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Author: Macnab Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Help! - my 401k funds are crap... Date: 4/23/2004 6:45 PM
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Thanks to all the great fools who have helped me in other threads. My rollover ira is chugging along at BrownCo, in a coffehouse portfolio made up of vanguard index funds. I could not be happier about it.

But...

The funds offered in the new Paychex/Merril Lynch 401k plan my company is offering have me bemused. The company I work for has just formed and is very small at the moment. Apparently that translates into very limited fund choices.

The good thing is thet the company is offering a 4% match on the 401k, and I surely want to take advantage of that. I'm just not sure what to do about fund selection. I really wish there was at least low-cost equity index funds to choose from. Here are the fund names and expense ratios:

code - expense ratio - Name - my best guess description

MLRAX - 0.62 - Merrill Lynch Ready Assets Trust - MMarket
NYVCX - 1.74 - Davis New York Venture Fund - Large cap
ESBCX - 1.44 - Evergreen Core Bond Fund - fixed income
VSCCX - 2.12 - JP Morgan Dynamic Small Cap - small cap
MTRCX - 1.57 - MFS Total Return - balanced
MCFGX - 1.98 - M. Lynch Fundamental Growth Fund - lsrge cap
MCLOX - 1.96 - M. Lynch Global Allocation Fund - global
MCIVX - 2.07 - M. Lynch Intl. Value Fund - international
MCLRX - 2.07 - M. Lynch Large Cap Core Fund - large cap
MCLVX - 2.05 - M. Lynch Large Cap Value Fund -
MCSPX - 2.12 - M. Lynch Small Cap Value Fund -
MCFSX - 1.52 - M. Lynch US Government Mortgage Fund -

Maybe I'm overreacting, but the sight of these expense rations over 2% are making me nauseous. I really wish I could roll my money out of the 401 and into my IRA while still employed.

What advice can you give me on fund selection. I guess I just have to suck it up and pay the fees? I'm 34 at the moment, married, mortgaged, with 3 kids. Total household income is circa $115k annualy gross.

Thanks all,
Mac
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40651 of 75335
Subject: Re: Help! - my 401k funds are crap... Date: 4/23/2004 7:31 PM
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My advice is to go have a talk with the folks at your company who is offering the plan. Tell them that you are really pleased that they offer a means of helping you provide for your retirement, but the fund choices have high expense ratios and are not to your liking. Could they offer something else?
If there is a company match, of course, go for it, and contribute as much as you must to get the full match.
After that, you may do better on your own with taxable but low tax options such as index funds.
If a bunch of folks at the company point out to the person in charge that the choices offered aren't designed to make money for the employees, but more to fatten the pockets of the fund managers or perhaps Merrill Lynch, he is likely to listen.
Best wishes, Chris

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Author: hjg0989 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40674 of 75335
Subject: Re: Help! - my 401k funds are crap... Date: 4/24/2004 1:47 PM
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I agree with Chris, I'd talk to your plan admins. I would present it in a way that compares the difference in returns by using an after tax Vanguard account vs. the 401k. Here's a post I put on morningstar's diehard forum when I did a cost comparison of my partner's 403b plan to Vanguard's S&P 500 index fund:

http://socialize.morningstar.com/NewSocialize/asp/FullConv.asp?forumId=F100000015&convId=108080#629363

Hope this helps,

-helen

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Author: robkan Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40705 of 75335
Subject: Re: Help! - my 401k funds are crap... Date: 4/27/2004 7:48 AM
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You didn't mention if Company stork were an alternative. Most experts discourage that as a choice in order to diversify, but in your case I would consider it. :)

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Author: Macnab Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40736 of 75335
Subject: Re: Help! - my 401k funds are crap... Date: 4/28/2004 2:53 PM
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I appreciate the advice. However the funds in the plan are a bundle, and the plan choice and the funds in it are fixed. If the company grows and decides to go with a more expensive 401k plan then that may chance, but I was unable to get any funds added to the current plan or to get the plan changed at this point.

Thanks also for the link to the post comparing the 403b to the after-tax investments. I have run my numbers agains that line of thought, and it looks like the maximum benefit for me would be if I used the 401k plan just enough to take advantage of the company match. [In this case it would mean a 5% allocation to realize a 4% match.] And put the rest into the after-tax plan where I control the portfolio.

However... That requires a lot more maintenance work on my part, mainly because BrownCo does not currently offer any means of simple electronic transfer into their brokerage accounts. I would have to mail a check each month to BrownCo to make my deposits, because they do not offer direct withdrawls from back accounts. The second item I have considered is the minimum buy-ins for the Vanguard funds at BrownCo. I don't know if this is universal, but the ongoing purchase minimums are 1K to buy the funds. This means I would have to hold my investment cash at BrownCo until I have enough to buy the next lot of funds. That means the money may spend significant time sitting in the money market account before it can be spent on the portfolio funds. Again the portfolio has seven funds, and that will also complicate keeping the portfolio balanced properly. I suppose I can round-robin the fund purchases.

Thus I have to decide between the convenience and steady investment of the 401k plan on one side (at the price of high fees and lower total return), versus the higher total return with significantly more ongiong maintenance headaches.

I'm leaning towards going with the 401k, unless I can perhaps find a discount brokerage that provides direct transfer and smaller lot buy-ins to the vanguard index funds. Does anyone know a brokerage that provides both? (along with cheap transaction fees)

If I go with the 401k, I still have to choose funds... by end of day today. :(

Thanks,
Mac

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Author: Macnab Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40737 of 75335
Subject: Re: Help! - my 401k funds are crap... Date: 4/28/2004 2:54 PM
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by the way, I apologize for the typos, but I can't seem to find an "edit" button to fix them.

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Author: 500PSI Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40739 of 75335
Subject: Re: Help! - my 401k funds are crap... Date: 4/28/2004 3:24 PM
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"The funds offered in the new Paychex/Merril Lynch 401k plan my company is offering have me bemused. The company I work for has just formed and is very small at the moment. Apparently that translates into very limited fund choices."

I own a small company and we just created our 401K plan last month. We opened our account directly with vanguard and payed a 3rd party administrator to set up the paperwork and administer the account. I personally selected the funds in the plan after consulting with the employees to see what they wanted. We also could have opened an ameritrade or other discount brokerage account and allowed any combination of stocks or mutual funds including arbitrary trading. Apparently though this opens you up to liability. If the employees lose all their money from trading in the 401K they can sue the employer.

We had spoken with several other brokerage companies and their goal was to set us up with funds that they could make a lot of money each month as the contributions went in.

It turns out that much more is possible than what you listed and restricted choices are not a requirement for a small company 401K.



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Author: 500PSI Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40740 of 75335
Subject: Re: Help! - my 401k funds are crap... Date: 4/28/2004 3:29 PM
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"However the funds in the plan are a bundle, and the plan choice and the funds in it are fixed. If the company grows and decides to go with a more expensive 401k plan then that may chance, but I was unable to get any funds added to the current plan or to get the plan changed at this point."

Our plan cost about 1500 to setup and 50 per employee per year (10 employees). Also as the numbers of employees increases the cost per employee will go down.

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