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Excuse me for this being long, you can skip most of the bottom part, because I'm sure you all read a version of it before.

I just wanted to see if there was anyone else out there that has PayChex managing thier companies payroll and 401k. If so, PLEASE send them a letter like this!

Also, I welcome any comments on the validity of my claims, am I right here?

Here's what I just sent to a few friends at work.
Hey XXXXX(Coworker),

I sent the letter below to PayChex, because I think our 401k plans SUCK. I sorta think maybe we all should.

Compare for yourself,

We can choose:
SCHBX <-I picked

Compare ANY of those shit funds to the S&P 500, or a GOOD S&P 500 Index Fund like Vanguard 500 Index Fund (VFINX).

VFINX has a management Expense Ratio of 0.18%, the _____ng funds we can choose seem to be at LEAST 10x that! And they perform like ____.

To PayChex (via thier web feedback form)
Dear PayChex,

PayChex handles payroll and 401k for my employer. I have reviewed the investment options for our company's 401(k) plan, and I wish to request that a passively managed S&P 500 equity index fund be added to our
plan's choices. The available studies relating to mutual funds reveal that over any one, two, five or ten-year period of time, an S&P 500 index fund will likely outperform the vast majority of actively managed
funds. Ideally, I would like the option to put my money into the S&P 500 tracking passively managed Vanguard 500 Index Fund (VFINX).

While I may not be with our fine employer 50 years from now, I do intend to defer more than $10,000 in our 401(k), so I believe that the inclusion of an S&P 500 index fund in our plan would likely make a very significant difference in the retirement that I can look forward to.

Given the fact that I understand that I'm looking at perhaps $700,000 or more as a consequence of your reaction to this request, please understand that I intend to be persistent. But only if I have to be.

Thank you for your attention to this matter.

Very truly yours,

PS: For Reference: The improvement in returns that we employees can expect from the selection of an equity index fund as opposed to the average high-fee actively managed equity mutual fund is truly dramatic.

I quote the following excerpt from John Bogle's piece, "The First Index Mutual Fund" available for your review at In it, Mr. Bogle writes, "What difference would an index fund make over 50 years? Well, let's postulate a +10% long-term annual return on stocks… If we assume that mutual funds costs continue at their present level of about 2% a year, an average mutual fund would return 8%. This 2% spread is very close to that of the past 15 years, during which the Vanguard 500 Portfolio provided a 2.2% margin of return over the average equity fund (or, more accurately, the better performers that survived the period[.]…[E]xtending this compounding out in time on a $10,000 initial investment, the market (at 10%) would produce $1,170,000 after 50 years; the mutual fund (at 8%) would produce $470,000. The difference in return between the two -- $700,000 -- is an unbelievable 70 times the initial stake of $10,000.

"Looked at from a different perspective, our hypothetical fund investor has earned $1,170,000, donated $700,000 to the mutual fund industry, and kept the remainder of $470,000. The financial system has consumed 60% of the return, the fund investor has achieved but 40% of his earnings potential. Yet it was the investor who provided 100% of the initial capital; the industry provided none. Confronted by the issue in this way, would an intelligent investor consider this split to represent a fair shake? Merely to ask the question is to answer it: 'No.'"
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Your letter is misdirected. Theletter should go to the employer and not Paychex. Paychex will not allow any of the Vanguard funds in their 401k product. The reason is that Vanguard will not pay Paychex for doing so. Curreentl Paychex only offers 3 fund families that I am aware of. Your employer had a choice of Fidelity Advisor, Merrill Lynch, and Salomon Smith Barney. Merrill offers an index fund, its expense ratio is aroun .38%. However, the other funds from Merrill have poor performance.
Paychex marketed their 401k very heavily to its payroll clients last year, their main theme was if you have a good transfer from payroll to your 401k, you have a great 401k. Obviously this reasoning is flawed.
You and the other employees should ask the employer to switch providers. After all, the 401k is YOUR benefit.
Your employer has a fiduciary liability to run the plan in the employees best interest. Make them aware of this. Let them know the employees want a change. If confronted by a few employees, the employer will usually change plan providers. Tell your employer you want a low investment cost provider. You can try Vanguard, T.Rowe Price, Fidelity, & American Century. Check these fund families for an index fund.
If your employer objects, post a follow up, and we'll try to find answers to any objections your employer may have.

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I have a couple more questions I guess. What exactly is "Paychex marketed their 401k very heavily to its payroll clients last year?" Were they cutting deals? Like reduced service fees for using one of those three choices? If so, that puts me up against an instant reply that "we can't do that" and I'd have to sell it on the basis of costs to the employer.

I work for a small, privately owned company, and there are only 5 people currently working at my company, it wouldn't be hard to convince all of them that we would be better off with an indexed fund. That part I can do. The hard bit is to convince the company owner (in England) to do anything that would cost even the slightest bit more. (Good place to work, pay is good, job is fun, and only thing I've found to complain about is the 401k).

So, I'll assume for now I can convince at least one or two other people that we should have a low cost index fund available. Now I need some information about justifying the change.

We're obviously using the Salomon Smith Barney option.

What costs would the employer have to cough up to add the Merrill Lynch option in addition to the Salomon Smith Barney one?

What kind of costs would the employer have to pay to add an option outside the 3 main PayChex fund families?

I have heard that there is only 1 "window" of time a year that changes to our 401k plans can be made (like % contribution choices). Is that true, or am I just being told that so they don't have to screw around with it any time someone complains?

What would seem easiest (and maybe cheapest for the company?) would be to just switch from the Salomon Smith Barney option to the Merrill Lynch... BUT, I'm guessing if I just ask for that, I'll instantly become the least popular guy in the office, because everyone there will have to go through all the paperwork and choices of funds again (and I know they would not be very willing to do that).

It really sucks that employees have such limited choices for 401k's, especially when it seems that it's a primary retirement resource.
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The best thing you can do is to ask for the Merrill Lynch Index fund to be added. I am not that familiar with Paychex's product to tell if there would be an additional cost. What I can tell you, in theory there shouldn't be. Merrill pays Paychex the same as Salmon Smith Barney to offer their funds in Paychex's program. That is why these funds have higher expenses than Vanguard, etc. Paychex gets a percentage from Merrill, Salomon and Fidelity Advisor for offering their funds. Its usually pretty minimal something like 0.25%.
Ask your employer to call Paychex and ask about adding the Merrill S&P 500 Index fund.
Paychex pushed their clients to use their 401k by making it difficult to use any one else. If you use another 401k provider, the payroll information has to be transmitted to the 401k provider. Paychex would charge extra fees for this if their 401k service was not used. Not all Paychex customers are affected by this. Each Paychex office is individually owned and operated, (Franchised) so each owner was free to push the 401k product at their own level. Some did not impose the extra fees, and just simply made their clients aware of Paychex's 401k service, others went all out and tried to get their payroll clients on to the 401k platform as well.
Hope this helps.

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We are switching "Fund Managers" at work now. Just thought I would update you on the status. It sure isn't happening fast, but it's happening!

Thanks for the advice. :-)
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