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We finally (after 6 months of asking) got access to my wife's 401(k) plan at one of her jobs. We had gotten a statement a few weeks ago, listing investment options I couldn't find symbols for. We found mutual funds with similar names, but with prices about 3 times the prices shown on the statement.

Anyways, to cut a long story short (too late), the investment company (NY Life Investment Management) has options in the 401(k) like "XXX Account", where XXX is the name of a mutual fund run by a separate company and Account means that NYLIM takes 1.35% per year of the balance. This is true even for the money market account, the only money market account with a negative interest rate I've ever heard of.

DW's company matches 50% of contributions up to 5% of salary. We also max out a Roth IRA for each of us and the 403(b) at her other job.

My questions are:
1) It is probably worth contributing up to the maximum matched, right?
2) Is it worth contributing beyond that for the tax deferrment? (I'm sure there is other information needed to answer that question)
3) Other than her leaving the company, is there any way to get the money transferred out of that account and into one with less onerous terms? (for instance a self directed IRA at a low cost brokerage)
4) If she could talk the company into it, could she quit, roll over the IRA, and then rejoin the company?

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Sounds like justifiably, her company isn't real proud of their investment options.
I'd suggest talking to Human Resources, and getting co-workers to do it also. Tell them that retirement plans are an important (to you) part of what makes a company attractive, and that the 401k really offers pretty lousy choices. Couldn't they offer some more attractive choices? Have they considered getting a different trustee, that wouldn't gouge the employees?
At this point, yes, contribute up to the match.
Yes, she could get her hands on her funds by quitting, roll the 401k into an IRA and then rejoin, but usually for matching funds there is a period, commonly five years, required for vesting. If she's been with the company long enough for full vesting she would be entitled to the matching funds, but in many plans if you quit before the five years you forfeit those contributions. Then if she quit and rejoined, the five year clock would probably restart.
I'd work on the human resources folks to try to get employees some better choices.
Best wishes, Chris
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Chris' advice is right on, but keep in mind, Steve, that the most cost effective plans are offered to the largest employers with the largest plans. Plans like the one you describe are usually offered by small employers. They often have few choices.

If your play your cards right, the employer HR department could ask you to suggest a better custodian. In the case of a small employer's plan, that is one of the most oft asked questions in Fooldom. We still don't have good answers for that one, but message 17594 on the 401K board and 41576 on this board contain links to a buyers guide. Thats the best answer we have so far.

Good luck.
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2) Is it worth contributing beyond that for the tax deferrment?

Absolutely. Things change- your wife's employer finds a better 401k provider, or the provider starts offering lower fee options, or she get downsized or finds a better job. But the benefits of those 401k deposits -forced savings, tax free contributions, and tax free growth- will be an asset for the rest of her life.

As mentioned, lobbying your wife's company to find a better provider is a must, though if it's a small business the choices are limited. That doesn't mean you shouldn't try. Did HR choose their current provider after an exhaustive search of all possible vendors, or did they just pick the guy who made the best sales pitch?


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A few things;

1) Be sure to find out exactly what class of shares(like A,B, or C) of funds are being bought. These will have very different fee and load structures in addition to the insurance companies management fee. If NYLIM takes 1.35% and the fund expenses are 1.65% then you will be paying 3% per year. This sounds bad enough but when you consider that you are paying this premium on your contribution as well as the match, it is even higher. For example if your wife contributes $1000 and gets the $500 match for a total of $1500, 3% of which is $45. That is almost 10% of the company contribution, and not just this year, she will have this fee each and every year.

2) Check the vesting periods. It would be a bugger to pay all those fees then leave before she is vested.

3) Don't get overly excited about the tax deferral. When you are retired the 401k withdrawals will be taxed as ordinary income. If it has been in a taxable account, only the gains would be taxed at the capital gains tax rate, which will likely be much lower.

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Thanks for the advice everyone. I will have her drop her contributions to the matched amount and we'll save the difference in a taxed account. I'll check on the vesting period for the match. We'll talk to them about switching to a better trustee, but I am not hopeful, as the other benefits they have are pretty crummy too - good benefits doesn't seem to be a priority for them.

Just so you have some context about that statement, this is a medical staffing/temp company. Most of their placements only work occaisionally or for a short time through them.

My wife has worked anywhere from 1/3 to full time through them for a hodgepodge of facilities for a year and a half. She has a full time position at a school starting in September, but she'll probably continue her relationship with them for some extra work now and then (mostly to keep her skill set broad and up to date).

Thanks again for the advice everyone.

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