Crappy 403(b)

[Glorified Carpenter]

Hello I just signed with a hospital in a rural area in the Midwest. I just received the 403(b) options. The retirement plan is through empower. They appear to be a majority of actively managed funds and all have pretty high expense ratios, even the target date funds. Is there anything I can do about it? I’m just starting out 33- are there any reasonable funds on the attached list? My AA is 90/10 equities to fixed income. Of the equities my allocation is 20% small cap value, 40% total stock market, 30% total international stock market, 10% refits. Any help is appreciated.

[artemis]

Right now all you can do is pick the funds with the lowest cost. Long-term, you can lobby for the hospital to offer better options for their 403b plan.

[Glorified Carpenter]

Is there even one fund in the list that is worth investing in? They all appear to be actively managed. I haven’t seen a single one with an ER below 0.5 (most much higher) and many of them have front loads including all of the target date funds.

[Larry Ragman]

The options aren’t great. Your finance committee really is not doing well by the hospital employees. Agree with Artemis that you should lobby for access to low cost index mutual funds. Geez, the committee could meet with Vanguard and get this set up in just a few months.

That said, I looked up the JPMorgan Smart retirement fund and the ER was 0.42. I did not see a front end load. Unless I missed something in the prospectus that isn’t the end of the world and probably what I would pick in your situation.

[spiritrider]

I wouldn't be so sure the loads are applied. Funds usually waive them when the plan's holdings exceed a threshold. A hospital plan would most likely exceed the threshold. I suggest some more research/verification.

[zlandar]

Whoever picked that lineup of trash should be ashamed.

[litovskyassetmanagement]

Whoever picked that lineup of trash should be ashamed.

Most likely not an ERISA plan, they can do whatever they please, unfortunately. And of course, employees who set up this plan don't have much money invested themselves, all costs are passed on to the participants, which is how some employers like it.

[litovskyassetmanagement]

Hello I just signed with a hospital in a rural area in the Midwest. I just received the 403(b) options. The retirement plan is through empower. They appear to be a majority of actively managed funds and all have pretty high expense ratios, even the target date funds. Is there anything I can do about it? I’m just starting out 33- are there any reasonable funds on the attached list? My AA is 90/10 equities to fixed income. Of the equities my allocation is 20% small cap value, 40% total stock market, 30% total international stock market, 10% refits. Any help is appreciated.

I've seen empower also charge huge AUM admin fees on top of the fund fees. Can you confirm what the total AUM fees would be? I've seen as high as 1% or more just for admin on top of fund fees, so in that case it is even worse.

[Glorified Carpenter]

The options aren’t great. Your finance committee really is not doing well by the hospital employees. Agree with Artemis that you should lobby for access to low cost index mutual funds. Geez, the committee could meet with Vanguard and get this set up in just a few months.

That said, I looked up the JPMorgan Smart retirement fund and the ER was 0.42. I did not see a front end load. Unless I missed something in the prospectus that isn’t the end of the world and probably what I would pick in your situation.

I also looked up the JPMorgan Smart retirement fund on Morningstar. It says the expense ratio is 0.86 and the adjusted ER is 0.42. I’m really not sure I understand the difference between the two? It also has it listed as a two star fund with above average distribution fee levels and 44% turnover. It says it has a front load on Morningstar but since these are institutional shares, I believe the front load is waived. If this is the best option, I’m in trouble

[Glorified Carpenter]

I've seen empower also charge huge AUM admin fees on top of the fund fees. Can you confirm what the total AUM fees would be? I've seen as high as 1% or more just for admin on top of fund fees, so in that case it is even worse.

You are saying they can charge an AUM admin fee on top of the fund fees within a 403(b)?

[litovskyassetmanagement]

You are saying they can charge an AUM admin fee on top of the fund fees within a 403(b)?

Correct, this can happen unless the expense ratio you are quoting is all-inclusive. In retirement plans you can't just look at an expense ratio unless this came from a fee disclosure document that adds all expenses and provides you with a single expense ratio. Thus you need to be very clear as to what expense ratio this is - just the fund's ratio or overall plan expense ratio participants are paying. I'm not sure you will get a fee disclosure if your plan is non-ERISA though, but you should be able to find out from the administrators.

[F0017S0]

This is just highway robbery. Brutal…

[litovskyassetmanagement]

This is just highway robbery. Brutal…

I've seen several empower plans, and some plans don't have an all inclusive ER, they quote all fees separately, so somewhere in the fine print there is the 1% admin fee on top of high ER funds, so participants have to pay attention. Some of these plan sponsors really don't want to pay for these plans, and I can't blame them if it is a non-profit hospital with lots of HCE staff when they can simply pay very little and have the staff pay all of the expenses. The issue is that even if they get a fixed fee price, figuring out how to split this among participants can get complex (and contentious), that's why the path of least resistance is to just let the record-keeper do what they will and call it a day. Also trying to get a 403b provider who is not charging AUM fees is nearly impossible - they all do it. The reason some use 403b is because it is not an ERISA plan so anything goes, but switching to ERISA plan all of a sudden puts more liability on the plan sponsor that they don't want.

[F0017S0]

I've seen several empower plans, and some plans don't have an all inclusive ER, they quote all fees separately, so somewhere in the fine print there is the 1% admin fee on top of high ER funds, so participants have to pay attention. Some of these plan sponsors really don't want to pay for these plans, and I can't blame them if it is a non-profit hospital with lots of HCE staff when they can simply pay very little and have the staff pay all of the expenses. The issue is that even if they get a fixed fee price, figuring out how to split this among participants can get complex (and contentious), that's why the path of least resistance is to just let the record-keeper do what they will and call it a day. Also trying to get a 403b provider who is not charging AUM fees is nearly impossible - they all do it. The reason some use 403b is because it is not an ERISA plan so anything goes, but switching to ERISA plan all of a sudden puts more liability on the plan sponsor that they don't want.

Learned a lot here about the differences in various retirement plans. Absolutely insane, but what you are saying about the 403b makes sense (unfortunately).

[broke-n-hip]

Does your 403b plan offer a self directed retirement account option? That might allow you to avoid those fees.