Author Topic: 401k options = a buffet of turd sandwiches -- which is least terrible?  (Read 3806 times)

mostlybeardy

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Hi everyone,

I've been mostly ambivalent about my choices in my employer's 401k plan ever since I wised up on investing and learned that they were all pretty bad. But I was looking at them again tonight and was wondering if anyone wanted to weigh in and suggest any adjustments that might benefit me, however slightly.

My given options are:
Blackrock Capital Appreciation Portfolio C
Blackrock Global Allocation C
Blackrock International C
Blackrock Large Cap Core C
Blackrock Large Cap Value C
Blackrock Value Opportunities C
Davis New York Venture C
Jp Morgan Dynamic Small Cap Growth C
Mfs Total Return C

I'm not planning on staying in this job forever (and actually, a potential new job opportunity just fell through, prompting some reconsidering of my choices in a variety of areas, including 401k holdings), so at the moment I'm shoveling money into Blackrock Capital Appreciation, Blackrock Large Cap Core, Blackrock Large Cap Value, and Jp Morgan Dynamic Small Cap Growth roughly equally with the hope that before too long I can roll them over into my Vanguard IRA and some sweet, sweet VTSAX action, but at the moment, where should my contributions be going? Blackrock Capital Appreciation seems, on its face, to be most compatible with my longterm growth goals, and it has the lowest expense ratio (1.9% vs. 2.0%+, I know, I know), but the turnover (134%) seems really high. Is that already factored into the expense ratio, or am I going to be seeing the effects of that churn elsewhere?

For what it's worth, my employer is a small firm that outsources its retirement plan dealings to Paychex, so I'm not likely to get any changes made by making a case to HR.

Thanks!

wtjbatman

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #1 on: February 17, 2014, 09:52:56 PM »
I'm curious about how turnover percentage impacts fund return as well. I invest primarily in individual stocks, but I do have a few ETFs in my portfolio. I've googled it, but usually someone here does a great job of explaining that sort of thing.

i_am_the_slime

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #2 on: February 18, 2014, 02:37:41 AM »
Wow, you weren't kidding about the turd sandwiches!  2% ER should be a crime - grand larceny when you calculate how much they are stealing away from your retirement. 

Do you get a match?  How much do you contribute to the 401k?  If there is no match it might be better to just open a taxable account.

mostlybeardy

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #3 on: February 18, 2014, 08:19:22 AM »
They match 50% of the first 4%, so I put in 4% of my salary and they put in 2%. I was thinking about upping my contribution because I'm already set to max my IRA, and I figured that if I'm looking to jump to a new job this year (fingers crossed, as the 401k issues are the absolute least of this place's problems), then I can view this as a way to boost my IRA when I'm able to roll it over, and that the fees are merely a short term headache. But I do want my money to be going as far as possible while I'm still here.

I guess I have to do all the math, but I figured that increasing my contributions would come out ahead of those fees, more so than how I'd do with low cost funds in a taxable account in the long run. But I'm open to suggestions.

Maybe I'll try talking to HR after all, too. It's possible they don't really know how bad it is.

Another Reader

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #4 on: February 18, 2014, 08:30:13 AM »
The plan provider is using C class shares of the fund.  Instead of paying a front or back end load (Class A and B shares), the operating expenses are increased.  A smart plan provider goes to the fund company and says we will sell your Class A shares to our captive audience if you waive the load (sales commission).  This plan provider is probably too small to have any leverage with the fund company.

Is there a low fee stable value fund?  Since you are planning on leaving in a few months anyway, it might make more sense to just stash the cash.  And when you do the exit interview, be sure to tell your employer the 401k plan was one of the reasons you decided to leave.

mostlybeardy

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #5 on: February 18, 2014, 10:15:43 AM »
Sadly, even the money market fund available to us has a 0.69% expense ratio. Why even offer it? At least with the equity funds I stand a chance at getting a positive return.

When you say plan provider, you mean Paychex, correct? I'd be surprised if they don't have leverage with the fund companies, given that they're relatively large. According to BrightScope, actual Paychex employees have access to Fidelity Spartan funds, so at least they're doing right by their own workers. I wonder if it has more to do with the terms of the service paid for by my employer and provided by Paychex -- like we don't pay them enough to have access to good funds?

Another Reader

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #6 on: February 18, 2014, 10:59:52 AM »
http://www.paychex.com/retirement/plan-management.aspx

It looks like they can be the administrator and the provider or just the administrator, per this web page.  If you are comfortable doing so, you could discuss the plan with HR.  It's one of the worst I have seen recently.  Then again if the 401k is the least of this company's problems......

mostlybeardy

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #7 on: February 18, 2014, 11:21:58 AM »
Maybe I should clarify there -- I don't think the place is falling apart, but my particular little place in it has serious issues in terms of employee morale stemming from how it's managed, so turnover is fairly high, and upper management seems to take the view of "It's a shame so many good people are leaving... if only we knew how to stop it!" They do, it's just not in the workplace culture to take action on it, and I'm not super inclined to wait around for them to figure it out. But I also don't have any good exit routes lined up at the moment, so as far as I know I'll be here for a while. May as well get my money right. I'm on fairly good terms with the COO (who basically is HR here) so I'll see what room we have for a broader range of funds.

I actually ran some numbers on putting my increased contributions in a taxable Vanguard account instead and from what I can see, it might be the way to go, even though every fiber of my being is screaming "but you haven't maxed out your tax-deferred accounts yet!" It feels counter-intuitive for sure. But after standard deduction, personal exemption, and existing IRA and 401k contributions, my taxable income is low enough that any dividends or capital gains shouldn't hurt me much. I just look at the hundreds of dollars I'd be spending on 401k plan fees vs. the handful of bucks I'd pay to Vanguard and it makes a little more sense. Can anyone recommend a calculator for determining the impact of taxes on one's investment strategies? I've given myself a rough outline, but compounding always trips me up.

mostlybeardy

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #8 on: February 18, 2014, 12:36:35 PM »
Welp, I had a quick chat with the COO over lunch and she told me that yes, she was aware that the 401k options were terrible and no, she didn't think that there was anything that we could do about it given that it's just part of the package we get, but that this might also be the last year we use Paychex to handle this stuff (they also kind of burned us on health insurance costs for 2014 as well, so they're not winning any points around here). Of course that doesn't help me at the moment, so the COO suggested that I do what she does: contribute enough to get the match, and then hire a financial adviser to tell me where to invest the rest. I didn't have the heart to tell her that I'm my own financial adviser because investing isn't really that complicated!

wtjbatman, I did some googlin' on the question of turnover and this is what I found: http://www.bogleheads.org/forum/viewtopic.php?f=10&t=91911. It would seem that for every 100% of turnover, you can basically add 1% to the expenses, but they don't show up as part of the ratio, they're just factored out of the return. So my 1.9% expense ratio fund actually has another 1.34% of turnover expenses on top of it! Just brutal.

OldAndInTheWay

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Re: 401k options = a buffet of turd sandwiches -- which is least terrible?
« Reply #9 on: February 18, 2014, 06:51:02 PM »
My 401k was at paychex for years, until last fall when my company switched to ADP (I don't like ADP either). I had some of the same crappy choices that you have. But we did have access to a Vanguard Total Stock marker fund. Low-ish expense ratio. .28% I think. Not great for an index fund but better than the other choices. I put all my money in there.
Maybe you could ask HR about getting that as a choice.