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  • Small Business 401k plans - Principal

    I am physician/SBO.  We currently have our 401k through Principal, which my eldest partners chose 15+ years ago.  Anybody have any opinions on Principal in general?

    For me, the biggest issues are 1) The ER and 2) The perceived lack of transparency.

    The average ER in our plan is around 0.9.   When I called Principal to find out how much we were paying in ER (or even me individually) I was told they could not give me that information, and those fees are automatically subtracted from my value of each fund owned.  So, there is never any debit from my account that I can see.  All I can see, are plan administrative fees that are "my share."  Is this common in other 401k plans?

    We are considering switching to Vanguard, but are having trouble doing a head to head comparison because of the lack of transparency.  Looking it from a personal standpoint based on the information Vanguard sent me, I would stand to reduce my ER from 0.9 to 0.06 or 0.08, so it would save me several thousand dollars a year.  However, I have the burden of proof to my partners (mostly eldest as his wife is the practice administrator and handles the 401k stuff) that as a company, we would also come out ahead.

  • #2




    I am physician/SBO.  We currently have our 401k through Principal, which my eldest partners chose 15+ years ago.  Anybody have any opinions on Principal in general?

    For me, the biggest issues are 1) The ER and 2) The perceived lack of transparency.

    The average ER in our plan is around 0.9.   When I called Principal to find out how much we were paying in ER (or even me individually) I was told they could not give me that information, and those fees are automatically subtracted from my value of each fund owned.  So, there is never any debit from my account that I can see.  All I can see, are plan administrative fees that are “my share.”  Is this common in other 401k plans?

    We are considering switching to Vanguard, but are having trouble doing a head to head comparison because of the lack of transparency.  Looking it from a personal standpoint based on the information Vanguard sent me, I would stand to reduce my ER from 0.9 to 0.06 or 0.08, so it would save me several thousand dollars a year.  However, I have the burden of proof to my partners (mostly eldest as his wife is the practice administrator and handles the 401k stuff) that as a company, we would also come out ahead.
    Click to expand...


    First, you should request a fee disclosure document - this is available annually on the website.  Not only are you paying high ERs, but you are also paying high AUM admin fees (record-keeping, etc), most likely.

    I've written an article on this topic, which is very common since most of the plans out there are with high cost providers:

    http://whitecoatinvestor.com/how-to-reduce-your-practice-retirement-plan-cost/

    Next, you will need to compare fees and services side by side.  While comparing fees is relatively easy, this calculator will do it for you:

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

    AUM fees compound over time, so it is essential to eliminate all of them, and it can be done cost-effectively.

    Comparing services is difficult.  Vanguard/Ascensus is a record-keeper, so other than that, I would not let them do administrative/compliance work, for which you will need to hire a standalone/independent Third Party Administrator.  They also do not provide any fiduciary advice or services, or provide any advice regarding your plan's investments, design and individualized education/advice.  So while you pay a relatively low record-keeper fee to them, you are not getting a number of key services, especially if you are doing profit sharing and need more help with investment selection and building portfolios for the participants, or if the owners want to do more, such as improve plan design or add a Cash Balance plan, for which you need to get unbiased advice from someone who works exclusively in your best interest.

    My ideal set up is an open architecture record-keeper, an independent TPA and an independent ERISA 3(38) fiduciary, and no AUM fees of any type.  While at first you might not see a huge amount of savings right away, when you use the above calculator you can see that over time fixed fees will save you hundreds of thousands (and even millions) vs. AUM fees, and while having low cost investments is indeed important, you need someone to assist with participant education, and investment selection and oversight, especially if you have non-HCE staff, and all of this can be done for a fixed/flat fee. And you can more than afford to hire the best providers with the savings you get by switching to an all-fixed fee 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


    • #3
      Anyone check out guideline.com for small business 401k? Looks promising to me.

      https://www.bogleheads.org/forum/viewtopic.php?f=2&t=223160

      Comment


      • #4




        Anyone check out guideline.com for small business 401k? Looks promising to me.

        https://www.bogleheads.org/forum/viewtopic.php?f=2&t=223160
        Click to expand...


        This is a technology company first and foremost, what do they know about retirement plans?  Very little, that's for sure.  They think they can automate the compliance and administration process, and I guarantee you that you can't do it.  There is no such thing as fully automated.  There has to be an actual person doing plan admin and testing.  There are way too many things that go wrong with a plan that require an actual person to figure out what has to be done.  There is no platform that can do everything that a person can, therefore an independent TPA is really important.

        Also, you don't get any advice.  There won't be an actual person assisting you with a number of things such as how to do backdoor Roth IRAs, whether you can get a better plan design, how to have the optimal design for your plan if you have different types of staff (such as PAs/associates), whether you can benefit from a Cash Balance plan or not, etc. This is pretty bare-bones as far as I can tell.

        If you dig deeper, they don't do cross-tested or any type of complex profit sharing plans that require testing (which are basically doctor/dentist default plans), or have anything to do with Cash Balance plans, so for the above reasons, I would avoid such platforms at all cost.  You get what you pay for, and 'low cost' in this case is pretty much no service. Also, there are some custodial fees they are not disclosing on the website, probably a small AUM fee (5bps or so), so this is nothing more than a barebones record-keeper that's 'automated' (meaning no service).  You quickly realize what this means when you need help getting things done that are not part of the automated process.  Good luck getting anyone to answer your email - this is usually the case with such platforms.

        It is not difficult at all to get a flat fee record-keeper that's open architecture, but if your plan has any complexity at all (which all profit sharing plans do), you will definitely benefit from a TPA and an independent ERISA 3(38) that's not affiliated with a record-keeper, and who can actually provide you with valuable advice on plan design, architecture, participant education and more.

        These companies also need to reach critical mass to make any money, so what happens is that most of them go out of business fairly quickly, and at that point you would be scrambling to find another company to take you, and without any advice, you will be like a fish in the water.  When my old record-keeper (also run by a tech company) went out of business because they were too lost cost and didn't get enough plans, I spent 4 months looking for low cost record-keepers, and it is really not that easy for a small plan to get good pricing with most of them.  Imagine how complex it would be moving a plan mid-year to another platform.  They literally say 'move assets and we turn out the lights on such and such a date' and you have to move your plan ASAP.

        That's why I prefer to use companies that have been around for a while, and also independent providers who can service a plan at any record-keeper so that you can easily replace providers.  Even if a record-keeper goes out of business, if your TPA and ERISA 3(38) are working directly for you, they will help you move seamlessly and efficiently vs. if you have to do all of this legwork yourself.  There is a limit to 'low cost', and this is it.  Let someone else who does not understand the value of good providers be the canary with this one.  Need to look no further than betterment for proof of that this idea does not work - what a screw up this platform is (and they charge 40 bps, too).
        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


        • #5
          Are there recordkeepers out there that don't charge an AUM fee?

          Comment


          • #6




            Are there recordkeepers out there that don’t charge an AUM fee?
            Click to expand...


            Every single record-keeper has a custodian integrated (often Matrix or Mid Atlantic).  In my experience, aside from Ascensus, every single one has a small (~3-8 bps) asset based fee that can be paid directly rather than from the assets (thereby you get a tax deduction when paying directly).  Ascensus has a relatively hefty base fee (~3k), so there are tradeoffs.  For example, if you want to do a pooled 401k plan (vs. participant-directed) plan:

            http://www.dentaltown.com/Dentaltown/Article.aspx?i=393&aid=5411

            Ascensus can't even do that.  You would need a low cost record-keeper that allows pooled accounts.  That would definitely be cheaper for a start up plan with no assets.  But if you have a large plan with lots of assets (in the millions) then Ascensus might be cheaper because they don't have the basis points.  Also, if you have a startup participant-directed plan for a relatively small practice, I would sometimes use the record-keeper with 5 bps and a lower fixed charge.  Ascensus is a huge record-keeper, and they have a long drawn-out process, so everything takes a long time with them.  I prefer working with smaller record-keepers who are highly responsive and efficient.  Sometimes less process means quicker turnaround, and that is often a good thing.

            In addition, with smaller record-keepers I have the leverage to negotiate a lower base fee than with Ascensus because I have a number of plans on their platform, so that's definitely helpful when trying to get a good price. So if you were to just call one of my current smaller record-keepers up, they would not give you the price I negotiated with them. I wouldn't get hung up too much on the bps, though I would try to keep it low. If/when your asset level reaches in the millions, it is possible to move to a different record-keeper if 5 bps becomes a problem. Ascensus also increases their base fee periodically as well, and it grows much quicker for plans with more participants, so depending on where you are on the participant and asset scale (and asset growth should also be taken into consideration), a record-keeper other than Ascensus might make more sense (or not).

            Another point is that for Cash Balance plans Ascensus is not an option, so you would still need to find a low cost record-keeper that allows the above-mentioned pooled accounts for a competitive fee, so a plan might end up with two separate record-keepers if they have a combo plan.

            I typically do a comprehensive analysis prior to recommending a record-keeper using a specially designed spreadsheet that looks at the cost over the long term if there is any doubt, but in my experience any record-keeper without bps would simply hike their base fee to compensate, so it is quite often a wash (unless you have relatively small staff and lots of assets).
            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


            • #7
              Our practice just did a whole analysis and vetted multiple providers for our 401k plan.

              We decided to go with Vanguard/Acensus.  We will be paying about 10 basis points for the index funds in our plan, and a flat fee for record keeping for each participant (works out to roughly another 10 basis points).  We then pay a fee for our third party administrator in the amount of a few thousand per year (our plan has about 8MM in assets).

              Overall with this new plan, all in, we are around 25 basis points.  It makes a substantial difference over a 30 year time horizon to be paying 25 basis points rather than over 100 basis points in fees.  This could represent an extra 300k at retirement for many of the physicians in our plan.

              Comment


              • #8




                Our practice just did a whole analysis and vetted multiple providers for our 401k plan.

                We decided to go with Vanguard/Acensus.  We will be paying about 10 basis points for the index funds in our plan, and a flat fee for record keeping for each participant (works out to roughly another 10 basis points).  We then pay a fee for our third party administrator in the amount of a few thousand per year (our plan has about 8MM in assets).

                Overall with this new plan, all in, we are around 25 basis points.  It makes a substantial difference over a 30 year time horizon to be paying 25 basis points rather than over 100 basis points in fees.  This could represent an extra 300k at retirement for many of the physicians in our plan.
                Click to expand...


                It is not a good idea to mix flat fee and to convert that to basis points when looking at the overall fee.  The two are not even close.  Flat fee does not increase with time, basis points do.  If we project 25 basis points into the future, the actual cost would be huge vs. a fixed fee that has zero basis points.  Also, any fees paid directly are tax deductible as a business expense:

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

                Missing from your arrangement is participant education component and fiduciary oversight component.  Doctors are certainly not experts in ERISA, and if you have any non-HCE staff, those are almost always left behind without adequate access to participant advice and education.  Online does not count, nobody uses that at all.  Even younger doctors need advice and education.  I typically bring in a flat fee 3(21) adviser to provide participant-level advice as well as personalized planning (which is a separate engagement). For a small fixed fee they can even come onsite if necessary, or provide advice virtually.  Definitely a good idea with a group plan whether you have HCEs or not. Also, plan level participant education is important as well, very few participants have any idea what's inside of their target date fund for example, or whether that's even appropriate for them in the first place.

                So while the cost is important, it is the easiest part to get right, everything else is much more difficult, and requires a well-organized committee at the very least.  Otherwise when things go on autopilot, eventually the train can get off the rails in many different ways, especially if you get different doctors who start adding/subtracting funds in the lineup, or open self-directed brokerage accounts.  So it is always best to have a single 3(38) in charge of the plan investment and fiduciary process, just like you have a TPA in charge of the admin (and not the record-keeper).
                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


                • #9







                  Our practice just did a whole analysis and vetted multiple providers for our 401k plan.

                  We decided to go with Vanguard/Acensus.  We will be paying about 10 basis points for the index funds in our plan, and a flat fee for record keeping for each participant (works out to roughly another 10 basis points).  We then pay a fee for our third party administrator in the amount of a few thousand per year (our plan has about 8MM in assets).

                  Overall with this new plan, all in, we are around 25 basis points.  It makes a substantial difference over a 30 year time horizon to be paying 25 basis points rather than over 100 basis points in fees.  This could represent an extra 300k at retirement for many of the physicians in our plan.
                  Click to expand…


                  It is not a good idea to mix flat fee and to convert that to basis points when looking at the overall fee.  The two are not even close.  Flat fee does not increase with time, basis points do.  If we project 25 basis points into the future, the actual cost would be huge vs. a fixed fee that has zero basis points.  Also, any fees paid directly are tax deductible as a business expense:

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

                  Missing from your arrangement is participant education component and fiduciary oversight component.  Doctors are certainly not experts in ERISA, and if you have any non-HCE staff, those are almost always left behind without adequate access to participant advice and education.  Online does not count, nobody uses that at all.  Even younger doctors need advice and education.  I typically bring in a flat fee 3(21) adviser to provide participant-level advice as well as personalized planning (which is a separate engagement). For a small fixed fee they can even come onsite if necessary, or provide advice virtually.  Definitely a good idea with a group plan whether you have HCEs or not. Also, plan level participant education is important as well, very few participants have any idea what’s inside of their target date fund for example, or whether that’s even appropriate for them in the first place.

                  So while the cost is important, it is the easiest part to get right, everything else is much more difficult, and requires a well-organized committee at the very least.  Otherwise when things go on autopilot, eventually the train can get off the rails in many different ways, especially if you get different doctors who start adding/subtracting funds in the lineup, or open self-directed brokerage accounts.  So it is always best to have a single 3(38) in charge of the plan investment and fiduciary process, just like you have a TPA in charge of the admin (and not the record-keeper).
                  Click to expand...


                  How can it be so important to have all kinds of extra advice when people can simply invest in the target date retirement fund? In particular for those few folks who are non-highly compensated employees?  In our group we are over 90% highly compensated employees.

                  A vanguard target retirement fund seems fine for the vast majority of folks with an uncomplicated financial situation (the non highly compensated support staff).  Those with more complex finances in our group already have their own fee based financial advisor or do lots of self education to develop an appropriate financial plan.

                  Comment


                  • #10










                    Our practice just did a whole analysis and vetted multiple providers for our 401k plan.

                    We decided to go with Vanguard/Acensus.  We will be paying about 10 basis points for the index funds in our plan, and a flat fee for record keeping for each participant (works out to roughly another 10 basis points).  We then pay a fee for our third party administrator in the amount of a few thousand per year (our plan has about 8MM in assets).

                    Overall with this new plan, all in, we are around 25 basis points.  It makes a substantial difference over a 30 year time horizon to be paying 25 basis points rather than over 100 basis points in fees.  This could represent an extra 300k at retirement for many of the physicians in our plan.
                    Click to expand…


                    It is not a good idea to mix flat fee and to convert that to basis points when looking at the overall fee.  The two are not even close.  Flat fee does not increase with time, basis points do.  If we project 25 basis points into the future, the actual cost would be huge vs. a fixed fee that has zero basis points.  Also, any fees paid directly are tax deductible as a business expense:

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

                    Missing from your arrangement is participant education component and fiduciary oversight component.  Doctors are certainly not experts in ERISA, and if you have any non-HCE staff, those are almost always left behind without adequate access to participant advice and education.  Online does not count, nobody uses that at all.  Even younger doctors need advice and education.  I typically bring in a flat fee 3(21) adviser to provide participant-level advice as well as personalized planning (which is a separate engagement). For a small fixed fee they can even come onsite if necessary, or provide advice virtually.  Definitely a good idea with a group plan whether you have HCEs or not. Also, plan level participant education is important as well, very few participants have any idea what’s inside of their target date fund for example, or whether that’s even appropriate for them in the first place.

                    So while the cost is important, it is the easiest part to get right, everything else is much more difficult, and requires a well-organized committee at the very least.  Otherwise when things go on autopilot, eventually the train can get off the rails in many different ways, especially if you get different doctors who start adding/subtracting funds in the lineup, or open self-directed brokerage accounts.  So it is always best to have a single 3(38) in charge of the plan investment and fiduciary process, just like you have a TPA in charge of the admin (and not the record-keeper).
                    Click to expand…


                    How can it be so important to have all kinds of extra advice when people can simply invest in the target date retirement fund? In particular for those few folks who are non-highly compensated employees?  In our group we are over 90% highly compensated employees.

                    A vanguard target retirement fund seems fine for the vast majority of folks with an uncomplicated financial situation (the non highly compensated support staff).  Those with more complex finances in our group already have their own fee based financial advisor or do lots of self education to develop an appropriate financial plan.
                    Click to expand...


                    That's a great question. If you have NHCEs, you as the plan sponsor are supposed to provide enough information for them to make an informed investment choice. Also, the plan sponsor is responsible for making sure that appropriate investment choices are available for all participants. Who's going to full-full these ERISA duties?

                    https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf

                    If you don't have a committee, someone has to be responsible.  If nobody is, then collectively all doctors are, even if they don't realize it.  This one reason why plan sponsors often hire either ERISA 3(38) or 3(21) or both, depending on the plan needs.  Some plans might be fine with just one of the two, depending on multiple factors (such as how big the practice is and how many NHCEs vs. doctors).  I only bring in a 3(21) when the practice requests it, and usually that's for larger practices.  Even if there is a committee, many still want to outsource the fiduciary duties to a 3(38) and/or a 3(21) because there is limitation to their knowledge (and time spent on plan duties).

                    So the doctors hire their own advisers, what about rank and file staff?  You as the plan sponsor sill have to take care of them. I also think it is not a good idea to make assumption about the savvy of various doctors and other HCEs in your practice.  Many are completely clueless.  Is a TDF a good investment for them?  Maybe, maybe not. You as the plan sponsor probably should not tell someone to invest in a TDF - that's a fiduciary function and that makes you 100% responsible for offering this advice.  You can offer advice on a forum, but when it is done under the umbrella of the plan, you are basically acting as an ERISA 3(38) and 3(21) by selecting investments for the plan, and offering advice to participants.  Some plan sponsors are OK with this, others prefer to outsource these fiduciary duties to professionals who take full responsibility for it (so that plan sponsor does not have to).

                    I don't use TDFs in my plans, for the following reasons:

                    1) Way too high risk for the longer date ones.  Who says that everyone who wants to retire in X years should have a certain amount in stocks, and also, that the stock allocation decreases with time (potentially right into a nasty long term recession)? As the asset level increases, this might not be an appropriate allocation for you.  Also, you have other accounts as well, and coordinating investment strategy can be difficult if the same investments are not available.

                    2) No control over asset allocation.  TDFs are pretty much all large caps with no exposure to small caps/mid caps.  And they are not balanced the way I would prefer - skewed towards domestic vs. international.  Also, I would not exactly use international bond funds for fixed income - way too risky.  And I would prefer more dividend-paying stocks.  So in short, it is a fine allocation for small portfolios, not so fine for larger ones. You have to track the allocation constantly, otherwise the adjustments might not make sense for you.

                    3) Really difficult to understand for rank and file staff.  They have no idea how to pick investments.  So QDIA can be helpful in this situation, but still education has to be provided to them so that they can make an informed choice.  It is really difficult to understand the glide path and asset allocation at the same time for someone who has never invested.  I prefer 'target risk' portfolios.  Very easy to explain, and they work for everyone regardless of what your age is.

                    So in short, with TDFs there is a lot more work that would have to be done to educate participants.  Yes, it is easy to set up a QDIA to place everyone in TDFs, but that's not something I would do, even if the plan did offer TDFs.  I would use risk-managed allocations as default and leave TDFs for more savvy participants if they want to invest in those.  And of course, personalized advice is useful not only for doctors but for rank and file as well, especially if you can get someone to come in for a day to spend with the staff.  I look at it this way: it is better to get low cost/cost-effective fiduciary advice for the plan, and not need it, than save a few bucks and not have it when it is needed.

                     
                    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
                      Check out Americas Best 401k. Low fees, Vanguard funds and they work with the TPA. I switched a couple of years ago and have been very pleased. They'll do a comparison with your current plan to what they offer to see if/how much money you'll be saving. www.ab401k.com

                      Comment


                      • #12




                        Check out Americas Best 401k. Low fees, Vanguard funds and they work with the TPA. I switched a couple of years ago and have been very pleased. They’ll do a comparison with your current plan to what they offer to see if/how much money you’ll be saving. http://www.ab401k.com
                        Click to expand...


                        There was a thread on this not too long ago:

                        https://www.whitecoatinvestor.com/forums/topic/americas-best-401k-any-experience/

                        AUM fees are really high for anyone with any amount of assets.  There are a bunch of platforms just like that, I would still recommend independent providers and fixed fees.  No reason to bundle as you can get individual components often cheaper for a fixed fee, and better quality too.
                        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


                        • #13
                          Well I just sat through the guideline.com 401k presentation. Very low cost  $8 per employee/month. Vanguard funds at base expense ratio. Includes fiduciary, tpa, 5500, payroll integration, everything.

                          They seem good for basic safe harbor plans + profit share. Couldn't do any new comparability/defined benefit stuff. But if all you want is a basic match ( they can adjust the match rate) seems good.

                          It shouldn't cost much to replciate a basic 401k platform. Nor should fiduciary cost much - just make it web based and replicate.

                          If you know what you want and don't need more than a safe harbor 401k check it out.

                          Kon - we all appreciate your advice on complicated 401k matters, but there is substantial price inefficiency in providing 401ks. Perhaps this is a start at commoditizing the market - as it should be for routine safe-harbor 401ks. FYI You sound most authoritative and trustworthy when you don't sell or defend yourself too vigorously.

                           

                           

                          Comment


                          • #14




                            Well I just sat through the guideline.com 401k presentation. Very low cost  $8 per employee/month. Vanguard funds at base expense ratio. Includes fiduciary, tpa, 5500, payroll integration, everything.

                            They seem good for basic safe harbor plans + profit share. Couldn’t do any new comparability/defined benefit stuff. But if all you want is a basic match ( they can adjust the match rate) seems good.

                            It shouldn’t cost much to replciate a basic 401k platform. Nor should fiduciary cost much – just make it web based and replicate.

                            If you know what you want and don’t need more than a safe harbor 401k check it out.

                            Kon – we all appreciate your advice on complicated 401k matters, but there is substantial price inefficiency in providing 401ks. Perhaps this is a start at commoditizing the market – as it should be for routine safe-harbor 401ks. FYI You sound most authoritative and trustworthy when you don’t sell or defend yourself too vigorously.

                             

                             
                            Click to expand...


                            I wish I can agree with you, but that's not my experience. There is no such thing as a 'basic' 401k.  What happens when you have participants that have to be cashed out?  Someone has to do this, and automated won't work.  What about issues with rollovers/transfers? That's just the tip of the iceberg.Try getting any out of the normal service done, and you'll quickly find that nobody there knows much about anything, and can't help you if you have compliance issues (which are really easy to accumulate if you don't have someone who can look over your numbers every year and tell you that something is not right). I do agree that the cost on the small end of the spectrum can be relatively high for a small solo practice, I'm not disagreeing with that at all.  But automated platforms will create more problems than they solve, unfortunately (at least of today).

                            I've seen first hand how 'automated' platforms work - the short answer is that they don't.  Also, if you can not make profit sharing contributions, then you probably should be using a SIMPLE IRA anyway.  There is not a huge benefit to doing a Safe Harbor 401k vs. doing a SIMPLE if all you can put away is salary deferral and a match.  And anyone who wants to do profit sharing would quickly find out that they can't with this platform, and if they want to bring their own TPA, they can't do that either.  So thanks for nothing at that point. A TPA is a person, not a computer program, and retirement recordkeepers while already a commodity, will never be fully automated due to the complexity of the laws and regulations and all of the types of things that happen with retirement plans.

                            Betterment tried doing this, and failed miserably, and they have a lot more experience with automation of individual accounts.  I've been told about how bad the internals are based on the fact that nobody is there to help you get anything done (and this came from a TPA working on their platform).  You are welcome to go for the lowest cost, but without good service you are basically just getting nothing of value.  While I'm sure that many individual docs may go for it, this is not going to be of any use to group practices and larger practices with more complex needs.

                            As I said before, I would love an automated low cost platform to work, but with retirement plans I find that every single doc has their own concerns and issues, and they need advice related to a lot of things related to retirement plans (and not just the corporate ones).  The list of issues is just staggering, from various types of controlled/affiliated group issues, to improving plan design and determining whether a particular type of plan would work for their practice.  Nobody is going to do that - with a platform all you get is a one size fits all with zero advice, and you are left on your own to decide whether you can benefit from profit sharing or not, or whether a SIMPLE IRA would be a better plan. I'm actually defending the TPAs here more than myself - what I do is too specialized to be a commodity, and advice and customization will always be valued over one-size-fits-all.
                            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


                            • #15




                              Well I just sat through the guideline.com 401k presentation. Very low cost  $8 per employee/month. Vanguard funds at base expense ratio. Includes fiduciary, tpa, 5500, payroll integration, everything.

                              They seem good for basic safe harbor plans + profit share. Couldn’t do any new comparability/defined benefit stuff. But if all you want is a basic match ( they can adjust the match rate) seems good.

                              It shouldn’t cost much to replciate a basic 401k platform. Nor should fiduciary cost much – just make it web based and replicate.

                              If you know what you want and don’t need more than a safe harbor 401k check it out.

                              Kon – we all appreciate your advice on complicated 401k matters, but there is substantial price inefficiency in providing 401ks. Perhaps this is a start at commoditizing the market – as it should be for routine safe-harbor 401ks. FYI You sound most authoritative and trustworthy when you don’t sell or defend yourself too vigorously.

                               

                               
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                              What's interesting about your comment is that it can be applied to anything - automation is here, and it is going to be with us going forward, there is no way to hide from it.  There will be really good ways that it applies (for example, more sophisticated portfolio tools), and bad ways:

                              https://hbr.org/2016/10/robots-will-replace-doctors-lawyers-and-other-professionals

                              Knowing what I know, I won't hold my breath that technology will replace doctors and lawyers any time soon, but it won't stop people from trying to make money off of fully automated platforms to save money.  And some employers may even try to adopt these platforms, first on the periphery, of course. But you can never replace a human when it comes to highly sophisticated area that requires a lot of experience and human intelligence.

                              Would you get into a self-driving car at this point?  Probably not.  Neither would I - there is still a non-zero chance that it will do something a human will never do.  Same goes for all of the above-mentioned 'automated platforms' - while doctors and lawyers do make mistakes, good ones make a lot fewer of them, and that's why people pay for their expertise.
                              Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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