds).

Once I realized that, I decided to put all contributions going forward into the money market fund. I've had my SIMPLE IRA for over 2 years, so I can transfer the funds into my traditional IRA at Vanguard as often as I want (I didn't have to open another SIMPLE account). Because the money in my SIMPLE is just sitting in a money market fund, and is not gaining or losing with the stock market, I try not to let it sit there too long- I typically transfer as much as I can to my tIRA quarterly, so that it can be invested "properly". However, I think the immediate 2% "savings" I'm getting by not paying a sales charge on my initial contributions is worth the hassle and the 0% return while it's in the money market funds.

Your plan sounds solid to me, but I would definitely check into what sales charges (if any) might apply to your contributions in your SIMPLE. You may also want to take into account any annual fees Vanguard might charge you for the SIMPLE IRA. 
 
I hope this helps! Good luck!

Thanks for the heads-up on this. This may be a silly question, but is a sales charge the same thing as a load? I don't think the share classes of these funds that are available to us have any loads associated with them, but I'm not sure if there is some other fee that might be buried in there. American Century's funds that do charge loads have a 5.75% front load, though!

Vanguard does appear to have a $25 annual fee for their SIMPLE IRA if I recall what I read correctly, but I'm not really concerned about that since I will recoup that fourfold on saved fees with the difference in expense ratios from American Century's funds. It may take a year to hit that crossover point, but my back-of-napkin calculations suggest that I do best keeping the majority of my investments away from the erosion of these fees.

[letthelightin]

Yes, the sales charge is the same thing as a load- the funds I had through my employer were front loaded funds. Terrible! It would be great if you can avoid those in your SIMPLE IRA. The prospectus for the funds should list any sales charges/loads you could incur for the different share classes.

Once you've had the SIMPLE IRA for two years, it may be worth it to close the Vanguard SIMPLE account and begin transferring all your SIMPLE contributions into a regular IRA, cutting out the annual fee on the Vanguard account as well.

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OP here, bumping this old thread.

Left the aforementioned employer several months ago, finally getting around to executing the SIMPLE rollover to Vanguard. Will post back with any updates as they happen.