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I apologise in advance for the length of this post. Hopefully someone can lend me a hand in thinking through this problem. I work for a small company with a 401k plan. The company's plan is administered by Prudential. The plan used to basically consist of your choice of funds from a variety of companies but there was a 1% yearly Prudential advisory fee tacked on. This means that no matter what fund you choose you will end up paying the fund's expense ratio plus the 1% Prudential fee. However all front end, back end, etc. loads were eliminated in exchange for the 1% per year fee. Only 2 or 3 no load index funds were offered and their expense ratios were approx 0.4% to 0.8%. Thus the cheapest yearly expense that you could hope for is approx 1.4%.

Just last week a Prudential representative came to our office and said that they are revising the plan. In the revised plan there will be no yearly 1% fee but you are restricted to MFS Funds only. MFS does not offer any index funds and all of the funds offered have an average expense ratio of about 1.5% to 1.75%.

The representative said that we could elect to not participate in the new plan and use the old plan but the 1% yearly Prudential fee would still stand.

As I see it I have the following options:

1. Try to do index funds under the old plan and pay 1% for the privelage.

2. Let them convert my holdings to MFS Funds (in other words sell my losing funds at the lowest point in a bear market. ACK!) And then get choked by high expense ratios.

3. Reduce my 401k contributions to the bare minimum to get the employer match and start looking for a Roth IRA with the other portion that I've normally invested in the 401K.

Does anyone out there have any suggestions on how to best solve this dilemma? Your responses would be much appreciated.


PS. I've tried explaining my concerns to the owners of the company and Prudential representatives. Lets just say It's not going to improve any time soon.
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