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Financial Planning / Foolish 401(k)s
|Subject: Re: Frontline: The Retirement Gamble||Date: 4/25/2013 3:02 PM|
|Author: mjolah||Number: 25031 of 25166|
I think we also know that many large companies have plans with major custodians like Fidelity and Vanguard.
You mean "Fidelity" that got stung in the Tussey case for excessive fees, and is currently being sued BY ITS OWN EMPLOYEES for excessive fees in ITS OWN PLAN?
I've worked in the large, mid, and small plan markets, and the hysteria is mostly just that. Are their abuses? Oh yes. But there are many more non-abusive scenarios than there are abusive ones - but you only hear about those where someone perceives an abuse.
Keep in mind a few things. First, the "cost of the investments" is DIFFERENT than the costs of administration. Vanguard has some low low low priced index funds, and other investment options - but what they charge for administration isn't cheap - and a lot of necessary or nice to have services are at added cost (it's an ala carte approach). Others "all in" can be competitive - keeping in mind that there are costs associated with trusts, non-discrimination testing, education, call centers, transaction (and secure) websites, disclosure and reporting, and the like. Sometimes "revenue sharing" will offset some of those costs - but Vanguard funds pay no revenue sharing, so usually hard dollar costs have to be added.
Second, there is a "minimum charge" for a plan, just because of all of the things just mentioned. Where I currently work, the model (small plan) is that for every 75 plans brought in, we need one new person for admin work on it. Does not matter how big or small, when we hit 75, we need to hire. Spread that cost over 75 small plans, and it makes it seem more expensive than it does if spread out over large plans. BUT, that's the base price for running a plan - and this isn't a charity.
Third, when you invest through a plan, not only do you get the safety of fiduciary oversight, but you also in many cases get institutionally priced funds. Some funds will cut expenses if the amount invested in high enough. Some require $5 million (in the entire family of funds), some as low as $1 million, and some have lower priced share classes JUST FOR RETIREMENT PLANS. I can't buy institutionally priced funds through my personal brokerage account - or even directly through a fund company. But through my plan, I get them.
Yes, we can all talk about abuses, or lousy investments (and don't even start with the "passive vs. active" argument - as that is really a matter of opinion) - but the reality is that MOST plans are efficiently run, pay reasonable fees (and those fees have been going down for the last decade or two), and return a significant bang for the buck. Can they be made more efficient? Yes, but the regulatory overhead is part of the concern there - and that exists for a reason (I actually was practicing law when some companies set up 401(k) plans - where you defer up to $45,000 annually, and the top dogs did NOT tell the employees it existed - so they got all of the benefits for themselve. Now, we have rules to prevent that, and make the plans available across the board - with limits on what the top end can do based on what the bottom does - incentivising the top dogs to encourage participation). So, the regulatory overhead is there because abuuses occurred. Now, there is a cost for that.
So people should actually do some homework before they condemn - and the reporters on Frontline didn't do that. They looked at a few abuses without looking at the industry as a whole.
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