401(k) Recommendations for Company

[AS]

I have been pestering my company to make improvements to their 401(k) plan for a long time now. For my sins, I have been asked to join the 401(k) committee as an employee representative. I would like to come to the committee with  specific recommendations. What should these be?

The Current Plan

• Currently we have a plan with a payroll provider.
• The company does not match contributions.
• We have about 100 employees, I do not know how many participate in the 401(k) plan. My guess is about 40 to 60.
• As far as I know from chatting to the broker a month ago, the plan has about $2,000,000 in assets. The last official annual report that I have from 12/31/201 shows that the assets were about $1,450,000 so this sounds about right.

The investment options of the plan are quite poor IMHO.
I am personally am invested in the four with the lowest expense ratios:

• A short term bond fund -- 15% of contributions (0.78% expense ratio)
• A S&P 500 index fund -- 50% (0.71%)
• A Russel Small Cap index fund -- 15% (0.97%)
• An International index fund -- 20% (0.99%)

In addition to the above, there is a money market fund with a 0.75% expense ratio, a range of target date funds with expense ratios in the 1.10% to 1.25% range, and a variety of managed funds mostly with expense ratios in the 1.10% to 1.50%.

My Questions

• Are there better plans out there for a company of this size and with this amount of assets under management?
• How do I convince my company to change to a different plan?
• Currently my company works with a broker who recommends the plans and is (I presume) paid by the plan. I believe that my company is comfortable with this arrangement -- low expense to the company and someone "to take the blame". Is "going it alone" is a better option? If so, what are the direct costs to the company? What is their exposure to liability?
• Anything else I should know beforehand?

[forummm]

I would find out from Vanguard what their requirements are to use them as a 401k provider. And if you need a certain amount in a particular fund for it to be feasible, I would suggest that a very limited selection of funds that have low fees is much better than a huge list of high-fee fund options.

As an aside, I would also suggest a policy where the default is that employees are enrolled at, say, 5% of their salary. They can opt out. But that changes the default to participating. In studies, participation rates are much higher when participation is the default.

[Seppia]

Great coincidence, in the last weeks I have been pushing my company (a relatively small, 25 employees company here in the U.S.) to modify their 401k.
We currently are with a payroll provider, and all the funds available are obscenely expensive (cheapest is 1.11% fees).
My HR should be contacting vanguard in the coming days, if interested I will report back their requirements and all other findings

[the_gastropod]

My employer uses Slavic401k, which has a bunch of Vanguard funds, and pretty reasonable fees.

[forummm]

My HR should be contacting vanguard in the coming days, if interested I will report back their requirements and all other findings

I'm interested in hearing what these are. This question gets asked here a lot.

My employer uses Slavic401k, which has a bunch of Vanguard funds, and pretty reasonable fees.

What are their requirements and fees?

[NorCal]

I'm on the 401k committee for my company, which is about the same size as yours.  You're asking the right questions.  A couple points in no particular order:

1.  To get significantly lower fund fees, you'll need a larger plan.  With $2M vs $1.5M, your company may be able to negotiate slightly lower fees, but don't expect a massive change.  Maybe 0.1% better on average.  The rates you're paying look roughly "market" for a plan of your size.

2.  Per our broker, the big companies like Vanguard and Fidelity won't talk to companies with less than $2M in assets.  Now that you've hit $2M, you might be able to get a better provider.  However, some of the fee structures of these companies may still make it prohibitive for your employer.  It's at least worth asking the question, but don't get your hopes up too much without more information.

3.  Brokers are nearly universal.  They're usually the same brokers for insurance (health, corporate, etc.) payroll services, and other benefits providers.  The way around brokers is a full-blown PEO payroll system.  PEO can save money to the company in some ways, but is massively more expensive in other ways.  Which option makes sense depends on a lot of company-specific variables.

4.  The quickest way to get a better deal from 401k providers is to increase the size of your plan assets.  Finding ways to get other employees to contribute will pay off for everyone in your company.

5.  Congrats on getting involved!  Most people just ignore it.  Active advocacy is the best way to improve a plan.  Otherwise, they will frequently just go on autopilot.

6.  Don't forget to ask about other options that might be important to you or other employees.  A Roth and after-tax option are always good to have.  Even if it's not something you'd personally use, other people might.  And this can increase overall plan assets to the benefit of everyone.

[forummm]

I'm on the 401k committee for my company, which is about the same size as yours.  You're asking the right questions.  A couple points in no particular order:

1.  To get significantly lower fund fees, you'll need a larger plan.  With $2M vs $1.5M, your company may be able to negotiate slightly lower fees, but don't expect a massive change.  Maybe 0.1% better on average.  The rates you're paying look roughly "market" for a plan of your size.

2.  Per our broker, the big companies like Vanguard and Fidelity won't talk to companies with less than $2M in assets.  Now that you've hit $2M, you might be able to get a better provider.  However, some of the fee structures of these companies may still make it prohibitive for your employer.  It's at least worth asking the question, but don't get your hopes up too much without more information.

3.  Brokers are nearly universal.  They're usually the same brokers for insurance (health, corporate, etc.) payroll services, and other benefits providers.  The way around brokers is a full-blown PEO payroll system.  PEO can save money to the company in some ways, but is massively more expensive in other ways.  Which option makes sense depends on a lot of company-specific variables.

4.  The quickest way to get a better deal from 401k providers is to increase the size of your plan assets.  Finding ways to get other employees to contribute will pay off for everyone in your company.

5.  Congrats on getting involved!  Most people just ignore it.  Active advocacy is the best way to improve a plan.  Otherwise, they will frequently just go on autopilot.

6.  Don't forget to ask about other options that might be important to you or other employees.  A Roth and after-tax option are always good to have.  Even if it's not something you'd personally use, other people might.  And this can increase overall plan assets to the benefit of everyone.

1, 2, and 4 are arguments for having the default be for participation in the system (people would need to opt out in order to not have 401k participation).

[ioseftavi]

I would focus, by far, on improving employee behavior.  You need more money in that plan before you can negotiate/shop around for more bells and whistles / lower fees with your provider.  You can EASILY up the assets in that plan, if you simply educate employees.

I would work on:
1) Get auto-enrollment turned on for employees if that is remotely possible. 
2) Get lifecycle / asset allocation funds added to the plan and make them the auto-enroll option.  This takes away the paralyzing fear of "what do I pick in my 401(k) if I actually enroll?"
3) If reasonably priced asset allocation funds are not available, consider making some blended portfolio model (i.e. 60% stocks, 40% bonds) the default choice for employees who opt into the plan.
4)  If possible, get the automatic increase option for 401(k) contributions available as a 'feature' on your plan.  Some companies refer to this as "save more tomorrow" or some branded version, but it allows employees to choose to automatically bump their contributions 1-3% per year.

You need to educate employees on how to use the 401(k), but more importantly, you need to have days and times (maybe once per week for a month) where you have a mini HR fair to get employees enrolled and correctly allocated.  These events need to be publicized and well-run. 

Most people think that 401(k)s are under-utilized because employees don't understand the benefits.  Bullshit.  Most are underutilized because humans are lazy, and setting up most 401(k)s is scary and foreign and they don't quite know how to do it.  Receiving a massive packet in the mail isn't nearly as good as simply saying, "Hey, bring your lunch and swing by the canteen - we've got plan rep Joe Blow enrolling people from 11AM - 1:30 PM every tuesday for the next 4 weeks.  Should take about 20 minutes per person.  E-mail joe to book a meeting at JBLOW@PLANPROVIDER.COM and mention the day or time that you'd like.

Persuasive educational messages given to college students about tetanus and the importance of going to the health center only resulted in 3% of the students going. Given the same lectures and a copy of the campus map with the location of the health center circled following the discussion brought 28% of college students to the health center.

[AS]

Thank you all for the replies so far.

NorCal's points are especially relevant. I will try to meet with our CFO before the meeting to find out if we are north or south of $2M, what percentage of employees are enrolled, etc. I will also try to find out what the "default" for new employees is (not-enrolled, or enrolled in which funds). I expect to be able to meet him on Wednesday. I will post here what I found out.

In the meanwhile, keep the ideas coming.....