Author Topic: 401k Plan Questions  (Read 5143 times)

felizcortez

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401k Plan Questions
« on: February 11, 2015, 12:50:11 PM »
I'm working on creating my asset allocation in my 401k.  I had previously been investing in the individual funds listed below, but have started to transition to targeted retirement funds and future contributions are going to the lifestyle fund which is why you see the number increasing.  I'm beginning to think it is not optimal due to fee differences. 

A few questions:
1.  How do you feel these expenses compare to other 401k funds you have seen?  The lifestyle funds are .1% which is lower than what i've seen at Vanguard .17% target retirement funds.  However, the individual funds are in the .012 range. 
2.  I'm debating moving away from the target fund and into a simpler asset allocation (3 fund portfolio).  I'm 32 so I have a decent time horizon so I would prefer to be heavier in the stock market allocation.  Any thoughts on a potential allocation?  I'm trying to simplify the portfolio slightly and only deal with re-balancing once or twice a year.  Been leaning more towards 90% stocks 10% bonds using a 3 fund portfolio. 


Current Asset Allocations:
39.59% Lifestyle 40 Fund
29.9% Equity Fund
14.41% Small Cap Fund
10.88% International Fund
5.82% Bond Fund
1.39% Growth Fund

Available Funds and Expense Ratios:
Income  -  Northern Trust Short Term Investment Fund  -  0.080%
Bond  -  Northern Trust Daily Aggregate Bond Index Fund  -  0.012%
Equity  -  BlackRock Equity Index Fund  -  0.02%
Value  -  Northern Trust Russell 1000 Value Equity Index  -  0.012%
Growth  -  Northern Trust Russell 1000 Growth Equity Index Fund  -  0.012%
Small Cap  -  Northern Trust Russell 2000 Equity Index Fund  -  0.012%
International  -  BlackRock EAFE (Europe, Australasia, Far East) Equity Index Fund  -  0.08%
Lifestyle Retirement   -  BlackRock Lifepath Index Retirement Fund  -  0.10%
Lifestyle 2020  -  BlackRock Lifepath Index 2020 Fund  -  0.10%
Lifestyle 2030  -  BlackRock Lifepath Index 2030 Fund  -  0.10%
Lifestyle 2040  -  BlackRock Lifepath Index 2040 Fund  -  0.10%
Lifestyle 2050  -  BlackRock Lifepath Index 2050 Fund  -  0.10%
Balanced  -  Fidelity Puritan  -  0.26%
Mid Cap  -  Northern Trust S&P MidCap 400 Index Fund  -  0.012%
 


sabertooth3

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Re: 401k Plan Questions
« Reply #1 on: February 11, 2015, 12:59:10 PM »
A few questions:
1.  How do you feel these expenses compare to other 401k funds you have seen?  The lifestyle funds are .1% which is lower than what i've seen at Vanguard .17% target retirement funds.  However, the individual funds are in the .012 range. 
2.  I'm debating moving away from the target fund and into a simpler asset allocation (3 fund portfolio).  I'm 32 so I have a decent time horizon so I would prefer to be heavier in the stock market allocation.  Any thoughts on a potential allocation?  I'm trying to simplify the portfolio slightly and only deal with re-balancing once or twice a year.  Been leaning more towards 90% stocks 10% bonds using a 3 fund portfolio. 

1. Those seem like very good expense ratios, especially for 401(k) funds. I've seen some people on here with funds that are 1.5-2%. Having 0.012% is crazy good.

2. There are a lot of threads on asset allocation, but if I were you, I'd pick either a 3-fund portfolio or a life-cycle fund. A life-cycle fund essentially is a 3-fund portfolio that maintains a balance of stocks:bonds that's set in accordance to the date on the fund (i.e. a 2020 fund will have more bonds than a 2050 fund). Having both seems redundant to me.

skyrefuge

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Re: 401k Plan Questions
« Reply #2 on: February 11, 2015, 01:07:34 PM »
1.  How do you feel these expenses compare to other 401k funds you have seen?  The lifestyle funds are .1% which is lower than what i've seen at Vanguard .17% target retirement funds.  However, the individual funds are in the .012 range. 

1. Those are basically the best ERs I've ever seen, which makes me wonder if you were looking at the wrong numbers, or miscopied them. The lowest ER I've ever seen on a fund is 0.02% (Vanguard's Institutional Plus funds). A 0.012% ER is made doubly-suspicious because I've never seen an ER written to the thousandths place. It's triply-suspicious because most of those Northern Trust funds have the exact same super-precise ER, which cannot be true. If those *are* the actual listed ERs, the only way I can make sense of it is if your 401(k) is run by Northern Trust and that 0.012% is some kind of artificial ER that they apply to their funds as a benefit to you.

2. Your current allocation doesn't really make sense because you're combining a Lifestyle Fund with a set of individual funds. Either of those two things makes sense on their own, but not combined together. So pick one of the two methods and go with that. As for your stock/bond allocation, that's a personal decision that only you can make based on your risk tolerance. I can say that 90/10 isn't horribly out-of-the-norm for someone in your position.

felizcortez

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Re: 401k Plan Questions
« Reply #3 on: February 11, 2015, 02:19:06 PM »
Here is the quote from our plan regarding expense ratios.  It looks like there is also a $20 per quarter flat rate administration fee.

The information on the management fee appears to be incorrect, but I pulled the attached directly from Fidelity and they still seem pretty low.

RangerOne

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Re: 401k Plan Questions
« Reply #4 on: February 11, 2015, 04:22:49 PM »
I have a similar plan through fidelity and yes their rates for these 401ks are that low.

Basically working for Texas Instruments they have some kind of deal worked out with Fidelity for 401k's which have the expense ratio's like what he is listing. Yes they are super low, most of mine are between .01 and .02 % managment fee.

I can only ascertain that Texas Instruments and other large companies kick Fidelity some money to offer up these special mutual funds specifically for corporate 401k's.

This is a perk of working for fortune 500 companies I suppose.

Unfortunately fund selection wise I don't like their simple all in one retirement mutual funds. But there are reasonable options to break up my 401k down to:

Large Cap ( 1,000 company fund )
Mid cap  (1,000 company fund )
Small cap (~2000 company fund )

International Fund ( 1000 companies )
US Bonds ( large number of different kinds of US bonds )

All of the above are managed to mimic asset mixtures similar to some popular index's which Fidelity compares the funds to.

I don't believe they have a fund for commodities or REITs.

I am also trying to figure out a good balance between these investments. I am trying to beef up my international holdings right now since everything else has been riding high.

RangerOne

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Re: 401k Plan Questions
« Reply #5 on: February 11, 2015, 04:25:30 PM »
Actually yeah you have the exact same investment options I do.

I was all in the lifestyle 2050 but didn't end up caring for their allocations since it wouldn't let me rebalance. Maybe that is childish thinking I can do a better job than they can...

The fees are higher in the 2050 a bit though...

RangerOne

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Re: 401k Plan Questions
« Reply #6 on: February 11, 2015, 04:31:35 PM »
i felt like the following allocations made sense:

39.81%   INTERNATIONAL FUND
25.24%   EQUITY FUND ( Large Cap )
15.13%   MID CAP STOCK
10.09%   SMALL CAP FUND
9.73%   BOND FUND

Normally their lifestyle retirements plans were running about 30% international. So maybe a 10% bump was far too high. Maybe I need to give 5% back to the Large Cap.

Or maybe I need to read a few more index investment books...

skyrefuge

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Re: 401k Plan Questions
« Reply #7 on: February 11, 2015, 04:45:22 PM »
Actually yeah you have the exact same investment options I do.

heh...and felizcortez tried so hard to obscure his employer name!

Thanks for the info, I was unaware of any such 401(k) plans! Though thanks to your second post, I can now change my thinking from "at least two companies have such a plan" to "we probably only know of one company so far". :-) I found an article from 2010 that mentions TI's commitment to low-expense funds, but at that point they were just "normal" low-expense funds, not the current freakishly-low expenses. I'm not sure what the motivation would really be on TI's part (I don't think anyone would refuse to work for TI because their fund's ER was 0.1 and not 0.02), but maybe there's just a hardcore Boglehead-type running the plan there?

RangerOne

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Re: 401k Plan Questions
« Reply #8 on: February 11, 2015, 05:08:49 PM »
Like most big companies they probably felt they should do something to cushion the blow of stopping pensions...

I didn't think about not mentioning companies... but I don't have a too much of a problem talking about pay and perks related to them.

The trend within this company seems to be that they can save costs by shifting the responsibility of asset allocation for health and retirement to the employee. And in doing so they also kick us back some of that money by making all the options much cheaper than if you were on your own.

All these little perks definitely add up though to make your employment worth more than just your base salary.

Need2Save

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Re: 401k Plan Questions
« Reply #9 on: February 13, 2015, 01:05:03 PM »
The size of overall assets in your employer's 401k plan makes a huge difference. The larger the plan in overall assets (pulling all the participant funds together) means the plan sponsor can negotiate better expense ratios for you.  If those fees are correct, they are very, very low and mean a lot more money for you in the long run.   Unfortunately those that work for smaller companies pay much higher fees which erode returns.

You mentioned the flat quarterly administration fee.  This goes towards things like keeping Fidelity's website available to you, manning the call center, sending you account statements, performing calculations and record keeping and may also include mandatory fees like paying for annual audits.  More Plans are going to this and it is a good thing for people with high balances.  Before a switch of this kind, people with high balances essentially subsidize these administrative fees on behalf of the folks with low balances because the fees are paid out of credits that go to the employer.  You don't even see them or know it's happening.  Kudos to your company for making the administration fees equitable for all!

felizcortez

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Re: 401k Plan Questions
« Reply #10 on: March 03, 2015, 12:51:12 PM »
Actually yeah you have the exact same investment options I do.

I was all in the lifestyle 2050 but didn't end up caring for their allocations since it wouldn't let me rebalance. Maybe that is childish thinking I can do a better job than they can...

The fees are higher in the 2050 a bit though...

How about that profit sharing check :).  Just saw that the administration fees are getting reduced in April. 

I just changed a bunch of vanguard investments from target date funds to just VTSAX.  Am going to keep the bond section of my portfolio primarily in the 401k to get an overall asset allocation.