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I recently read the article on the Fool's home page about 401K plans and the article gives foolish advice about selecting Index Funds rather than managed funds. It also advises fools to beware of hidden fees and costs. Our 401K is with New England Funds and many of our funds appear to be index funds with low operating expenses in the area of .60% to 1.2%.

I have been informed that there is a 4% sales commission that will be paid to our New England sales rep. It was described as a one time back load. I am a new fool, and that sounded like a bad thing to me. I would be grateful ir somebody would tell me if this back load is a normal thing, and whether there are other good plans out there that have lower fees and expenses.

Foolishly Yours, Mike
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Our 401K is with New England Funds and many of our funds appear to be index funds with low operating expenses in the area of .60% to 1.2%.

Those are not low operating expenses. There are lots of index funds that have expense ratios less than 0.25%. Vanguard, the all time leader in index funds, has an expense ratio of 0.18% on its flagship fund VFINX.

I have been informed that there is a 4% sales commission that will be paid to our New England sales rep. It was described as a one time back load. I am a new fool, and that sounded like a bad thing to me. I would be grateful ir somebody would tell me if this back load is a normal thing, and whether there are other good plans out there that have lower fees and expenses.

<soapbox>
YUK! Back loads on a 401k? That's highway robbery. Tell your employer that you are outraged and furious. There is no excuse for loads ever, and doubly so in a 401k. Is your company's 401k admistrator a total Bozo, or is he getting some kind of kickback? I can't believe that a 401k admistrator can't find you a no-load fund. Start a job action. Get a pettition going at your workplace.

Do you have any no-load choices in the 401k? If so switch immediately.
</soapbox>

Phew! Sorry about that but loads make my blood boil, and incomptent financial "experts" (your 401k admistrator) are like gasoline on the fire!

Cheers,
GW
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<Our 401K is with New England Funds and many of our funds appear to be index funds with low operating expenses in the area of .60% to 1.2%. I have been informed that there is a 4% sales commission that will be paid to our New England sales rep. It was described as a one time back load>

<Those are not low operating expenses. There are lots of index funds that have expense ratios less than 0.25%. Vanguard, the all time leader in index funds, has an expense ratio of 0.18% on its flagship fund VFINX...YUK! Back loads on a 401k? That's highway robbery>

I totally agree with GW. I have two parallel thoughts on these types of situations. The first is a shared anger at those doing the legalized robbery. The second is for those who are putting their hard earned money into the funds but are too lazy to do their homework. If you think that 1.2% annual expenses for an index fund are low and that a 4% back end load is okay, you almost deserve to get ripped off.

BRG

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I have been informed that there is a 4% sales commission that will be paid to our New England sales rep. It was described as a one time back load.

This sounds like a "Contingent Deferred Sales Charge" -- it should decrease with time, going to zero after possibly 5 or 6 years.

Better check the information -- prospectus? -- you were given, and make sure you understand it.

I looked at the New England Funds web site, and don't see any index funds. I agree with the two previous posts, that the expense ratios you quoted sound too high for index funds.

When my employer had a 401(k) with Fidelity, we paid no sales charges of any type, because Fidelity was glad to have the (very large) account. Small employers cannot so easily avoid at least CDSCs. I do think you're better off than many, who end up with variable annuties.

Better read your materials, and be sure you know what you're investing in! It is a good idea to ask about more economical plans, but don't automatically assume someone is dishonest or incompetent. There are economies of scale that not every employer can take advantage of.

Good luck!
Phooley
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A 4% back-end sales load on a 401(k) plan sound very high. However, you did not tell us the size of your company. If you work for a small employer their are not a great number of alternative which will provide you with a reduced sales load. Assets are the key to locating a good low cost 401(k) administrator - if you have less and $1 MM in plan assets there are not many alternatives.

Try - Principal Financial - Guardian Life - Standard Insurance - or some of the Mutual Funds - Strong - Fidelity - etc.

The employer who is cheep and will not pay billed fees generates the need for surrender charges.

I hope this helps
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<<I totally agree with GW. I have two parallel thoughts on these types of situations. The first is a shared anger at those doing the legalized robbery. The second is for those who are putting their hard earned money into the funds but are too lazy to do their homework. If you think that 1.2% annual expenses for an index fund are low and that a 4% back end load is okay, you almost deserve to get ripped off.

BRG>>

I fully agree with you that the fees outlined are unacceptable. The difficult issue is that the employees don't "almost deserve to get ripped off" - they have no or little control over the 401(k) vendor selected by their employer.

As a financial professional who works with small employers I get the impression that you do not fully appreciate the dynamics of the situation.

In closing, I would not sell a product which provides such little value to the customer but some of my competetors will.



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<I fully agree with you that the fees outlined are unacceptable. The difficult issue is that the employees don't "almost deserve to get ripped off" - they have no or little control over the 401(k) vendor selected by their employer>

Let me say that your point is well taken. If all of the choices in their plan are really that bad, it is up to the well informed employees to discuss that with other employees. They also need to bring it to the attention of the management that authorized the plan.
Maybe they are not aware how poorly their plan compares to other plans. At least the issue needs to be raised.

I DO feel bad for the person who sees the problem, but can't do anything about it. I am not very sympathetic to those who never read their plan literature or those who keep quiet over such an important issue. Those people do deserve what they get.

BRG
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