29 replies to this topic

[Dragons]

Our company recently switched to an ADP/Wells Fargo hosted 401k plan. This seemed to be a tremendous improvement from the previous plan we had, both in administration costs, administration time and fund choices for employees. We have now switched our payroll to Paychex and we're in the process of looking at moving our 401k plan to Paychex/John Hancock. I've been involved with the discussions. What is troubling me is the hidden fees (we're forced to use a financial planner, whose advice isn't timely enough to be useful and apparently he gets 50 bps out of the expense ratio), high expense ratios and, even though there are 200 fund options of which we can choose ~20 for our plan, somewhat of a lack of diversity. We have decided that it might be best to look into other options.

I was just forwarded this Forbes article. It really illuminates a lot of the frustrations we have been experiencing and raises a few more.

Has anyone been involved in this process for their employer? Does anyone have a recommendation for a 401k host that is in the best interest of the employee? Is it worth going through ADP/Wells Fargo to have access to MRDVX, for example? Or will the comparable Vanguard index fund get similar or better returns?

Edited by Dragons, 31 January 2013 - 03:07 PM.

[17seconds]

I don't get the importance of diversity in 401K plans. Why is it better to have 20 choices instead of 10?

Just choosing an index or target year portfolio is the same or better as managed funds, right?

[Ned]

I don't get the importance of diversity in 401K plans. Why is it better to have 20 choices instead of 10?

Just choosing an index or target year portfolio is the same or better as managed funds, right?

Not at all. Expenses and performance can vary a lot. Go check a few of the prospectuses from a few of the large cap funds and you'll see the difference.

[Ursa M]

I don't get the importance of diversity in 401K plans. Why is it better to have 20 choices instead of 10?

Just choosing an index or target year portfolio is the same or better as managed funds, right?

Not at all. Expenses and performance can vary a lot. Go check a few of the prospectuses from a few of the large cap funds and you'll see the difference.

The expenses in our otherwise good plan really tick me off. Many are close to 1% and I've lost count of the number of articles I've read telling me that managed funds tend to perform worse than good ol' index funds, so that 1% is going straight down a rathole with nothing to show for it. It's a very significant chunk of change too - if the expenses were left in the funds and compounded like the rest, the difference over the life of the 401k is many tens of thousands of dollars.

[Dragons]

I don't get the importance of diversity in 401K plans. Why is it better to have 20 choices instead of 10?

Just choosing an index or target year portfolio is the same or better as managed funds, right?

I think an index fund is as good or better than most managed funds, but I'm not 100% sure. It's definitely better as far as fees are concerned. But you want diversity even among index funds (large cap, small cap, international, etc.) because different sectors perform differently over time. You also want diversity to help account for each investor's risk tolerance. A target year doesn't really allow to target risk tolerance, other than to pick a different target year than your actual retirement.

We have a lot of decent (if you consider funds with 1.5+ expense ratios decent) managed funds available to us with ADP/Wells Fargo, but I couldn't target US Micro Cap or International Small Value (for example). We did have a LOT more diversity than our previous plan, though, which was 6 funds in total and many were almost duplicates of others (Fidelity Contra & Fidelity Magellan).

Edited by Dragons, 31 January 2013 - 05:12 PM.

[NewlyRetired]

Over the years roughly 2/3 of managed mutual funds do not beat their index average when factoring in fees, loads etc.

However, 1/3 of the total funds in any one diversity should give you an enormous amount to choose from to beat the index.

I am/was considered a fairly conservative investor and almost always chose managed funds to get me to my retirement. The only time I went index was when I was at a small company with a tiny amount of 401k choices where the managed mutual funds were garbage.

I am not a big fan of the target funds at all. They were designed to basically fleece lazy investors. The layers of fees in those can get ugly if you don't do your due diligence properly. If you want simple index type investing, stick with the index funds themselves.

Edited by NewlyRetired, 31 January 2013 - 05:28 PM.

[eoMMan]

InvestwithDan.

I'll pm you the propectus.

[Andrew74]

My company can do your 401k.

In seriousness, the poster above noted a majority of active funds can't beat their indexes. The question you have to answer is can the person(s) selecting the funds pick good managers? There are a lot out there, but you have to do the due dilligence to find them. If you don't think you can, go the index route. Either way, you need a good set of funds to give the participants diversification, including in fixed income. Target Date funds are good as well, but you better understand the philosophy behind them (to retirement vs through retirement) and what they are investing in.

You also need to consider who is assuming the fiduciary obligations. If you or someone in your company selects the funds, you better know what you are doing or you can face lawsuits from participants.

People don't understand that these things aren't cheap to run. Somebody has to pay for it and the best thing is to disclose who and how that is done.

[Dragons]

Over the years roughly 2/3 of managed mutual funds do not beat their index average when factoring in fees, loads etc.

However, 1/3 of the total funds in any one diversity should give you an enormous amount to choose from to beat the index.

I am/was considered a fairly conservative investor and almost always chose managed funds to get me to my retirement. The only time I went index was when I was at a small company with a tiny amount of 401k choices where the managed mutual funds were garbage.

I am not a big fan of the target funds at all. They were designed to basically fleece lazy investors. The layers of fees in those can get ugly if you don't do your due diligence properly. If you want simple index type investing, stick with the index funds themselves.

Are the 1/3 that beat the index the same funds year to year?

Even Morningstar says that expense ratio is a better predictor
than it's own Morningstar rating.

[Dragons]

My company can do your 401k.

In seriousness, the poster above noted a majority of active funds can't beat their indexes. The question you have to answer is can the person(s) selecting the funds pick good managers? There are a lot out there, but you have to do the due dilligence to find them. If you don't think you can, go the index route. Either way, you need a good set of funds to give the participants diversification, including in fixed income. Target Date funds are good as well, but you better understand the philosophy behind them (to retirement vs through retirement) and what they are investing in.

You also need to consider who is assuming the fiduciary obligations. If you or someone in your company selects the funds, you better know what you are doing or you can face lawsuits from participants.

People don't understand that these things aren't cheap to run. Somebody has to pay for it and the best thing is to disclose who and how that is done.

It seems we have ~180 funds available to us with the Paychex/John Hancock option (we had ~40 with ADP/Wells Fargo). I would be involved in selecting a number of funds out of those 200. Are you asking if I can pick good managers? I don't even know where to start with finding the information to do that. We also would have a financial adviser who probably has more input than me. Is he picking funds based on a good manager or how much of a kickback he gets? How do I even find out?

This is my dilemma, where can my company get a 401k plan that best represents the needs of our employees?

[NewlyRetired]

Over the years roughly 2/3 of managed mutual funds do not beat their index average when factoring in fees, loads etc.

However, 1/3 of the total funds in any one diversity should give you an enormous amount to choose from to beat the index.

I am/was considered a fairly conservative investor and almost always chose managed funds to get me to my retirement. The only time I went index was when I was at a small company with a tiny amount of 401k choices where the managed mutual funds were garbage.

I am not a big fan of the target funds at all. They were designed to basically fleece lazy investors. The layers of fees in those can get ugly if you don't do your due diligence properly. If you want simple index type investing, stick with the index funds themselves.

Are the 1/3 that beat the index the same funds year to year?

I have no idea of the exact data but I strongly doubt it.

But you will find some funds, specifically when the fund manager stays the same, who can beat their category index over the long haul. I don't specifically care if my funds beat their index every year, I just care that they are beating the average over a longer period (5, 10, 15 year marks). By looking over a longer period of time it can give you an idea of how a manager performs in both up and down markets.

[Andrew74]

Over the years roughly 2/3 of managed mutual funds do not beat their index average when factoring in fees, loads etc.

However, 1/3 of the total funds in any one diversity should give you an enormous amount to choose from to beat the index.

I am/was considered a fairly conservative investor and almost always chose managed funds to get me to my retirement. The only time I went index was when I was at a small company with a tiny amount of 401k choices where the managed mutual funds were garbage.

I am not a big fan of the target funds at all. They were designed to basically fleece lazy investors. The layers of fees in those can get ugly if you don't do your due diligence properly. If you want simple index type investing, stick with the index funds themselves.

Are the 1/3 that beat the index the same funds year to year?

I have no idea of the exact data but I strongly doubt it.

But you will find some funds, specifically when the fund manager stays the same, who can beat their category index over the long haul. I don't specifically care if my funds beat their index every year, I just care that they are beating the average over a longer period (5, 10, 15 year marks). By looking over a longer period of time it can give you an idea of how a manager performs in both up and down markets.

This. Good managers have bad years and crap managers can have an outstanding year. Look at 3, 5 year numbers and the tenure of the managers.

[Chadstroma]

I don't get the importance of diversity in 401K plans. Why is it better to have 20 choices instead of 10?

Just choosing an index or target year portfolio is the same or better as managed funds, right?

There are a lot of 'hidden' costs in some plans that suck too much of your saving power away. Not all plans are created equal and not all index/target portfolios are created equal as well.

[Andrew74]

My company can do your 401k.

In seriousness, the poster above noted a majority of active funds can't beat their indexes. The question you have to answer is can the person(s) selecting the funds pick good managers? There are a lot out there, but you have to do the due dilligence to find them. If you don't think you can, go the index route. Either way, you need a good set of funds to give the participants diversification, including in fixed income. Target Date funds are good as well, but you better understand the philosophy behind them (to retirement vs through retirement) and what they are investing in.

You also need to consider who is assuming the fiduciary obligations. If you or someone in your company selects the funds, you better know what you are doing or you can face lawsuits from participants.

People don't understand that these things aren't cheap to run. Somebody has to pay for it and the best thing is to disclose who and how that is done.

It seems we have ~180 funds available to us with the Paychex/John Hancock option (we had ~40 with ADP/Wells Fargo). I would be involved in selecting a number of funds out of those 200. Are you asking if I can pick good managers? I don't even know where to start with finding the information to do that. We also would have a financial adviser who probably has more input than me. Is he picking funds based on a good manager or how much of a kickback he gets? How do I even find out?

This is my dilemma, where can my company get a 401k plan that best represents the needs of our employees?

Someone has the fiduciary responsibility for the investments in the plan. You need to know who's on the hook for that. Usually it is someone at the company sponsoring the plan.

I have no idea what the advisors connection is. I would think you could ask what his role is (is his comp determined by which fund he picks or is he paid same regardless?). I know there were some new ERISA regs passed recently about fee disclosures, but I'm not sure in the specifics.

Unfortunately I am an investment guy and my ERISA knowledge is limited, mostly picked up from working with our retirement group. If you have some detailed questions, PM me and I'll see if I can get an answer.

[Alex P Keaton]

Over the years roughly 2/3 of managed mutual funds do not beat their index average when factoring in fees, loads etc.

However, 1/3 of the total funds in any one diversity should give you an enormous amount to choose from to beat the index.

I am/was considered a fairly conservative investor and almost always chose managed funds to get me to my retirement. The only time I went index was when I was at a small company with a tiny amount of 401k choices where the managed mutual funds were garbage.

I am not a big fan of the target funds at all. They were designed to basically fleece lazy investors. The layers of fees in those can get ugly if you don't do your due diligence properly. If you want simple index type investing, stick with the index funds themselves.

Are the 1/3 that beat the index the same funds year to year?

I have no idea of the exact data but I strongly doubt it.

But you will find some funds, specifically when the fund manager stays the same, who can beat their category index over the long haul. I don't specifically care if my funds beat their index every year, I just care that they are beating the average over a longer period (5, 10, 15 year marks). By looking over a longer period of time it can give you an idea of how a manager performs in both up and down markets.

This. Good managers have bad years and crap managers can have an outstanding year. Look at 3, 5 year numbers and the tenure of the managers.

Thanks for your simplistic analysis. Very helpful.

[=Smackdown=]

How many Employees?

If you have over 50 you're making a mistake switching to Paychex. In my experience they do a solid job under 50 but once you get to about 50+ it gets a little dicey.

[Dragons]

How many Employees?

If you have over 50 you're making a mistake switching to Paychex. In my experience they do a solid job under 50 but once you get to about 50+ it gets a little dicey.

7 employees. It seemed we were happy with ADP until the beginning of 2013 when they ####ed things up and it took several days of our bookkeepers time to get them to understand the problem and correct it. I guess with paychex, we will be getting one person responsible for our account, rather than a variety of people with no accountability who pass the buck.

The change on the payroll side went into effect this week.

[Dragons]

Over the years roughly 2/3 of managed mutual funds do not beat their index average when factoring in fees, loads etc.

However, 1/3 of the total funds in any one diversity should give you an enormous amount to choose from to beat the index.

I am/was considered a fairly conservative investor and almost always chose managed funds to get me to my retirement. The only time I went index was when I was at a small company with a tiny amount of 401k choices where the managed mutual funds were garbage.

I am not a big fan of the target funds at all. They were designed to basically fleece lazy investors. The layers of fees in those can get ugly if you don't do your due diligence properly. If you want simple index type investing, stick with the index funds themselves.

Are the 1/3 that beat the index the same funds year to year?

I have no idea of the exact data but I strongly doubt it.

But you will find some funds, specifically when the fund manager stays the same, who can beat their category index over the long haul. I don't specifically care if my funds beat their index every year, I just care that they are beating the average over a longer period (5, 10, 15 year marks). By looking over a longer period of time it can give you an idea of how a manager performs in both up and down markets.

This. Good managers have bad years and crap managers can have an outstanding year. Look at 3, 5 year numbers and the tenure of the managers.

Thanks, I will look into this on the funds available to us. If we can get one or two funds in each segment that beat their index over time, then a higher e/r must be worth it since they're factored into the return.

Our financial planner was helpful in suggesting an asset mix at the beginning of the plan. But ongoing support has been minimal and quarterly reviews seem to take place closer to the next quarter than the one that closed.

[Dragons]

I don't get the importance of diversity in 401K plans. Why is it better to have 20 choices instead of 10?

Just choosing an index or target year portfolio is the same or better as managed funds, right?

There are a lot of 'hidden' costs in some plans that suck too much of your saving power away. Not all plans are created equal and not all index/target portfolios are created equal as well.

Hidden costs are what I'm worried about. Even the newly disclosed costs are written in a confusing way. If we could pay an independent person to analyse different options and explain, it would probably be worth it.

[Dragons]

My company can do your 401k.

In seriousness, the poster above noted a majority of active funds can't beat their indexes. The question you have to answer is can the person(s) selecting the funds pick good managers? There are a lot out there, but you have to do the due dilligence to find them. If you don't think you can, go the index route. Either way, you need a good set of funds to give the participants diversification, including in fixed income. Target Date funds are good as well, but you better understand the philosophy behind them (to retirement vs through retirement) and what they are investing in.

You also need to consider who is assuming the fiduciary obligations. If you or someone in your company selects the funds, you better know what you are doing or you can face lawsuits from participants.

People don't understand that these things aren't cheap to run. Somebody has to pay for it and the best thing is to disclose who and how that is done.

It seems we have ~180 funds available to us with the Paychex/John Hancock option (we had ~40 with ADP/Wells Fargo). I would be involved in selecting a number of funds out of those 200. Are you asking if I can pick good managers? I don't even know where to start with finding the information to do that. We also would have a financial adviser who probably has more input than me. Is he picking funds based on a good manager or how much of a kickback he gets? How do I even find out?

This is my dilemma, where can my company get a 401k plan that best represents the needs of our employees?

Someone has the fiduciary responsibility for the investments in the plan. You need to know who's on the hook for that. Usually it is someone at the company sponsoring the plan.

I have no idea what the advisors connection is. I would think you could ask what his role is (is his comp determined by which fund he picks or is he paid same regardless?). I know there were some new ERISA regs passed recently about fee disclosures, but I'm not sure in the specifics.

Unfortunately I am an investment guy and my ERISA knowledge is limited, mostly picked up from working with our retirement group. If you have some detailed questions, PM me and I'll see if I can get an answer.

Our owner has fiduciary responsibility. He, and the book keeper, have left the fund selection to the financial planner with input from two of us.

I believe our adviser gets 50 bps regardless of what fund he puts us in, but I'm not sure of that. In the fee disclosure it also mentions he may get 1% of deposits in the first year and .25% in subsequent years. We're trying to find out if "may" applies to our plan or not, the paperwork isn't clear. The fee disclosure also says the admin costs are about .625% of the total plan. That seems like it's in addition to the ~$2500/year we'd be paying Paychex, because .625% of our plan value is a higher # than $2500. The disclosure also isn't clear where this fee comes from. Does this fee come out of the expense ratio too?

[downanddistance]

My company can do your 401k.

In seriousness, the poster above noted a majority of active funds can't beat their indexes. The question you have to answer is can the person(s) selecting the funds pick good managers? There are a lot out there, but you have to do the due dilligence to find them. If you don't think you can, go the index route. Either way, you need a good set of funds to give the participants diversification, including in fixed income. Target Date funds are good as well, but you better understand the philosophy behind them (to retirement vs through retirement) and what they are investing in.

You also need to consider who is assuming the fiduciary obligations. If you or someone in your company selects the funds, you better know what you are doing or you can face lawsuits from participants.

People don't understand that these things aren't cheap to run. Somebody has to pay for it and the best thing is to disclose who and how that is done.

It seems we have ~180 funds available to us with the Paychex/John Hancock option (we had ~40 with ADP/Wells Fargo). I would be involved in selecting a number of funds out of those 200. Are you asking if I can pick good managers? I don't even know where to start with finding the information to do that. We also would have a financial adviser who probably has more input than me. Is he picking funds based on a good manager or how much of a kickback he gets? How do I even find out?

This is my dilemma, where can my company get a 401k plan that best represents the needs of our employees?

Someone has the fiduciary responsibility for the investments in the plan. You need to know who's on the hook for that. Usually it is someone at the company sponsoring the plan.

I have no idea what the advisors connection is. I would think you could ask what his role is (is his comp determined by which fund he picks or is he paid same regardless?). I know there were some new ERISA regs passed recently about fee disclosures, but I'm not sure in the specifics.

Unfortunately I am an investment guy and my ERISA knowledge is limited, mostly picked up from working with our retirement group. If you have some detailed questions, PM me and I'll see if I can get an answer.

Our owner has fiduciary responsibility. He, and the book keeper, have left the fund selection to the financial planner with input from two of us.

I believe our adviser gets 50 bps regardless of what fund he puts us in, but I'm not sure of that. In the fee disclosure it also mentions he may get 1% of deposits in the first year and .25% in subsequent years. We're trying to find out if "may" applies to our plan or not, the paperwork isn't clear. The fee disclosure also says the admin costs are about .625% of the total plan. That seems like it's in addition to the ~$2500/year we'd be paying Paychex, because .625% of our plan value is a higher # than $2500. The disclosure also isn't clear where this fee comes from. Does this fee come out of the expense ratio too?

Is the financial planner a 3(21) or 3(38) fiduciary for the plan. Your owner is a fiduciary but the financial planner may be as well. You will want to know this as the more responsibility they have the more fee they should be worth potentially, plus you just want to know who are liable parties within the plan.

I would speak directly with the planner and find out his fiduciary level if any (ask if 3(21) or 3(38)), ask how he gets paid his 50bps in the plan (is it built into the Expense Ratios that participants see...it may be... so for example you pick a fund with ER of 1%, his 50bps may be factored in already). Ask him about the platform fee from John Hancock. How much is that. Ours for example at Great West is .1% which is charged on top of your ER of funds.

Ask how John Hancock was selected. Were they the most competitive platform or....is there another incentive that you are unaware of. (ie did the financial planner get money...they may have and this is not bad as long as John Hancock is a low cost option for your needs)

Third Party Administration are they taking any fiduciary responsibility? What is their fee? Will john Hancock be subsidizing the fee The TPA would charge you?

I highly doubt the admin fee from the plan is built into the Expense ratio but when in doubt ask.

In a nutshell ask all fiduciaries, fees and relationships be disclosed. From TPA to Financial planner to Financial Platform provider

Sorry long and rambling. I am going through this now so I thought it might help.

[Dragons]

My company can do your 401k.

In seriousness, the poster above noted a majority of active funds can't beat their indexes. The question you have to answer is can the person(s) selecting the funds pick good managers? There are a lot out there, but you have to do the due dilligence to find them. If you don't think you can, go the index route. Either way, you need a good set of funds to give the participants diversification, including in fixed income. Target Date funds are good as well, but you better understand the philosophy behind them (to retirement vs through retirement) and what they are investing in.

You also need to consider who is assuming the fiduciary obligations. If you or someone in your company selects the funds, you better know what you are doing or you can face lawsuits from participants.

People don't understand that these things aren't cheap to run. Somebody has to pay for it and the best thing is to disclose who and how that is done.

It seems we have ~180 funds available to us with the Paychex/John Hancock option (we had ~40 with ADP/Wells Fargo). I would be involved in selecting a number of funds out of those 200. Are you asking if I can pick good managers? I don't even know where to start with finding the information to do that. We also would have a financial adviser who probably has more input than me. Is he picking funds based on a good manager or how much of a kickback he gets? How do I even find out?

This is my dilemma, where can my company get a 401k plan that best represents the needs of our employees?

Someone has the fiduciary responsibility for the investments in the plan. You need to know who's on the hook for that. Usually it is someone at the company sponsoring the plan.

I have no idea what the advisors connection is. I would think you could ask what his role is (is his comp determined by which fund he picks or is he paid same regardless?). I know there were some new ERISA regs passed recently about fee disclosures, but I'm not sure in the specifics.

Unfortunately I am an investment guy and my ERISA knowledge is limited, mostly picked up from working with our retirement group. If you have some detailed questions, PM me and I'll see if I can get an answer.

Our owner has fiduciary responsibility. He, and the book keeper, have left the fund selection to the financial planner with input from two of us.

I believe our adviser gets 50 bps regardless of what fund he puts us in, but I'm not sure of that. In the fee disclosure it also mentions he may get 1% of deposits in the first year and .25% in subsequent years. We're trying to find out if "may" applies to our plan or not, the paperwork isn't clear. The fee disclosure also says the admin costs are about .625% of the total plan. That seems like it's in addition to the ~$2500/year we'd be paying Paychex, because .625% of our plan value is a higher # than $2500. The disclosure also isn't clear where this fee comes from. Does this fee come out of the expense ratio too?

Is the financial planner a 3(21) or 3(38) fiduciary for the plan. Your owner is a fiduciary but the financial planner may be as well. You will want to know this as the more responsibility they have the more fee they should be worth potentially, plus you just want to know who are liable parties within the plan.

I would speak directly with the planner and find out his fiduciary level if any (ask if 3(21) or 3(38)), ask how he gets paid his 50bps in the plan (is it built into the Expense Ratios that participants see...it may be... so for example you pick a fund with ER of 1%, his 50bps may be factored in already). Ask him about the platform fee from John Hancock. How much is that. Ours for example at Great West is .1% which is charged on top of your ER of funds.

Ask how John Hancock was selected. Were they the most competitive platform or....is there another incentive that you are unaware of. (ie did the financial planner get money...they may have and this is not bad as long as John Hancock is a low cost option for your needs)

Third Party Administration are they taking any fiduciary responsibility? What is their fee? Will john Hancock be subsidizing the fee The TPA would charge you?

I highly doubt the admin fee from the plan is built into the Expense ratio but when in doubt ask.

In a nutshell ask all fiduciaries, fees and relationships be disclosed. From TPA to Financial planner to Financial Platform provider

Sorry long and rambling. I am going through this now so I thought it might help.

Thanks for the input, it does help.

We were able to find out a lot more information today. The financial planner's cut is .25%, which comes out of the published ER. The .625 is John Hancock's cut, out of the published ER. Paychex gets their ~$2500 management fee, which is billed to the company directly. I do not know if they get a kickback from John Hancock.

The proposed funds are all Class A funds.

John Hancock was recommended by the Paychex rep. Paychex also offers another set of funds, but they all come with higher ER. Our planner told us today that John Hancock is recognized as being the lowest cost for small 401k plans (under $5 or $10 million, I don't remember which number he said).

So I think we now understand all the fees associated with the plan and they are not bad, and not drastically different than our previous ADP plan (but different than what this novice Paychex rep stated last week).

I'm not completely convinced it's the right plan for us.

Our planner did say that we could set up individual self directed plans through him with Wells Fargo. We would have a full brokerage account with access to institutional class mutual funds, etfs and even stocks. He would charge .8 (of which I think Wells Fargo takes .55) and would use an actuary that would be less than $2k to the company. .8 + institutional mutual funds ER is more than Class A ER on the handful of funds I checked, but I am wondering if since he has access to everything and anything, he should be able to offer something in every asset class that can beat the class A return after accounting for his .8.

Anyway, that's where we are at the close of business on Friday.


ETA - I'll find out on the fiduciary responsibilities of the planner, thanks for that tip.

Edited by Dragons, 01 February 2013 - 01:50 PM.

[=Smackdown=]

How many Employees?

If you have over 50 you're making a mistake switching to Paychex. In my experience they do a solid job under 50 but once you get to about 50+ it gets a little dicey.

7 employees. It seemed we were happy with ADP until the beginning of 2013 when they ####ed things up and it took several days of our bookkeepers time to get them to understand the problem and correct it. I guess with paychex, we will be getting one person responsible for our account, rather than a variety of people with no accountability who pass the buck.

The change on the payroll side went into effect this week.

They both advertise that you'll deal with one person on a consistant basis. In reality you have one point of contact for conversion/implemention - then after 3 months when you're up & running you get assigned to a team.

With only 7 employees Paychex will do just fine. Good Luck with them.

[Dragons]

How many Employees?

If you have over 50 you're making a mistake switching to Paychex. In my experience they do a solid job under 50 but once you get to about 50+ it gets a little dicey.

7 employees. It seemed we were happy with ADP until the beginning of 2013 when they ####ed things up and it took several days of our bookkeepers time to get them to understand the problem and correct it. I guess with paychex, we will be getting one person responsible for our account, rather than a variety of people with no accountability who pass the buck.

The change on the payroll side went into effect this week.

They both advertise that you'll deal with one person on a consistant basis. In reality you have one point of contact for conversion/implemention - then after 3 months when you're up & running you get assigned to a team.

With only 7 employees Paychex will do just fine. Good Luck with them.

Thanks, so far we've been happy. Hopefully that doesn't change if/when we get assigned to a team.


On the 401k front, we have investigated several options and have the following decisions to make:

1. Paychex sponsored plan. Low admin fees. 5500 funds (including about 400 institutional funds and vanguard index funds) to select from for our plan. We will also each pay 50 bps to an adviser 3(21), withdrawn quarterly.

2. Wells Fargo self directed plan - Low admin fees. Brokerage account for each employee with access to the entire market, including etfs, institutional funds, stocks and bonds. We will pay 60 bps to an an adviser 3(21), withdrawn quarterly.

3. Verisight sponsored plan (mentioned in the Forbes article). Admin fees are about double, but this accounts for their entire fee. No basis points and no payments on the backend. Access to the entire mutual fund market, including institutional funds, of which we will select a max of 40 for our plan. Each employee can also add a brokerage account for $200/year. No adviser is included, but they offer training and a yearly account review.


I like option 3. But, our owner wants an adviser so he doesn't feel like he has to give advice. Can anyone point me to where I can find a Financial Planner that would work on a fee schedule, instead of a percentage? We would want help in picking funds, in selecting each employee's allocation and quarterly or half year reviews. Our current adviser does not know how he can take a payment in this way, everything he does is percentage based.

[Andrew74]

My company can do your 401k.

In seriousness, the poster above noted a majority of active funds can't beat their indexes. The question you have to answer is can the person(s) selecting the funds pick good managers? There are a lot out there, but you have to do the due dilligence to find them. If you don't think you can, go the index route. Either way, you need a good set of funds to give the participants diversification, including in fixed income. Target Date funds are good as well, but you better understand the philosophy behind them (to retirement vs through retirement) and what they are investing in.

You also need to consider who is assuming the fiduciary obligations. If you or someone in your company selects the funds, you better know what you are doing or you can face lawsuits from participants.

People don't understand that these things aren't cheap to run. Somebody has to pay for it and the best thing is to disclose who and how that is done.

It seems we have ~180 funds available to us with the Paychex/John Hancock option (we had ~40 with ADP/Wells Fargo). I would be involved in selecting a number of funds out of those 200. Are you asking if I can pick good managers? I don't even know where to start with finding the information to do that. We also would have a financial adviser who probably has more input than me. Is he picking funds based on a good manager or how much of a kickback he gets? How do I even find out?

This is my dilemma, where can my company get a 401k plan that best represents the needs of our employees?

Someone has the fiduciary responsibility for the investments in the plan. You need to know who's on the hook for that. Usually it is someone at the company sponsoring the plan.

I have no idea what the advisors connection is. I would think you could ask what his role is (is his comp determined by which fund he picks or is he paid same regardless?). I know there were some new ERISA regs passed recently about fee disclosures, but I'm not sure in the specifics.

Unfortunately I am an investment guy and my ERISA knowledge is limited, mostly picked up from working with our retirement group. If you have some detailed questions, PM me and I'll see if I can get an answer.

Our owner has fiduciary responsibility. He, and the book keeper, have left the fund selection to the financial planner with input from two of us.

I believe our adviser gets 50 bps regardless of what fund he puts us in, but I'm not sure of that. In the fee disclosure it also mentions he may get 1% of deposits in the first year and .25% in subsequent years. We're trying to find out if "may" applies to our plan or not, the paperwork isn't clear. The fee disclosure also says the admin costs are about .625% of the total plan. That seems like it's in addition to the ~$2500/year we'd be paying Paychex, because .625% of our plan value is a higher # than $2500. The disclosure also isn't clear where this fee comes from. Does this fee come out of the expense ratio too?

Is the financial planner a 3(21) or 3(38) fiduciary for the plan. Your owner is a fiduciary but the financial planner may be as well. You will want to know this as the more responsibility they have the more fee they should be worth potentially, plus you just want to know who are liable parties within the plan.

I would speak directly with the planner and find out his fiduciary level if any (ask if 3(21) or 3(38)), ask how he gets paid his 50bps in the plan (is it built into the Expense Ratios that participants see...it may be... so for example you pick a fund with ER of 1%, his 50bps may be factored in already). Ask him about the platform fee from John Hancock. How much is that. Ours for example at Great West is .1% which is charged on top of your ER of funds.

Ask how John Hancock was selected. Were they the most competitive platform or....is there another incentive that you are unaware of. (ie did the financial planner get money...they may have and this is not bad as long as John Hancock is a low cost option for your needs)

Third Party Administration are they taking any fiduciary responsibility? What is their fee? Will john Hancock be subsidizing the fee The TPA would charge you?

I highly doubt the admin fee from the plan is built into the Expense ratio but when in doubt ask.

In a nutshell ask all fiduciaries, fees and relationships be disclosed. From TPA to Financial planner to Financial Platform provider

Sorry long and rambling. I am going through this now so I thought it might help.

Thanks for the input, it does help.

We were able to find out a lot more information today. The financial planner's cut is .25%, which comes out of the published ER. The .625 is John Hancock's cut, out of the published ER. Paychex gets their ~$2500 management fee, which is billed to the company directly. I do not know if they get a kickback from John Hancock.

The proposed funds are all Class A funds.

John Hancock was recommended by the Paychex rep. Paychex also offers another set of funds, but they all come with higher ER. Our planner told us today that John Hancock is recognized as being the lowest cost for small 401k plans (under $5 or $10 million, I don't remember which number he said).

So I think we now understand all the fees associated with the plan and they are not bad, and not drastically different than our previous ADP plan (but different than what this novice Paychex rep stated last week).

I'm not completely convinced it's the right plan for us.

Our planner did say that we could set up individual self directed plans through him with Wells Fargo. We would have a full brokerage account with access to institutional class mutual funds, etfs and even stocks. He would charge .8 (of which I think Wells Fargo takes .55) and would use an actuary that would be less than $2k to the company. .8 + institutional mutual funds ER is more than Class A ER on the handful of funds I checked, but I am wondering if since he has access to everything and anything, he should be able to offer something in every asset class that can beat the class A return after accounting for his .8.

Anyway, that's where we are at the close of business on Friday.


ETA - I'll find out on the fiduciary responsibilities of the planner, thanks for that tip.

Are the loads waived on the class A shares?

[Dragons]

My company can do your 401k.

In seriousness, the poster above noted a majority of active funds can't beat their indexes. The question you have to answer is can the person(s) selecting the funds pick good managers? There are a lot out there, but you have to do the due dilligence to find them. If you don't think you can, go the index route. Either way, you need a good set of funds to give the participants diversification, including in fixed income. Target Date funds are good as well, but you better understand the philosophy behind them (to retirement vs through retirement) and what they are investing in.

You also need to consider who is assuming the fiduciary obligations. If you or someone in your company selects the funds, you better know what you are doing or you can face lawsuits from participants.

People don't understand that these things aren't cheap to run. Somebody has to pay for it and the best thing is to disclose who and how that is done.

It seems we have ~180 funds available to us with the Paychex/John Hancock option (we had ~40 with ADP/Wells Fargo). I would be involved in selecting a number of funds out of those 200. Are you asking if I can pick good managers? I don't even know where to start with finding the information to do that. We also would have a financial adviser who probably has more input than me. Is he picking funds based on a good manager or how much of a kickback he gets? How do I even find out?

This is my dilemma, where can my company get a 401k plan that best represents the needs of our employees?

Someone has the fiduciary responsibility for the investments in the plan. You need to know who's on the hook for that. Usually it is someone at the company sponsoring the plan.

I have no idea what the advisors connection is. I would think you could ask what his role is (is his comp determined by which fund he picks or is he paid same regardless?). I know there were some new ERISA regs passed recently about fee disclosures, but I'm not sure in the specifics.

Unfortunately I am an investment guy and my ERISA knowledge is limited, mostly picked up from working with our retirement group. If you have some detailed questions, PM me and I'll see if I can get an answer.

Our owner has fiduciary responsibility. He, and the book keeper, have left the fund selection to the financial planner with input from two of us.

I believe our adviser gets 50 bps regardless of what fund he puts us in, but I'm not sure of that. In the fee disclosure it also mentions he may get 1% of deposits in the first year and .25% in subsequent years. We're trying to find out if "may" applies to our plan or not, the paperwork isn't clear. The fee disclosure also says the admin costs are about .625% of the total plan. That seems like it's in addition to the ~$2500/year we'd be paying Paychex, because .625% of our plan value is a higher # than $2500. The disclosure also isn't clear where this fee comes from. Does this fee come out of the expense ratio too?

Is the financial planner a 3(21) or 3(38) fiduciary for the plan. Your owner is a fiduciary but the financial planner may be as well. You will want to know this as the more responsibility they have the more fee they should be worth potentially, plus you just want to know who are liable parties within the plan.

I would speak directly with the planner and find out his fiduciary level if any (ask if 3(21) or 3(38)), ask how he gets paid his 50bps in the plan (is it built into the Expense Ratios that participants see...it may be... so for example you pick a fund with ER of 1%, his 50bps may be factored in already). Ask him about the platform fee from John Hancock. How much is that. Ours for example at Great West is .1% which is charged on top of your ER of funds.

Ask how John Hancock was selected. Were they the most competitive platform or....is there another incentive that you are unaware of. (ie did the financial planner get money...they may have and this is not bad as long as John Hancock is a low cost option for your needs)

Third Party Administration are they taking any fiduciary responsibility? What is their fee? Will john Hancock be subsidizing the fee The TPA would charge you?

I highly doubt the admin fee from the plan is built into the Expense ratio but when in doubt ask.

In a nutshell ask all fiduciaries, fees and relationships be disclosed. From TPA to Financial planner to Financial Platform provider

Sorry long and rambling. I am going through this now so I thought it might help.

Thanks for the input, it does help.

We were able to find out a lot more information today. The financial planner's cut is .25%, which comes out of the published ER. The .625 is John Hancock's cut, out of the published ER. Paychex gets their ~$2500 management fee, which is billed to the company directly. I do not know if they get a kickback from John Hancock.

The proposed funds are all Class A funds.

John Hancock was recommended by the Paychex rep. Paychex also offers another set of funds, but they all come with higher ER. Our planner told us today that John Hancock is recognized as being the lowest cost for small 401k plans (under $5 or $10 million, I don't remember which number he said).

So I think we now understand all the fees associated with the plan and they are not bad, and not drastically different than our previous ADP plan (but different than what this novice Paychex rep stated last week).

I'm not completely convinced it's the right plan for us.

Our planner did say that we could set up individual self directed plans through him with Wells Fargo. We would have a full brokerage account with access to institutional class mutual funds, etfs and even stocks. He would charge .8 (of which I think Wells Fargo takes .55) and would use an actuary that would be less than $2k to the company. .8 + institutional mutual funds ER is more than Class A ER on the handful of funds I checked, but I am wondering if since he has access to everything and anything, he should be able to offer something in every asset class that can beat the class A return after accounting for his .8.

Anyway, that's where we are at the close of business on Friday.


ETA - I'll find out on the fiduciary responsibilities of the planner, thanks for that tip.

Are the loads waived on the class A shares?

I was actually wrong about the John Hancock choice being Class A shares. They are all based on Class A shares, but they were repackaged funds with an extra .27 - .9 ER built in. No loads. My wife has repackaged funds in her 401k and I hate them because they don't track automatically in Quicken (their ER also sucks, but that's another gripe).

Our financial planner did a lot of work for us this week (probably more work than he's done for us since picking up our account 2 1/2 years ago) and we did a lot of investigation. He found that another paychex plan was a better option. I mentioned it above (50 bps on top of institutional funds - turns out he actually negotiated that down to 45 bps).

The Wells Fargo brokerage option didn't work out because there was no way to auto invest the weekly deposits (there is actually a way, but it would cost another 40 bps). The best they could do without everyone manually logging in to put their $ to work is dump it into a money market and auto-rebalance every quarter. That wasn't going to fly, so we grudgingly took the option off the table.

The Verisight option is still a good one, but we made a few calls and couldn't find an adviser willing to work on a fee-basis, instead of a percentage of the fund. Even one's that advertised as fee based, still want a percentage when advising 401k plans.

So we decided to stick with Paychex (low cost institutional and/or index funds + 45 bps to paychex/adviser).

We figure we can re-evaluate in a couple years and make changes if necessary. The industry seems to be moving towards more transparency and lower cost options so better options may come available.

[lod01]

IBM looking to really screw over their employees. Apparently every nickel they can squeeze out of their employees is on the table. Imagine the savings with December 'restructures'.

http://blogs.marketw...s-401k-changes/

I can't imagine how the mind of someone, who thought up this new scam, works. If you make it thru the fiscal year, they then hand you your 401k $ for that year with zero interest.

Edited by lod01, 14 March 2013 - 11:37 AM.

[Dragons]

IBM looking to really screw over their employees. Apparently every nickel they can squeeze out of their employees is on the table. Imagine the savings with December 'restructures'.

http://blogs.marketwatch.com/encore/2013/03/14/senators-protest-ibms-401k-changes/

I can't imagine how the mind of someone, who thought up this new scam, works. If you make it thru the fiscal year, they then hand you your 401k $ for that year with zero interest.

I suppose it's a bigger deal when an existing plan is changed, but our company match has always been distributed at the end of the year (actually it's usually deposited in March the following year). I don't know what happens if you aren't employed at that time.

[lod01]

IBM looking to really screw over their employees. Apparently every nickel they can squeeze out of their employees is on the table. Imagine the savings with December 'restructures'.

http://blogs.marketwatch.com/encore/2013/03/14/senators-protest-ibms-401k-changes/

I can't imagine how the mind of someone, who thought up this new scam, works. If you make it thru the fiscal year, they then hand you your 401k $ for that year with zero interest.

I suppose it's a bigger deal when an existing plan is changed, but our company match has always been distributed at the end of the year (actually it's usually deposited in March the following year). I don't know what happens if you aren't employed at that time.

So you are getting screwed out of 14+ months, of compounding interest on 1 years worth of $, every year? ####.

[Dragons]

IBM looking to really screw over their employees. Apparently every nickel they can squeeze out of their employees is on the table. Imagine the savings with December 'restructures'.

http://blogs.marketwatch.com/encore/2013/03/14/senators-protest-ibms-401k-changes/

I can't imagine how the mind of someone, who thought up this new scam, works. If you make it thru the fiscal year, they then hand you your 401k $ for that year with zero interest.

I suppose it's a bigger deal when an existing plan is changed, but our company match has always been distributed at the end of the year (actually it's usually deposited in March the following year). I don't know what happens if you aren't employed at that time.

So you are getting screwed out of 14+ months, of compounding interest on 1 years worth of $, every year? ####.

If you want to look at it that way, yes, on the matching portion of the 401k contribution. Not on my portion of the 401k contribution.

But, how am I getting screwed if this is the plan in place when I was hired? Sure, there is a more favorable way for them to contribute their match, but they company is generous in other ways (100% match up to 4%). I'd rather the profit sharing deposit was made quarterly, though, that has been a much larger amount.