401k with bad fund choices

[rrp]

Hello,


My wife recently started a new job over the past summer with a group that she really likes and is a great fit. She will be able to start contributing this coming January. However, when looking at her choices, it seems that all of the funds are American Funds with the lowest ER at ~0.6%. We are super savers with no debt and max out all our retirement accounts and invest in taxable every year.

I was wondering if any of you can advise when one is dealing with a 401k with bad fund choices. Should my wife still max it out? Is there any other way she can pick better funds?

Thanks in advance

R

[zlandar]

Check if the 401k offers a self-directed brokerage. Mine offers that option for an additional flat annual fee.

If not confirm the funds do not have a front-loaded fee. American funds are infamous for charging 5% loads. Then check if there is an attached financial advisor to the 401k and how they are paid. No rational human being buys an American fund unless it’s being pushed by a FA/broker. Worst would be if the FA charged an assets under management to all the participants.

Tell your wife to mutter “noob” to the twit who signed up for that mediocre 401k plan.

[CordMcNally]

She should definitely continue to max it out. She should also try to convince the group to improve the plan but I would probably wait until she is a bit more established.

[Tim]

She should definitely continue to max it out. She should also try to convince the group to improve the plan but I would probably wait until she is a bit more established.

Highly unusual that ONLY American Funds are available. I would at a minimum double check the ability to find just even one fund. That would be a perfectly acceptable question. Need some help here.

[spiritrider]

The perception of what constitutes a bad 401k plan has certainly changed over time. While this may not be a great 401k plan, it is hardly a bad plan. In fact it is probably roughly in the middle. Last time I checked average 401k expense ratios were just under 1/2%. It is usually, but not always lower in large plans and higher in small plans.

It is highly likely with American Funds, that this plan is through a Financial Advisor and more than likely the FA is one or more senior partners' FA. It is still beneficial to contribute to a 401k when the total fees are < ~1.5% even without a company match. You haven't indicated what if any fees are in addition to the expenses ratios.

[rrp]

Thanks for the advice everyone. She checked and only American funds are currently available, so that is what she will be going with for now. Hope she can eventually convince them to change the situation

R

[F0017S0]

I have a junky Voya that I am contributing to (maxing out the Roth space this year). Is there a Vanguard “balanced” option like in the Voya offerings? Exp ratio 0.06 and it is 60/40 total stock to total bond.

[litovskyassetmanagement]

Thanks for the advice everyone. She checked and only American funds are currently available, so that is what she will be going with for now. Hope she can eventually convince them to change the situation

R

One reason American Funds 401k plans are still popular is because there is usually a single expense ratio that covers all of the plan costs, so participants end up footing the entire bill while plan sponsor pays nothing. A big issue with that is that participants shouldn't be paying for plan administration, but more importantly, the partners/owners of the group would be the ones hurt the most by high fees. So one way to present this is to consider what the owners are paying and how they can save a lot of money if they switch to a lower cost plan with no AUM fees (and low expense ratio funds). It is going to be a lot cheaper in most cases to switch to a fixed fee 401k plan where all expenses are paid directly (and are deductible as a business expense) vs. taken out of participant accounts, and this can significantly lower the cost for the owners/partners, and of course for all of the staff.

Here's some background reading:
https://www.whitecoatinvestor.com/ev...all-practices/

And a calculator that can help evaluate the costs:
https://retirementplanhub.com/retire...st-calculator/

Those with the most money will end up paying most of the fees in group practice plans, so it is in their best interest to consider getting rid of high cost investment options, this is why group practices are quick to change to fixed fee plans once presented this option.