Re: Changing 401K Plans / FEES / Investment advice

[Aj]

I'm in a 5 physician group with a total of 30 employees.  Our current plan fees are 1.2%.  There is another company (America's Best 401K / Creative planning) that quoted us similar book keeping and employee advice/support for <0.51%.

Over the next 20 years, if I put away the same amount into my 401K, at a conservative 7.0% interest (I have averaged 9%+ over the last 8 years), that 0.51% difference translates to $600,000+ in additional fees!!!    I do have an independent financial advisor.  He is different from the 401K provider/advisor who also 'shows us what he does for his portfolio', as he is not allowed to make specific recommendations for all of us.  When I asked the 401K provider/advisor about his fees, he says that his advice more than makes up that differential.

Would you change plans?

[Zaphod]

Aj wrote:

I’m in a 5 physician group with a total of 30 employees.  Our current plan fees are 1.2%.  There is another company (America’s Best 401K / Creative planning) that quoted us similar book keeping and employee advice/support for <0.51%.

Over the next 20 years, if I put away the same amount into my 401K, at a conservative 7.0% interest (I have averaged 9%+ over the last 8 years), that 0.51% difference translates to $600,000+ in additional fees!!!    I do have an independent financial advisor, apart from the 401K provider who also ‘shows us what he does for his portfolio’, as he is not allowed to make specific recommendations for all of us.  When I asked him about the fees, he says that his advice more than makes up that differential.

Would you change plans?

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Yes. You can control fees, not the market.

[Aj]

That answer is simple and to the point.

Thanks Zaphod.

[scott]

I switched to Americans Best 401k last year and have been greatly satisfied. Their lineup of vanguard funds can't be beat and because of that and their straightforward no hidden fee pricing made the switch easy for me. Talk to the CEO Tom Zgainer for any specific questions.

[Aj]

Thanks Scott.

I really appreciate the feedback from you guys.  I'm all ears to any other thoughts and suggestions.

I have to try to convince my partners who are unsure about change, and unsure about America's Best 401K / Creative planning.

[Joseph]

This change would be good to make.

Cut the cord.

[AlexDDS]

scott wrote:

I switched to Americans Best 401k last year and have been greatly satisfied. Their lineup of vanguard funds can’t be beat and because of that and their straightforward no hidden fee pricing made the switch easy for me. Talk to the CEO Tom Zgainer for any specific questions.

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+1.

Tom Zgainer , ABK 401k CEO was very helpful , instant response  and easy to communicate with , they also work with good actuaries.

[VagabondMD]

Aj wrote:

 

Over the next 20 years, if I put away the same amount into my 401K, at a conservative 7.0% interest (I have averaged 9%+ over the last 8 years), that 0.51% difference translates to $600,000+ in additional fees!!!

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We are in the second longest bull market ever. 7% returns are hardly conservative, from where we are. Given current valuations, expected annual returns of the US stock market over the next ten years are closer to 4% than 7%, which is all the more reason to reduce your expenses--the one thing you can control.

[scott]

AJ, if you're concerned that your partners are going to give you push back, set up a conference/video call with Tom and I'm certain he'll be happy to answer any questions you guys have. There is no doubt AB 401K will save you a ton of money over the next decade or two.

[Bartl007]

Is your plan a 401k/Profit Sharing Plan with a cash balance plan option?
Our group is of a similar size and our current plan has a similar fee structure to yours (too high).

Any other suggestions of other low fee plans to take to "management" as an alternative?

I plan on consulting a specialist to help negotiate the structure of our retirement plan strategy when I buy in to my group later in the year but would love to hear any alternatives used by other cost conscious docs.

[Aj]

Bart, what I did was the following: (should've done a long time ago)

1). Read the complete 401K document, and write down administrative costs/fees

2). Look at the costs of the mutual funds (approx 1.1%) on the plan website.

3). Look up the funds and share classes on the Fund Website (American Funds) - note the options

4) look for front loading or 12b1 fees (usually your Broker's commission)

5) Ask your plan provider for a fee summary

6) Compare.

(If the fees are high, negotiate).    I've come across one plan which is cheaper (see above) and after receiving the helpful advice above, we are comparing plans (getting two more quotes) and intend to change soon.

[litovskyassetmanagement]

Aj wrote:

I’m in a 5 physician group with a total of 30 employees.  Our current plan fees are 1.2%.  There is another company (America’s Best 401K / Creative planning) that quoted us similar book keeping and employee advice/support for <0.51%.

Over the next 20 years, if I put away the same amount into my 401K, at a conservative 7.0% interest (I have averaged 9%+ over the last 8 years), that 0.51% difference translates to $600,000+ in additional fees!!!    I do have an independent financial advisor.  He is different from the 401K provider/advisor who also ‘shows us what he does for his portfolio’, as he is not allowed to make specific recommendations for all of us.  When I asked the 401K provider/advisor about his fees, he says that his advice more than makes up that differential.

Would you change plans?

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Yes indeed.  Here's the way to compare fees for retirement plans side by side:

retirementplanhub.com/retirement-plan-cost-calculator/

Any asset-based fees are bad for you especially if you are going to build a large portfolio inside your 401k plan.

It is possible to have a retirement plan with NO asset-based fees (and at the very least, to have a tiny fee that is usually around 5 bps charged by the record-keeper/custodian billed directly, and not taken out of plan assets).

To get the best plan you need to be working with an ERISA 3(38) fiduciary and also someone who knows how to get you the best plan money can buy for a fixed/flat fee.  All of your providers have to be top of the line, and they should be independent, working only for you (not for the bundled platform) to provide necessary checks and balances.  And you should not be paying any asset-based fees for your plan's services.

All of the bundled platforms out there look nice until you realize that there is nobody working for you, and that you don't even know whether your plan design is optimal. The TPAs working for such platforms have thousands of clients, and they will not spend the time necessary to make sure that your plan is in compliance and that your profit sharing contribution is calculated to minimize employer contribution. Also, most of them charge asset-based fees, and that alone can hurt you over the long term, and yes, it can cost you hundreds of thousands in extra fees for no added benefit.  Also, bundled platform providers often receive kickbacks from the providers that are assembled in the bundle, so that's definitely not a good idea when it comes to various components of the bundle working in your best interest.

In addition, if you have a group practice, there are multiple compliance issues, especially when brokerage windows are involved.  I have an ERISA attorney available just in such cases because compliance becomes a big burden as docs have no idea what they get themselves into with brokerage windows (especially opened all over the place).

So the bottom line is, always work with someone who is a fiduciary and who is getting you the best of everything.  Bundled platforms might work out well for a simple 401k Safe Harbor plan, but anything more complex would require having your own TPA.  The great thing is that you can have everything (your own ERISA 3(38) fiduciary, independent TPA, standalone record-keeper) for a lower cost than the bundled platforms charge.

[litovskyassetmanagement]

Also, it goes without saying that your plan's adviser can not be a broker or some random adviser, and definitely NOT your or other partner's personal adviser, as that creates a huge conflict of interest.  They should have an ERISA 3(38) fiduciary role, and they must be independent:

http://litovskymanagement.com/2014/01/hiring-fiduciary-adviser/

Otherwise you are fully liable for everything related to plan investments as a fiduciary, and it is just better to select an independent entity to provide fiduciary advice to the plan sponsor.  Independent is key.  Some bundled platforms have an ERISA fiduciary who does nothing for you.  They are basically there to rubber-stamp an allocation of some sort, but you never have any contact with them and they never provide you with a comprehensive plan level advice.  While this is great for getting lots of clients on the bundled platform, this is not good for your practice specifically because you want your adviser to be proactive in helping you build the best plan, oversee other plan providers and help the participants make the best use of their plan, and this is something that is done only by an independent adviser working directly for you.

[Gas_Doc]

Bartl007 wrote:

Is your plan a 401k/Profit Sharing Plan with a cash balance plan option?
Our group is of a similar size and our current plan has a similar fee structure to yours (too high).

Any other suggestions of other low fee plans to take to “management” as an alternative?

I plan on consulting a specialist to help negotiate the structure of our retirement plan strategy when I buy in to my group later in the year but would love to hear any alternatives used by other cost conscious docs.

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For small- to mid-sized 401k plans, I'd suggest looking into Employee Fiduciary. Its $1,500 for a base fee (that covers 30 employees) + $30/employee over 30, and they charge only 0.08% of assets. They say they do the "record-keeping only" for a Cash balance plan though, so I'm not sure if that fits with your group's needs.

[litovskyassetmanagement]

Bartl007 wrote:

Is your plan a 401k/Profit Sharing Plan with a cash balance plan option?
Our group is of a similar size and our current plan has a similar fee structure to yours (too high).

Any other suggestions of other low fee plans to take to “management” as an alternative?

I plan on consulting a specialist to help negotiate the structure of our retirement plan strategy when I buy in to my group later in the year but would love to hear any alternatives used by other cost conscious docs.

Click to expand...

Cash Balance plans in my experience are even worse than the 401k plans as far as services and fees.  Often there isn't even a fiduciary overseeing the plan assets, and portfolio is very often mismanaged with too much risk.  Fees are usually AUM for Cash Balance plans.

Of course there are alternatives.  You do not have to pay any asset-based fees, and it is always better to have the same TPA and the same record-keeper for both 401k and CB plans.  There is no way to negotiate much if you are working with a bundled platform.  You simply have to start from scratch because all providers know that small plans don't have enough assets for them, so they charge higher fees.  None on the investment advisory/fiduciary end charge fixed fees for smaller plans (those who do would still not necessarily give you the best funds/services for their fee).

What you want is a single ERISA 3(38) who would be managing both 401k and CB plans for a fixed fee.  Also, they have to understand how CB portfolio is to be managed, especially how various risks should be handled.  We typically work with small to midsize plans on a flat/fixed fee basis, and this alone can save your plan significant money while getting a lot more in services which are customized to your specific plan.  I think this is what's missing - every provider is simply trying to stick you into their platform without regard for what your actual needs are for the partners and the practice, while given the complexity of paired plans, a lot more attention should be given to plan design and portfolio management.