"Josh B." <acurazrule[at]yahoo.com> wrote in message
news:1158189968.182688.192480[at]e3g2000cwe.googlegroups.com...
- quote -

I agree with Elle that you could lose the bond fund. Similarly, there's
little point in a balanced fund (just a large cap plus the bonds you could
dump).

Beyond that, I would get rid of New Perspective. That's a fund that's 2/3
foreign, 1/3 domestic, but you're paying expenses for a 3/3 foreign fund.
Bump EuroPacific to 20%.

If you've got any mid/small cap funds, you might want to add 20-40% in
those, and leave 60-40% in large caps (the 20% in foreign makes 100%).
Probably pick one of the large cap values, and one of the large cap growth
funds, splitting the large cap allocation.

Growth Fund of America seems to be the better (and cheaper) growth fund,
though it is a huge fund. No comments on the value side.

All of this is just following "conventional wisdom" - 20-25% foreign, a fair
mix of small cap (I'm suggesting overweighting vs. market a bit for a more
aggressive portfolio), and no particular growth/value bias. Also, don't
overdiversify (don't collect funds simply because they are there).

Mark Freeland
BnetOnewsX[at]sbcglobal.net

I received a response from CDM saying that the initial sales charges do
not apply to the funds in my plan. With that being said, back to the
original question, should I change my distributions from where they are
at right now?

"Josh B." <acurazrule[at]yahoo.com> writes:

- quote -

First off, I'd be a bit more careful with the numbers
above - 5% and 3% may be the right percentages, but
putting them next to each other like that is a bit
misleading, since they are percentages of different
things - it's 3% of salary, and 5% of investment.
Typically, that 3% of salary works out to be 50% of
investment. That's huge and 50% of investment overcomes
any load anyone imposes.

- quote -

The vesting applies only to employer matches. Employee
contributions are always 100% vested immediately.

If you are 25% vested in the match, then you own 25%
of that 50% - or 12.5% - which still overcomes - easily -
any load any fund imposes. No matter how you slice it,
that match is free money. If, in fact, there are loads
which are not waived, there may be a reasonable argument
against investing in the 401k beyond whatever the employer
matches, but it would take a truly extraordinarily bad
plan to make it not worthwhile to take advantage of at
least the match.

- quote -

Almost certainly it's worth taking advantage of the match.

If you're changing jobs frequently, roll all those 401ks into
a single, far easier to manage IRA at a brokerage. But don't
leave free money on the table.


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"Elle" <honda.lioness[at]nospam.earthlink.net> wrote in message
news:mgZNg.11088$bM.7249[at]newsread4.news.pas.earthlink.net...
- quote -

This (1998) report says that "the typical 401(k) plan compares favorably
with retail investments [in terms of costs] when consideration is given to
the ancillary services that such plans offer." It goes on to acknowledge
that "some observers [conclude] that some 401(k) plans are paying too much
for services", but says that it cannot comment on that, as "this hypothesis
is not testable with the data currently available."

The study doesn't address the hypothesis that paying inappropriately high
fees is a problem though it documents that IF it is a problem, then it is
well known.

- quote -

This article says that small companies pay more for a variety of reasons.
It points out that the few lower cost providers around for small plans offer
limited services. That's consistent with your previous cite, that says that
higher prices may be appropriate for the services received.

By going lower cost, the company has to fill in some of those services
itself (still costing money). If the employer (and not the employees) was
paying the costs before, this could be a wash. If the employees were
paying, then it might only appear that they are coming out better. As Tad
observed, the company can easily shift costs back onto the employee (e.g. by
reducing benefits, raises, etc.)

- quote -

This pricing doesn't include preparation of the annual 5500 form. Perhaps
more significant is that this is the ultimate in DIY - you are not buying a
service, but software to run your own reports, etc.

See http://www.401khelpcenter.com/401k_service_models.html to get an idea of
what hidden costs are incurred by companies using unbundled packages. For
example, "ease of administration" is low, because the company must do
everything. For the same reason, "need for ERISA attorney" help is high.
"Complexity" is high.

You got to the right site, but may not have seen this page.

One can go with a barebones provider and save a few bucks, but below a
certain level of service, it will cost the employer more that the savings
are worth. A company has to make a careful tradeoff between the services
and savings.

It simply costs more to provide a plan for a small number of employees.
That's not to say that some employers can't do better, but it's not as clear
cut as many people seem to think. Just as you don't get a great deal on
your $1K brokerage account, you don't get a great deal on a small 401(k)
plan.

BTW, I disagree with Tad that the employees using the plan should bear the
cost. This discourages participation, which I don't consider a good thing
(even without matching - see jIM's post). Further, as participation drops,
the plan itself is at risk, and those paying the fees (participating) may be
limited in what they can contribute (to pass non-discrimination testing).

I do support having employees pay loan processing fees, because that is
behaviour that is to be discouraged, rather than encouraged through employer
subsidy.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

"Josh B." <acurazrule[at]yahoo.com> wrote
- quote -

A company with 1800 employees is far closer to "large"
rather than "small" when it comes to 401(k) programs. By all
reports, sizable economies of scale should apply to your
company's 401(k) plan. Furthermore, employees paying
inappropriately high fees for 401(k) service is a well-known
problem. Government and other reports on the net indicate
the problem seems far more likely to be 401(k) plan
administrators not yet savvy on what's available. For
example, see

www.dol.gov/ebsa/pdf/401krept.pdf (pages 55-58 seem
particularly relevant)

http://www.startupjournal.com/runbus...tml?refresh=on ,
a 2004 Wall Street Journal article

http://401k-easy.com/prices/

http://www.aicpa.org/pubs/jofa/may2001/duffy.htm

http://www.401khelpcenter.com/feeissue.html

http://www.benefitnews.com/retire/detail.cfm?id=28

http://www.sba.gov/library/successXI...remployees.htm

http://www.findarticles.com/p/articl...84/ai_18149404

Josh B. wrote:

- quote -

The major advantage of a 401k is a TAX BREAK today, with a second
advantage of "tax free growth". Add in matching as a third benefit and
I would not recomend against a 401k.

If you are opting out of 401k, you are increasing your current tax in
exchange for the governments promise not to tax you on the money later.
You still would get tax free growth.

So weigh the idea of a) reducing current taxable income and b) company
matching, and I think 401k is a good benefit. Even if job hopping 25%
of the match is better than no match. Run the numbers above with
income and getting only 25% of the 100% match...

see how it comes out compared to Roth.

- quote -

Yes this is really getting me to thinking that maybe the Roth IRA might
be a better choice. One factor that I alluded to earlier is the fact
that jobs in the IT industry tend to be more volatile than in other
fields. I've worked as a consultant for a number of firms already, and
this "moving around" doesn't seem to be conducive to the company 401(k)
plans. Take for example my situation right now, I've been with this
firm for a little over a year, but I'm only 25% vested. I would have
to stay for 2 more years to become fully vested. I will probably be
offered a position working on the same contract for another firm with a
substantial salary increase. However, since I would be changing
companies, this move will diminish most of the benefits that I received
with my current 401(k).

So in a scenario like mine, where the chances of staying with any
single firm for an extended period of time are not very high, would it
be a better idea to forget about company 401(k) even if they are
matching under the premise that in order to take advantage of the
matching you really need to become fully vested?

Obviously if you feel that you're going to be with a company for a
few years, this wouldn't be an issue. In my case, I did approach the
situation that I'd be with this firm at least 3 years and would
therefore become fully vested which is why I took advantage of the
matching. But options do present themselves from time to time, and
when are you considering accepting a new position, you don't turn
down a substantial increase based solely on the fact that you're not
fully vested in your 401(k). I suppose exceptions to this exist in if
you have a lot of money in your 401(k), but in my current situation,
this does not apply as I've not been there long enough to have a
substantial amount invested.

Josh B. wrote:
- quote -

401k advantages:
1) reduces taxable income THIS YEAR
2) gains grow tax free
3) high amount of contributions allowed ($15,000/year)
4) companies tend to match certain percentages
5) some plans allow loans (which must be paid back)

401k "disadvantages"
1) distributions are required at certain ages (RMD)
2) distributions are taxed at current tax rates
3) locked into funds of company's choice

Roth IRA Advantages
1) gains grow tax free
2) qualified withdraws of gains not taxed
3) deposits can be withdrawn without penalty

Roth IRA "disadvantages"
1) income limits for deposit
2) lower contribution amounts ($4k this year)
3) contributions are from income which has been taxed (you are paying
taxes NOW for a "promise" of no taxes later)

The costs of each vary. If paying a load of 5% and getting a match of
3%, I could find it easy to justify this...or I might just opt out of
401k, increasing taxable income, then use Roth IRA and taxable
accounts.

example: salary of 100k, company matches 50% of first 6% (this is what
my employer provides me). Assume 6% contribution percentage.

401k
100k salary is 94k taxable salary +6k into 401k.
6000*5%=300 "commission" or load paid
3000 received in match (50% of 6%)
8700 deposited into 401k each year
$16,615 is tax paid on 94k
gains in 401k taxed at "current tax rates of ~15-25%" when withdrawn in
retirement

Roth IRA
100k salary, all taxed
$4000 contributed to Roth IRA
Tax paid is $18,115 on 100k
Roth IRA withdraws **tax free** under right circumstances
additional investments in taxable accounts 10% or 15% paid in long term
capital gains

- quote -

Good Point. The company that I currently work has about 1,800
employees and the 401(k) is handled by CDM Retirement Consultants
http://www.cdmretirement.com/cdm/index.html. Maybe 1,800 employees
isn't enough to warrant no-load funds. At any rate, I have emailed
them to see if I have any other options and what the expenses are on
each fund. I'll post back with the response.

Elle wrote:
- quote -

Coincidentally I just got off the phone with someone getting quotes on
this exact question -- a 401k vendor (called a "TPA", third-party
administrator). You get a different perspective when you call around
because you want to set one up for a business.

The reason is that the 401k plan provider needs to get paid. There's
recordkeeping, testing of the plan (to make sure it meets regulations &
remains a valid 401k plan), some filings, dealing with phone calls from
participants, etc. Depending on the vendor you might get someone coming
in doing educational seminars, providing literature, etc. There's also
some liability that goes along for the ride, and everybody who takes on
liabilty gets paid for it. None of these people should be expected to
work for free.

In a large company it's not so much of an issue, because there's a large
number of participants. The fixed cost is relatively low (divided out
per-head) and the company can eat it as part of their
compensation/benefits cost. So that can be done using no-load funds.

And if it's one employee then a lot of the administration is simplified
and can be easily automated, which is why some vendors offer free (or
nearly free) solo-401k plans, with relatively low cost funds.

But if it's a company with say five or ten employees, or not much in
401k plan assets yet, it's in no-man's land. Either the company needs to
pay the cost of plan setup & administration out of pocket, or the
employees need to pay it indirectly through loads. Arguably it could be
a wash...if I were an employer adding in a 401k plan that costs me $500
per head per year just to set up & administer, I'll have $500 less per
head to spend on other benefits/comp (such as raises). Or, the
participants can pay $500/year in sales charges, and it frees up $500/pp
for raises. Economic wash? The loads may actually be more fair - they
don't penalize the people who decide not to participate in the 401k plan.

-Tad

Ask your 401(k) plan administrator to document the expenses
of each fund. Tell him/her you are particularly concerned
about the starting 5.75% load that the American Funds web
site and prospecti advertise for all but one of the funds
you originally listed.

I remain pessimistic on the point. Another poster was asking
about American Funds and his 401(k) just the other day here
and elsewhere. One of the funds he listed was RERCX. Its
goal and holdings appear to be identical to your AEPGX. The
only difference is the ridiculous load on your fund.

Your AEPGX of course returned much worse than RERCX, because
of the sales charge. Compare using the "Average Annual Total
Returns" matrix, with sales charge rows at:

http://www.americanfunds.com/funds/d...dClassNumber=0

http://www.americanfunds.com/funds/d...lassNumber=300

Even with a load, the general rule for retirement saving is:

1.
Contribute to 401(k) up to employer matching to get the
immediate (in your case) 100% return. (Though it's about 94%
because of the ridiculous load for several of your funds.)
There's no other no risk way to beat an instant 94% kind of
return on one's money.

2.
Max out Roth IRA, to get the tax advantage and flexibility
of choices, emergency withdrawals, and distributions.

3.
If one still has money to invest for retirement, resume
contributions to the 401(k), for the tax advantage, unless
the expenses (e.g. loads) are ridiculous. Then ask for
elaboration here or elsewhere.

I saw at least one web site that suggested that employees
who noticed that the fund selections in their 401(k) plan
were the American Fund loaded ones inquire firmly on this
point.

I would like to know why some 401(k) administrators choose
the loaded version when evidently others choose the
non-loaded version. (Please don't post speculation. I have
plenty of that, of course. I want the definite answer or
explanations from real life.)

Josh B. wrote:
- quote -

Josh,
Ask the benefits person at your company about the actual loads charged,
it completely depends on the plan. It costs money to set up and
administer a 401k plan, and some employers pay for this directly, others
let the commission revenue cover the costs. It's common for the loads to
be waived or reduced, especially if the company you work for isn't a
small one (though even then, if the total assets in the plan are high
enough, the loads may be low or zero). But the base A-share stats don't
tell the whole story. A-share commissions are 0% once you reach a
breakpoint, even when you're not talking about 401k plans.

RE: the job-skipping career path...one nice thing about a 401k for an
employee is that it allows a high level of contributions each year,
$15,000 plus your employer's match. Compare that to an IRA, which allows
just $4,000 per year. To the extent you want to stuff a lot of money
into retirement savings, this does it more quickly. So even with a load
that may be OK for you.

Especially if you'll change jobs, because at each job change you can
shift your old employer 401k plan into a Rollover IRA and by selecting
the right custodian, get the exact investments you want. And, you can
watch for chances to convert all or part of that IRA to a Roth IRA. In
tech an ideal time is that year you jump ship to a startup or other
position with a low salary.

The wildcard in this is your tax bracket. If your tax bracket is low
right now you won't get much benefit from the 401k contribution. If so
you may be better off with a Roth IRA contribution instead -- at least,
after getting that free-money 3% match.

-Tad

Forgive my ignorance here, but how can I find out if the funds are
loaded or not? Would this be in the prospectus or elsewhere? One
thing I noticed and the reason why I asked the question is my gains
seem extremely low. Would this be indicitive of heavy front loads? My
wife's 401k plan seems to do better than mine but maybe her's doesn't
have loaded funds. I'll have to check to see.

Currently the company matches 100% up to 3% contribution. If the funds
are heavily loaded, would you recommend to contribute only amount up to
matching and put more into an IRA? The other variable is that I might
be switching firms (same job, same location, but a new company + more
$) so most likely the 401k plan would change. Maybe I'm better served
investing more into an IRA than a company 401k especially because I
work in IT and jobs tend to change more frequently.

Thoughts?

"Elle" <honda.lioness[at]nospam.earthlink.net> writes:

- quote -

Not necessarily. In many 401k plans, the front-end load
is waived. We just don't know from what he's posted.

- quote -

They really don't talk about it much when they waive them.
My guess is that they don't want to remind anyone out there
who doesn't have them waived how badly they're getting
ripped off.



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Earlier you posted that you are "26 years old, married, with
no children (maybe in the future)."

American Funds is charging you a ridiculous load on all the
funds you listed. The bond fund's front load starts at
3.75%, the others at 5.75%. See
http://www.americanfunds.com/funds/c...etails.htm?r=o .
The bane of mutual funds are loads. Many (most these days?)
carry none. Loads like this eat into your returns
enormously. Double check that the loads are applied even to
positions in 401(k) accounts. If they are, find out if you
have any other choices besides the funds listed. From
looking at the American Funds site, I am not optimistic.
They'd shout it from the rooftops if the loads were waived
for 401(k)s.

By the way, I first went to your links above, saw nothing on
loads, and then threw the fund symbols into the window at
www.finance.yahoo.com , since the output (under "profile")
tends to obfuscate realities like loads less. Finance.yahoo
showed a load, so I dug further at the American Funds site
and found the aforementioned link.

Of course, if all your 401(k) choices have these loads, at
least the matching will make up a good deal for them. But do
not put unmatched money into these choices.

What percentage is your matching, anyway?

Setting the outrageous loads aside, the only other thing
that leaps out at me is the intermediate-long term bond fund
allocation. I personally would consider eliminating any such
bond fund position for a person your age, because (1) you're
young, you can afford to be more aggressive; and (2) I see
interest rates trending more up than down in the coming
years, and this takes a bigger hit on long-term bonds than
shorter term ones. Still, not a big deal. Bonds can enhance
returns.

Ultimately IMO what you should do is prepare a spreadsheet
with your fund positions in rows and the way the funds are
allocated in the columns. Compute how much is in large cap
growth, large cap value, medium cap growth, international
blah blah, etc. Total. Compare to the free online asset
allocators linked at
http://home.earthlink.net/~elle_navorski/id8.html . Tweak
per your taste. Ask questions, though clearly you already
have a great start to having complete financial control over
your life.

After getting such helpful responses on my first question here, I
thought I might get your input on my current 401k fund distribution.
I've been using these percentages since the account was opened a year
ago. I believe that I could probably do better than my current
allocations. Any suggestions?

My current allocations are as follows:

AMERICAN FUNDS EUROPACIFIC A (AEPGX)
10%
http://www.americanfunds.com/funds/d...?fundNumber=16

AMERICAN FUNDS BOND FD AM A (ABNDX)
10%
http://www.americanfunds.com/funds/d...m?fundNumber=8

AMERICAN FUNDS FDMNTL INVS A (ANCFX)
25%
http://www.americanfunds.com/funds/d...?fundNumber=10

AMERICAN FUNDS NEW ECONOMY A (ANEFX)
10%
http://www.americanfunds.com/funds/d...?fundNumber=14

AMERICAN FUNDS NEW PRSPCTV A (ANWPX)
10%
http://www.americanfunds.com/funds/d...m?fundNumber=7

AMERICAN FUNDS INV CO AMER A (AIVSX)
10%
http://www.americanfunds.com/funds/d...m?fundNumber=4

AMERICAN FUNDS AM BALANCED A (ABALX)
10%
http://www.americanfunds.com/funds/d...?fundNumber=11

AMERICAN FUNDS GROWTH FUND A (AGTHX)
15%
http://www.americanfunds.com/funds/d...m?fundNumber=5