Company 401k is in my hands!

Consider visiting http://www.employeefiduciary.com/. They are a very low cost 401(k) provider that shuns revenue sharing and administrator kick-backs, and they embrace fee transparency. Open fund platform including Vanguard. Very progressive.

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You would pay a lot of money to a consultant for what I am about to tell you for $0.00…

Depending on how big your co.’s plan is, you may do well to stick with the bigger providers. They usually are more accomodative for any number of administrative issues that come up on a day to day basis.

Merrill Lynch may be a good bet in general, I think. They may be using BISYS as the recordkeeping and administration shop with their funds and institutional servicing from ML for funds, enrollment kits etc.

You also may want to look at “total costs” i.e. direct and indirect to the plan assets, employees’ accounts, and the company as the plan sponsor. Also look at what all those expenses are paying for…

For example: Fund fees (expense ratios) pay for management of the funds, and alos compensate the recordkeeper via “sub-transfer agency fees” (sub-t/a’s) usually 10 – 25 bps, and pay a 12b-1 fee to a financial intermediary broker or financial advisor a “finders’ fee” for bringing the assets in (usually 25 – 50 bps), followed by annual “trails”, i.e. commissions on assets held of between 5-25bps. All this for what? Just finding the plan, or providing ongoing financial advice to the plan sponsor and the participants in the plan? Also, how involved is the broker? Is he/she regularly parading in front of the employees in educational/enrollment meetings, or is ML diorectly involved more without the broker – in that case what is the use of the broker? They must earn their keep.

Also, look at direct costs, such as billings for base fees, per participant fees, and for special events (billed hourly) such as corrections to payroll errors and omissions.

Finally, what direct costs will the participants bear? It is fairly typical for participants to bear loan and distribution fees. All other costs are usually borne by the plan sponsor.

Let me know if you have any specific questions, I can help you with via email: crucialtaunt2006@yahoo.com

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Do due diligence, but make sure the funds provided are low cost (Vanguard comes to mind) and have a long history.

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I used to be a broker at Merrill and I?? familiar with their 401(k) offerings and how they??e sold. You??e welcome to PM me for more info.

On the past performance, resist the urge to give it any weight! There will always be funds that have great past track records as a matter of chance, but such funds are added to 401(k) platforms after they??e performed well to make them easier to sell. There is absolutely no reason to conclude that the performance will persist, but brokers count on that belief to make it easier to sell.

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My 2 cents:

If your company has already made the decision to go with ML, it is very unlikely that you will get to change or modify too much of the terms of the contract. Best then, for the health of your own career with your employer to play along, not argue the fund expense ratios too much. What you need to turn to then, is look at the fund choices that are offered to you by ML…

In general, a good broker/financial advisor (terms used loosely) will try to make sure the fund offerings in a given plan cover each one of the “Style boxes”“. You would want to see that a substantial part of the style boxes are covered.

In addition, you should look at the age distribution of your company’s workforce. Do you have a large number of people in the 50+ age group? If yes, they probably want a good exposure to a diversified portfolio of bonds in addition to equities. Sometimes a bond fund that tracks the Lehmann Bros. Aggregate Bond index may suffice (if you just need a fixed income placeholder), at other times, if you have a more sophisticated older workforce, you may need to add more fixed income funds that cover substantially all of the “bond fund style boxes” – just do a google search for this term and you will see several examples of this.

Furthermore, there is a significant movement in the mutual fund/401(k) industry to offer “target-date funds” such as Fidelity Freedom funds and others by Vanguard, and many other fund firms. These funds offer a ‘choose it and forget it’ type of investing to the less sophisticated participants (and even others), and will help participation levels in the plan, which in turn, will help with annual discrimination testing required on the plan.

Finally, in looking at fund choices, along with the target date funds metioned above, there are “risk-tolerance based” or lifestyle funds that are blended portfolios of stock and bond funds, that suit participants’ risk tolerances as individuals. They run the gamut of low risk, i.e. “conservative”, medium risk, i.e. “balanced”, and high risk, i.e. “agressive”. These blended funds offer another form of automated investment monitoring for your plan participants.

You will likely be pitched any or all of the styles of funds metioned above. When trying to sort through them, keep the style boxes in mind and make sure you do not have too much overlap or redundancy between the funds. You also want funds that are “style pure” and do not stray from their stated style objectives.

I know this is a lot to take in – let me know if you have other items that you want to specifically discuss.

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It is not likely that you could request additional funds to be added their platform. Funds that are already on the list to choose from have a layer of fees built in to them that go toward the plan administrator and the broker that sells the plan. Most good index funds, like Vanguard, do not have this fee structure and do not participate in revenue sharing or administrator refunding, that?? why they??e less expensive! Some fund companies even create a special share class just to charge the fees so they can be included in smaller plans, like R share and certain institutional class shares.

Take a look at the expenses of the available index funds for the plan and compare them to other index funds, and you will see they are noticeably more expensive. Brokers also use the line that the plan offers a select group of screened funds that represent the best of the best funds available. This line is total BS. Their product group selects funds that are a) easy to sell because of past performance, and b) willing to share the most revenue with the firm to be included. When a fund can?? meet the revenue share but stands to enhance the ability to sell, the administrator adds a wrap fee. Wrap fees are also used to make expense ratios look lower. All they really do is reduce the mutual fund companies??obligations to pay kickbacks. It?? all smoke and mirrors.

Most plans are purchased through a broker because most companies/people don?? know there are other options. Brokerage sold plans are loaded with conflicts of interest and unnecessary fees. There are independent, fee-only pension consultants and fee-only registered investment advisers that can offer a wider range of choices at much more reasonable costs. Some will even refund 12(b)1 and other revenue share back to the plan. They just don?? have the visibility or market share that Merrill Lynch, Fifelity, ADP, Paychex and other big names. Don?? let that hold you back either; telling a lie a million times does not make it true either.

You can also buy direct and save a bundle, and those savings get passed on to the participants. If you go with an expensive plan, the extra expense gets passed on to the employee also. There is nothing magical about choosing a plan, yet brokers try to scare employers into believing that they could get sued by employees if they don?? do it right. This is not a ??ou get what you pay for??kind of thing, its actually just the opposite in the finance world. The internet is full of free articles about how to establish an appropriate plan that protects the employer from liability. The most common reason employers get sued over their 401(k) plan: high fees.

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