401k Administrator

I liked the fund that I was invested in via my work 401K, but then they changed plan administrators, and say they put me in an "equivalent" fund with the new admin, but I don't like it; is there any way of getting back to the fund I had been in?

Asked by Dor1 over 10 years ago

Remember hanging out with your friends and negotiating a baseball card swap? You'd analyze the merits of Jeter vs. Sosa vs. Griffey Jr. and slog it out until everyone was satisfued that a fair exchange had taken place? 

Well, it's not like that.

When an employer switches plans, it is usually because they are reducing costs (either overhead or real fees). Plans are sold on the basis of costs and ease of transition from the old funds to the new funds. Great liberties are taken to squeeze size 10 feet into a pair of size 8 shoes.

Once the swap is made you cannot go back to the old mutual funds. But, happily, you are always free to complain to the HR person. Look over the expense ratios of all the funds and then invest in the lowest cost funds of the strategy that you want.

 

Is there a 'sweet spot' for putting funds into a 401K that maxes on tax benefits for an individual?

Asked by Pi over 10 years ago

The short answer is NO. There may be reasons to decide between a ROTH and an IRA option, but you should try to maximize both.

Each year, an individual under 50 can put away $17,500 and over 50 can put away $22,500. The earlier you start the more likely these amounts will actually do the trick.

 

What is the best way for a non financial person to learn the basics of funds? I put money away into my companies 401K, and my company has changed plans several times due to mergers.

Asked by Pi over 10 years ago

I think the first thing "non-financial" people have to do is unlearn the idea that they are non-financial. Everyone tries to maximize their resources, everyone. For some people, that means that they want a lot of friends; and they are willing to have less money to have more friends. Other people want as much money as possible. Most people fall in the middle.

The best economic decisions are made when you have the right amount of information and it is information that you have high confidence in.

Of course, this is true for any decision you make. All decisions are subject to risk - do I fly? do I ski? do I live in an commune?

The only difference I see, between people who self-describe as "financially savvy" and those that are financially nervous, is the comfort they have in understanding the risk and taking the risk.

Now that I have beaten you about the head and patted you on the back, let's talk about educating yourself on the risks (and remember, if being 75 and broke is not a worry for you, then maybe you don't have as much risk as someone who would like to be able to travel, or eat out, or ...eat).

There are some great web sites that can help you learn the language and get some ideas about how IRAs, ROTH, and 401k work together.

I like Vanguard (or better yet, just call them and chat away with a helpful person on the 800 number) and the Boglehead wiki and Scott Burns. Scott had been a syndicated writer for years and more recently started his own firm so he can manage money for people (full disclosure - we don't know each other). I like to read his blog. 

Start somewhere and just learn a little every month or so. If our parents could learn how to use a microwave, then you can learn how to invest sensibly.

 

When fund companies make a fund available for a company to offer their employees in their 401K plan, is it exactly the same fund that the general public can invest in? Are the fees higher / lower / the same?

Asked by Gaelin almost 10 years ago

The short answer is “yes” but as a more expensive “class” of shares. But I’m not known for my short answers, so: mutual fund companies see 401k plans as a constant stream of new money that trickles in over the year. It is handy for them to have that flow go into their mutual fund products because it provides liquidity for redemptions (so they do not have to sell an asset).


It is cost effective for a fund company to use the existing line-up of mutual funds already in existence because most 401k plans are too small to justify investing the money separately. This does not mean that there is anything wrong with the investment choices, but it can be very difficult to figure out what fund you are in and check out the holdings (and turnover!)


For example, someone may have a fund named The Bradford H. Puffinhouse III Fund that owns all the S&P 500 stocks. It is possible that they have it listed in a 401k as The Large Cap Diversified Fund because it helps participants understand what it is.


On the other hand, I have also seen funds with a very close name but with a different class. Since it is so hard to find a TICKER on a 401k, all you can really do is type most of the name into a search engine and see what comes up. Once you have a ticker you can find all the other “classes”.


Many mutual funds come in various classes. Even if is the same “pool” of money the cash flows are broken into classes so that fees can come out according to the class. So, the “A class” might be for people who call the 800 number and buy shares over the phone (not 401k) or through an online account and do not pay any other fee than the expense ratio. The “B Class” might be for a people who buy through a salesman and he gets a 5.75% commission that comes right out of your balance (which means you have to be up 6% just to get back to your initial investment!) and the “C class” might be a fund that charges you to get out. Different products for different markets. They are usually named with the class in the ticker, so you might see NAMAX, NAMBX, and NAMCX as names for the same mutual fund. All mutual funds end in the letter X.


A 401k will generally be a class that is a more expensive than the simple fund. I encourage people to stick with index funds in a 401k because it is harder to make those very expensive. Use money outside your 401k to augment a “core” holding – for example, buy an emerging market fund outside your 401k if the one in your 401k is more expensive than normal.

What are the economics that go into a company deciding whether they're going to MATCH employee contributions? Are there incentives for companies to do so other than employee morale?

Asked by TravisMarks about 10 years ago

The match is a feature that has gotten less common since the Great Recession. 

Early on, I think the match was a way to get people in to the plan and it was somewhat expected by employees. There are tax incentives for the firm, but most smart firms don't let the "tax tail" wag the dog so I don't know how powerful that really is.

Also, remember that most plans get set up by people that may not know very much about investing. If you build submarines (and you want to spend your time building subs and not worrying about benefits) you are going to expect your benefits-broker to "have your back" and recommend a good plan. It is frustrating, but most salespeople know sales, not investing.

Because the fees are so high in most of these plans, brokers have an incentive to push for a match so participants don't notice how much of their money is getting syphoned off in fees.

Happily, the IRS-sanctioned 401k us such a great idea that you don't need a match to make it a fabulous investment (especially if you choose the ROTH option). Of course, that assumes you have a low fee plan.

Best!

 

i'd like to have a current 401k rolled into a new roth 401k. i already paid the tax on it thru payroll, but TD Ameritrade says they cannot administer it. can i have an administer and then self-direct my roth 401k?

Asked by keny2 over 7 years ago

I'm 55 on full disability. I have about $20K in a 401k. Could I take it out without tax penalty? What about annuities for extra income? What would you do? Thanks.

Asked by mcmjuly over 9 years ago