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MadDoggyStyle
Mississippi St. Fan
Member since Feb 2012
3857 posts

Anyone understand 401(k) plan set ups?
Ours is a small business and started a 401(k) plan a few years ago and maintenance costs are 0.75% of the plan total per year. The current plan has a great selection of funds and over 17 low cost Vanguard funds that have an expense ratio of 0.04 to 0.3%

A benefits group has approached us with a plan using VOYA as the platform but when we dug into it, the plan is stuffed with a bunch of high cost Voya funds, that have expense ratios of 0.45 to 1.6%. Also, VOYA offers only 2 Vanguard funds and some other higher cost funds.

I admit to being a rookie but I think the benefits guys get a cut of the income generated by these funds, which raises red flags in my mind. I don't mind them making money but it seems like double dipping as we have to pay a maintanence cost of 1% from each of our accounts.


These guys acted offended when I asked questions and expressed concerns about the high cost VOYA products and they threw out word salads, acronyms to pretend that I didn't understand how this works. It very well could be my lack of understanding. I'm the business owner, but not a financial guy. I'm going to get a second opinion, but my trust level is low with this bunch so far.

Anyone else have experience with the nuts and bolts of these plans that can shed some light?

TIA!




LSURussian
LSU Fan
Member since Feb 2005
109750 posts
 Online 

re: Anyone understand 401(k) plan set ups?
quote:

These guys acted offended when I asked questions and expressed concerns about the high cost VOYA products
That right there tells you all you need to know.


TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
9591 posts

re: Anyone understand 401(k) plan set ups?
I assume companies can put together any type of package. Our VOYA plan is loaded with Vanguard Admiral Funds. In fact, I am admiral in everything but one global fund that doesn't have an Admiral option.

For reference, I am with a private, 650-700 person company.
This post was edited on 1/25 at 3:39 pm


MadDoggyStyle
Mississippi St. Fan
Member since Feb 2012
3857 posts

re: Anyone understand 401(k) plan set ups?
are these guys paid a percentage of the "expense ratio" on top of their maintanence fee. The guy I talked to would not clearly answer my question on this point, but seemed to admit they did get paid a portion from the fund itself.

It feels like there is a conflict of interest if they are pushing high cost funds that they get to skim fee's off the top.

What am I missing?


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MadDoggyStyle
Mississippi St. Fan
Member since Feb 2012
3857 posts

re: Anyone understand 401(k) plan set ups?
From what I understand, they have a "person" who oversee's our plan and designates which funds are available, and it relieves me, the business owner of fiduciary responsibility. They say they can remove this overseer but it makes me liable and makes the cost increase by 1 basis point, (0.1%). The advantage is that it gives us more choices. I'm just not seeing any value to their product so far, but this is not my forte.


1609tiger
Member since Feb 2011
1486 posts

re: Anyone understand 401(k) plan set ups?
You can’t have a “person” relieve you of investment responsibility. It’s called a 338 fiduciary and it must be a bank, insurance company or RIA. If you don’t have a 338 contract with one of those then you have investment responsibilities.


1609tiger
Member since Feb 2011
1486 posts

re: Anyone understand 401(k) plan set ups?
Also if you have a plan at .75 basis points and your investment line up is low cost institutional funds at .20 or less then your “all in cost “ of your plan is less than 1 percent. That’s very good for a small or medium size plan.


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AugustaTiger
Augusta, Georgia
Member since Dec 2017
60 posts

re: Anyone understand 401(k) plan set ups?
For small plans like you are talking about those costs are about right.

For a small plan It comes out one of two ways.

1) Higher expense ratios and fees (you and your employees pay based on balances in the plan)

2) High plan administrative costs that you pay directly as the business owner. These are generally tax deductible.

Depending on the mechanics of your business and your plan, you might be using a bazooka to kill a fly with the 401(k).

If you aren’t personally maxing out or doing profit sharing/ safe harbor match in your 401, you might be better off doing a SIMPLE IRA plan. (If you have less than 100 employees) You and your employees can self direct into whatever investments you like (assuming they are offered through the provider you choose). Downside is that deferral limits are lower and folks over 50 can only defer 15500- but a lot of times, that works just fine for small business.




MadDoggyStyle
Mississippi St. Fan
Member since Feb 2012
3857 posts

re: Anyone understand 401(k) plan set ups?
It is a 338, just not familiar with the terminology


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MadDoggyStyle
Mississippi St. Fan
Member since Feb 2012
3857 posts

re: Anyone understand 401(k) plan set ups?
Good point but the 401k does allow us to put more in the plan than a SEP iRA. $24,500 if over 50. $18,000 if under 50.


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