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Should I lobby to change my employer 401k plan?

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  • Should I lobby to change my employer 401k plan?

    Hi all,

    I have a a few questions about my 401k plan in regards to its Asset Fee's. I am a little green in my finances but have been listening to WCI for about a year. I am also unfamiliar with other companies(Fidelity, Schwab, and alike) fees.

    My currently offered 401k plan is from Nationwide. The majority of the funds are high expense ratios with 2-3 vanguard accounts outside of TDFs. I am personally bought into beliefs of the Bogleheads and Larimore. I am unable to create my ideal three fund portfolio due to offerings in the 401k. I would like to start with investing with VTTSX at 0.15% exp ratio but is still bogged down by their Asset Fee of 0.50%. Is this an average or above average fee % outside of the Net Exp Ratio? If so, is it worth asking the employer to consider other 401k plans that may have lower Asset Fees and more lower cost index funds within the plan?

    My background includes becoming partner with the group practice of 6 other doctors January 2022. I am one year out from residency.

    I appreciate any help! Thank you!

  • #2
    I was in the same situation as you with my employer - except it was even worse with no options less than 0.75%, 5% load fees, and an additional 0.5% ER tacked on top. It took a year to convince them that something needed to be done, and another 3 years to implement.

    My advice - enlist the help of any Indian physicians that work there. And show them how much difference that 0.5%-1% makes over 10-20-30 years.

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    • #3
      The likely problem is that this is probably an "affinity" plan. What I mean by this, is this plan was probably arranged by one of the senior partner's advisor.

      They are often not financially astute and think "their guy" has their best interests at heart. This leads to very high fee 401k plans.

      The major mainstream 401k providers generally require ~$20M in assets to administer a plan. So you are left with plan administered by a third party administrator (TPA).

      There have been a variety of post from forum members that have found TPAs that offer practice 401k plans with reasonable administrative fees and low expense ratio funds Once you get a reasonably priced plan without an advisor, many practices can even afford to pay the administrative fees themselves.


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      • #4
        Originally posted by legobikes View Post
        I was in the same situation as you with my employer - except it was even worse with no options less than 0.75%, 5% load fees, and an additional 0.5% ER tacked on top. It took a year to convince them that something needed to be done, and another 3 years to implement.

        My advice - enlist the help of any Indian physicians that work there. And show them how much difference that 0.5%-1% makes over 10-20-30 years.
        I think your spell check changed something to “Indian” but I cannot for the life of me figure out what you were trying to type. Can you shed some light?
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          What is the net assets in the 401k and what are the admin fees for the 401k? You probably don't know the answer to either.

          If the 0.5% asset fee cover the admin costs it's not necessarily a bad deal for small 401k plans under $1 million. At a $1 million a 0.5% fee works out to $5k/year. That is roughly how much my group pays Ascensus in admin fees. Ascensus charges a base admin fee of several thousand dollars + a per participant fee. Above a $1 million is the time to start looking for admin fees not based on assets.

          You need the answer to the first two questions to decide the necessity/urgency of switching to another 401k provider. That info is also needed to comparison shop other 401k providers. You also need the number of participants in the current 401k plan for an accurate quote.

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          • #6
            Agree with zlander (there may be more to the story -- good), spiriteider (there may be more to the story -- bad), jfox (what is up with Indian docs?).

            Dynamics of every group is different, but generally it is safe advice to suggest not rocking the boat when you are the FNG and especially when not yet a partner.

            Comment


            • #7
              That wasn't an error. In my experience my fellow subcontinentals are the most money-minded in any given group of physicians or other professionals, and will immediately understand the import of high fees for future gains.

              Comment


              • #8
                Originally posted by legobikes View Post
                That wasn't an error. In my experience my fellow subcontinentals are the most money-minded in any given group of physicians or other professionals, and will immediately understand the import of high fees for future gains.
                Ok, thanks, that just kind of came out of left field. The clarification helps although I have to say that my experience does not exactly mirror yours.
                Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                Comment


                • #9
                  Originally posted by G View Post
                  Dynamics of every group is different, but generally it is safe advice to suggest not rocking the boat when you are the FNG and especially when not yet a partner.
                  +10
                  At a minimum wait until you are a partner. 6mo of fees not a huge deal. Changing plan will be a huge PITA for the practice manager (or you) and you will need much more information to have any clear idea what to advocate for.

                  Comment


                  • #10
                    Originally posted by jeffdpm View Post
                    Hi all,

                    I have a a few questions about my 401k plan in regards to its Asset Fee's. I am a little green in my finances but have been listening to WCI for about a year. I am also unfamiliar with other companies(Fidelity, Schwab, and alike) fees.

                    My currently offered 401k plan is from Nationwide. The majority of the funds are high expense ratios with 2-3 vanguard accounts outside of TDFs. I am personally bought into beliefs of the Bogleheads and Larimore. I am unable to create my ideal three fund portfolio due to offerings in the 401k. I would like to start with investing with VTTSX at 0.15% exp ratio but is still bogged down by their Asset Fee of 0.50%. Is this an average or above average fee % outside of the Net Exp Ratio? If so, is it worth asking the employer to consider other 401k plans that may have lower Asset Fees and more lower cost index funds within the plan?

                    My background includes becoming partner with the group practice of 6 other doctors January 2022. I am one year out from residency.

                    I appreciate any help! Thank you!
                    The question instead should be, what's the lowest possible fee you need to pay out of your assets? The answer is, zero, other than expense ratios of low cost Vanguard funds. It is not difficult to set up a low cost plan for a small group like yours, especially if you don't have any staff. With staff you would need to worry about the right type of design, and whether you can max out your profit sharing contribution cost-effectively. A tiny group like yours, if only 6 doctors and no staff, might not even need to go to Ascensus as a record-keeper, as there are other, lower cost options available, unless the doctors want to set up self-directed brokerage accounts for themselves from within the plan, which Ascensus allows, and many other smaller service providers don't. In any case for best results you would need to hire your own TPA separate and distinct from the record-keeper. Here are some more details to consider as far as lowering the cost of your retirement plan:

                    http://whitecoatinvestor.com/how-to-...ment-plan-cost

                    https://www.whitecoatinvestor.com/ev...all-practices/

                    https://www.whitecoatinvestor.com/ho...tirement-plan/
                    Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                    Comment


                    • #11
                      First off, wanted to thank everyone for their input to my questions that I posed. I have already gained more understanding of what goes into a group practice 401k plan and much more to learn. I am curious spiritrider if this is the scenario. I appreciate the breakdown of fees and specifics zlander.

                      With that, I plan on waiting to tackle the specifics and possibly the lobbying (if needed) until a few months into partnership. I'd imagine I will have a better grasp on what we currently have to take a "look under the hood." I appreciate the advice G (love FNG) and childay.

                      litovskyassetmanager, thank you for an indepth insight on more to look for. I will certainly keep these posts/you in mind over the next year.

                      Here's to being the newest FNG on the forum.

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