Anyone elses 401k suck this bad?

boomhower · Jun 25, 2010

As a government employee I am enrolled in the states 401k plan. What sucks is that they took away you options to choose your own funds outside of what they offer. I don't know enough about this stuff to tell heads or tales of what the different finds mean. Basically I have it set on my retirement date and it rebalances quarterly accordingly getting safer as time goes on.

The good news is that I don't have to contribute to this. My employer is required by state statute to contribute ~5.5% of my salary. So I can take the 6% I am contributing elsewhere. I need to start looking at other options that don't take much to enroll. Thoughts or ideas?

JMapleton · Jun 25, 2010

Government managed investments. LMAO

I wouldn't contribute a dime to that if I could prevent it.

Suspicious-Teach8788 · Jun 25, 2010

it's better than a fvcking social security account that loses to inflation at least........

you gotta show your ROI for 1 year to tell us how bad it is...

glenn1 · Jun 25, 2010

boomhower said:
As a government employee I am enrolled in the states 401k plan. What sucks is that they took away you options to choose your own funds outside of what they offer. I don't know enough about this stuff to tell heads or tales of what the different finds mean. Basically I have it set on my retirement date and it rebalances quarterly accordingly getting safer as time goes on.

The good news is that I don't have to contribute to this. My employer is required by state statute to contribute ~5.5% of my salary. So I can take the 6% I am contributing elsewhere. I need to start looking at other options that don't take much to enroll. Thoughts or ideas?

What age are you?

For your state plan, I'll agree that the fund choices aren't ideal, but I've seen worse. The current allocation you have is fine given the options in your plan and you'd probably be better off leaving it with a target date fund (what you have) than trying to tweak it per suggestions from me or anyone else on the board.

For your discretionary 6% you're talking about putting elsewhere, go to Vanguard and open a Roth IRA; I work in the brokerage/finance field and can honestly say you won't find a better account type, company, or funds to put your retirement money into (and no, I don't work for them or sell their funds).

boomhower · Jun 25, 2010

DLeRium said:
it's better than a fvcking social security account that loses to inflation at least........

you gotta show your ROI for 1 year to tell us how bad it is...

That's another thing, they haven't even been around a year yet. I am a guinie pig. They just switched over at the end of last year. I am trying to find an easy way but I can't find anything that easily put's it out. Overall this year the portfolio is up 5.31%.

How bad are these numbers?

glenn1 · Jun 25, 2010

boomhower said:
That's another thing, they haven't even been around a year yet. I am a guinie pig. They just switched over at the end of last year. I am trying to find an easy way but I can't find anything that easily put's it out. Overall this year the portfolio is up 5.31%.

How bad are these numbers?

If you mean the expense ratio figures, they're OK but not spectacular. The global fund is a bit high for what it is; basically a large cap blended fund that has mostly U.S. stocks with some international stocks (probably almost all British or Japanese) thrown in to give it the veneer of a "global" fund. However, as I said before, if you don't have the knowledge or comfort factor to be able to perform due diligence on your investment options, going with the target date fund is a pretty reasonable choice and probably your best bet. In other words, what you have is good enough, don't mess with it.

boomhower · Jun 25, 2010

glenn1 said:
If you mean the expense ratio figures, they're OK but not spectacular. The global fund is a bit high for what it is; basically a large cap blended fund that has mostly U.S. stocks with some international stocks (probably almost all British or Japanese) thrown in to give it the veneer of a "global" fund. However, as I said before, if you don't have the knowledge or comfort factor to be able to perform due diligence on your investment options, going with the target date fund is a pretty reasonable choice and probably your best bet. In other words, what you have is good enough, don't mess with it.

Is it basically a target date fund then? I rebanlances every quarter to adjust gains and losses to keep the distribution the same and then it adjusts that distribution based on age. I'm 28 now and will retire at 58, at least that's when my pension will kick in but I won't touch my 401k yet obviously.

lothar · Jun 25, 2010

Wow, that's complete shit. My company offers everything(Small, Mid, Large, Value, Growth, international, income/bond) between 0.09 and 0.13% expense ratio(I think the income/bond fund is the exception at 0.3% or so)
I was going to make a comment (not enough value, not enough small caps) but after seen the premium being charged in expenses, you'd be a moron to take that.

Just stick to the Large Cap, Small cap, and International index. It's not a must one must select ALL funds a company offers.
You can makeup whatever you're missing in your IRA and other investment accounts.

What are the stock symbols of those funds?
I especially want to look at the "Top 10" holdings of the "value"(supposedly) funds.

FleshLight · Jun 25, 2010

Not as bad as the CA pension over here. 2.7% of your highest salary for every year of service and you can have multiple pensions if you retire at 45 and find another job with another pension.

boomhower · Jun 25, 2010

AlienCraft · Jun 25, 2010

Looks Like The John Hancock stuff we've got.
I went with the funds with the lowest costs / fees.
So far, I've not lost as much as the others and never really went negative.

Blackjack200 · Jun 25, 2010

JMapleton said:
Government managed investments. LMAO

I wouldn't contribute a dime to that if I could prevent it.

It's not a government managed investment.

https://www.retirement.prudential.com/RSO/web/pdf/NC_FIFSA.pdf
https://www.retirement.prudential.com/RSO/web/pdf/NC_GEFSA.pdf

It's discretionary asset management provided by traditional IM firms. It's just branded as an NC fund for some reason. There's absolutely nothing wrong with this type of investment vehicle. In fact, many of our biggest clients (> $1 billion in plan assets) insist on using separately managed accounts for all their asset categories. They use them because of cost concerns and fee transparency.

glenn1 said:
If you mean the expense ratio figures, they're OK but not spectacular. The global fund is a bit high for what it is; basically a large cap blended fund that has mostly U.S. stocks with some international stocks (probably almost all British or Japanese) thrown in to give it the veneer of a "global" fund. However, as I said before, if you don't have the knowledge or comfort factor to be able to perform due diligence on your investment options, going with the target date fund is a pretty reasonable choice and probably your best bet. In other words, what you have is good enough, don't mess with it.

See my link above, the global fund is invested in 44% non US stocks. Nothing wrong with putting that money in Canada, Japan, and the UK. The point is to diversify from the US a little bit, it's not an emerging markets fund. I don't feel like taking an in-depth look at the fees (and in any case, I'm not a fund analyst), but SMAs are generally among the cheapest active management solutions available. They don't have the costs associated with 40-act registration.

There are disadvantages to SMAs as well. As the OP noticed, there is no historical performance. The reason for this is that these assets are managed in a separate sleeve from everything else. By definition, it can't have a track record when it starts.

boomhower said:
Is it basically a target date fund then? I rebanlances every quarter to adjust gains and losses to keep the distribution the same and then it adjusts that distribution based on age. I'm 28 now and will retire at 58, at least that's when my pension will kick in but I won't touch my 401k yet obviously.

It's a menu of funds with a custom target-date glidepath. Essentially, NC hired a separate firm (probably Ibbotson) to determine asset allocation based on participant age, and potentially risk appetite. Do you have options for "more aggressive" "moderate" and "less aggressive" type allocations, or do you only put in your age?

In any case, the upshot is that your plan is not half as bad as you think it is. In fact, it's probably much better than most small to mid-market 401(k)s.

boomhower · Jun 25, 2010

FleshLight said:
Not as bad as the CA pension over here. 2.7% of your highest salary for every year of service and you can have multiple pensions if you retire at 45 and find another job with another pension.

The 401k is not our pension, it's in addition to it. If I retired with the minimum time for full payout(30 years) and might highest 3 three years averaged $45,000(as you can gather I'm not making shit now but am intentionally picking a low number) my monthly pension would be $2100 a month. In reality it should be around $60,000 which would put it at $2775. The formula is:

(average of three highest years of pay*.0185)*(years of service)/12

boomhower · Jun 25, 2010

Blackjack200 said:
It's a menu of funds with a custom target-date glidepath. Essentially, NC hired a separate firm (probably Ibbotson) to determine asset allocation based on participant age, and potentially risk appetite. Do you have options for "more aggressive" "moderate" and "less aggressive" type allocations, or do you only put in your age?

In any case, the upshot is that your plan is not half as bad as you think it is. In fact, it's probably much better than most small to mid-market 401(k)s.

Yes it did. I have it set to aggressive.(The choices were aggressive, moderate, and low) I suppose it combines that aggressive setting with the age setting to come up with its divestment choices.

Could I do much better going somewhere is with my own money? If I did it would be a target fund of some sort. I don't have the expertise to do it myself and don't have a portfolio worth going to a manager.(well and not be laughed at, at this point we're talking $10k)

Blackjack200 · Jun 25, 2010

lothar said:
Wow, that's complete shit. My company offers everything(Small, Mid, Large, Value, Growth, international, income/bond) between 0.09 and 0.13% expense ratio(I think the income/bond fund is the exception at 0.3% or so)
I was going to make a comment (not enough value, not enough small caps) but after seen the premium being charged in expenses, you'd be a moron to take that.

No, it's not complete shit. For your company to offer funds at those expense levels they have to pay massive participant based record-keeping fees. That's fine, and it certainly is a best-case scenario for the plan participants, but not every company (or even state) can afford to do that.

Just stick to the Large Cap, Small cap, and International index. It's not a must one must select ALL funds a company offers.
You can makeup whatever you're missing in your IRA and other investment accounts.

Not sure, but it sounds like he doesn't have control over asset allocation.

What are the stock symbols of those funds?
I especially want to look at the "Top 10" holdings of the "value"(supposedly) funds.

Look at the fact sheets, they are not registered funds and therefore do not have NASDAQ ticker symbols. If you want an approximation of the fund strategy, you can look at the closest equivalent mutual fund offered by the investment management firm, (or firms in this case) but remember that these assets are not comingled with the mutual fund, they are managed in a separate sleeve.

dullard · Jun 25, 2010

Yes, many other 401Ks are that bad (actually many are far worse). 401Ks are generally very limited selections with generally mid to high fees. That is why the standard rule-of-thumb is to do this:

1) Put as much into the 401K as needed to get the full company match.
2) Stop putting money into the 401K.
3) Put any additional retirement funds into a Roth IRA or Traditional IRA until that IRA is maxed.
4) Decide if you still need more retirement funds.
5) If so, go back to the 401K. If not, open a taxable investment account.

Yes, you can do better somewhere else with your own money, but you could also do worse. Part of it is how educated you are and part of it is luck.

You can partly fix the educated part by being diverse (ie don't put all your eggs into one basket that you know very little about). Get some funds that are US stocks, some that are foreign stocks. Get some funds that are large companies, some that are small companies. Get some funds that are value and some that are growth. Eventually sprinkle in some metals, real estate, energy, etc. A very good resource is any of a series of books by William Bernstein (such as The Four Pillars of Investing).

You can partly fix the luck part by buying funds with low expenses. No one here has a functional crystal ball. No one can say what fund is a good fund to buy. But we can say what funds are bad funds - the ones where the profits go to the manager and not to you.

That said, with only $10,000, you can't really be diverse without picking a target fund. For now, find one with low expenses, open a Roth IRA (or traditional IRA) and buy it. When you have more money and more education, then you can sell the target fund and get something that fits your needs better.

Blackjack200 · Jun 25, 2010

boomhower said:
Yes it did. I have it set to aggressive.(The choices were aggressive, moderate, and low) I suppose it combines that aggressive setting with the age setting to come up with its divestment choices.

You're correct. Again, I'm guessing that it's Ibbotson that is providing the service since they are by far the biggest player in the industry. Look here to see a little more detail about how it works.

http://corporate.morningstar.com/ib/documents/MarketingOneSheets/TargetMaturityFactSheet0509.pdf

Could I do much better going somewhere is with my own money? If I did it would be a target fund of some sort. I don't have the expertise to do it myself and don't have a portfolio worth going to a manager.(well and not be laughed at, at this point we're talking $10k)

I'm probably the wrong person to ask that question as I don't like target-date funds for a number of different reasons.

This NYT article probably explains it better than I could:

http://www.nytimes.com/2009/06/25/your-money/mutual-funds-and-etfs/25target.html?_r=2

If you do want to go the target date route, I would probably go with the NC plan as it avoids a lot of the problems with target date mutual funds. It will be a little more expensive that Vanguard or T.Rowe, but won't have the conflict of interest or performance competition problems.

BTW, this is not investment advice, blah blah blah

Blackjack200 · Jun 25, 2010

dullard said:
That said, with only $10,000, you can't really be diverse without picking a target fund. For now, find one with low expenses, open a Roth IRA (or traditional IRA) and buy it. When you have more money and more education, then you can sell the target fund and get something that fits your needs better.

Okay, but how should he select which TDF to use? His DC plan might be 25 to 30 bps more expensive, but he will have the benefit of an investment fiduciary selecting his glidepath for him. i.e., if his investment blows up because the glidepath is poorly managed, he can sue the fiduciary.

boomhower · Jun 25, 2010

Obviously it seems I am better off staying with what I have, it's not that bad it seems all things considered.

Another thought that will probably question taxes more than anything else. Since I am not getting a match would I be any better off putting some of that into a ROTH(with the same fund options) or leaving it alone. I know I will pay more taxes now but less later. Since I am on the bottom of the totem pole I would think my taxes in the future will do nothing but go up. I want to be comfortable in my retirement as it likely won't be that long. Industry average is ten years for my profession last I checked. Obviously I will plan for at least double that but I don't want to have to stress over it when I get there.

Blackjack200 · Jun 25, 2010

boomhower said:
Obviously it seems I am better off staying with what I have, it's not that bad it seems all things considered.

Another thought that will probably question taxes more than anything else. Since I am not getting a match would I be any better off putting some of that into a ROTH(with the same fund options) or leaving it alone. I know I will pay more taxes now but less later. Since I am on the bottom of the totem pole I would think my taxes in the future will do nothing but go up. I want to be comfortable in my retirement as it likely won't be that long. Industry average is ten years for my profession last I checked. Obviously I will plan for at least double that but I don't want to have to stress over it when I get there.

That's the million dollar question and there's no easy answer. Many people say "oh, taxes always go up", and they do tend to. But keep in mind that the marginal tax rate on the top earners used to be around 90%, and now it's around 38%. Obama also lowered income taxes on the middle class when he got into office. I've heard more theories on when to use Roth vs. Traditional than I care to count. I personally use Roth just so I won't have to worry about the taxes later, I literally have no other reason, and I don't think anyone can tell me I'm doing the wrong thing unless they have a crystal ball.

As for the second part of your question, that's really more philosophical than anything else, I personally don't sweat it: I contribute about 3% of my salary to my 401(k), and my employer matches it (i.e. I max out the match and that's it). I constantly hear about how I should be putting away gobs of money in various tax sheltered vehicles (401-k, IRA, Whole Life Insurance, 529, all these products), hell, I work in the industry. But what's the point of being an old man with a pile of money? Most surveys show that retirees end up working after they retire by choice anyway. Don't get me wrong, sock some money away. But don't sock away so much that you miss out on life. Take vacations, go out to bars, take a girl to a baseball game. What do you really want when you're 65? A pile of wonderful memories or a fat brokerage statement?

I don't know, I just disagree with the whole 'work like hell 'till you're 65 then stop working and pray that your money lasts' mentality. It's the conventional wisdom but it just makes no sense to me.

JEDI · Jun 25, 2010

boomhower said:
The 401k is not our pension, it's in addition to it. If I retired with the minimum time for full payout(30 years) and might highest 3 three years averaged $45,000(as you can gather I'm not making shit now but am intentionally picking a low number) my monthly pension would be $2100 a month. In reality it should be around $60,000 which would put it at $2775. The formula is:

(average of three highest years of pay*.0185)*(years of service)/12

1.85%? that aint bad.

fed govt is 1%. used to be 2%

Elbryn · Jun 25, 2010

your benefits are pretty nice. not only do you get a pension, you also get a 401k match of 5%. i wouldn't be complaining about a little thing like the tenth of a percent higher expense ratios on your large/small/international index funds. you may not even need a fixed component for quite awhile as your pension provides monthly income that should be relatively safe given it's a state and pension obligations are usually at the front of the line when it comes to required payments.

dullard · Jun 25, 2010

Blackjack200 said:
Okay, but how should he select which TDF to use? His DC plan might be 25 to 30 bps more expensive, but he will have the benefit of an investment fiduciary selecting his glidepath for him. i.e., if his investment blows up because the glidepath is poorly managed, he can sue the fiduciary.

At this point the fund probably doesn't matter much. Honestly, not many target funds for people his age are very different. If he does see one that is much more aggressive, I'd steer him towards it. I suggest an outside fund mostly to get the out-of-the-401K ball rolling. That way, he'll see that it isn't difficult to do, it'll eliminate the hurdle of starting something new later, starts him down the path of having enough money in an investment firm to eliminate account fees, and it gives him a very convenient place to roll his 401k when he leaves his job (if he chooses).

For an amount of up to $5k (current IRA limits), I highly doubt he'd sue anyone. The chance of winning a little money in court isn't probably worth the very expensive legal battle.

Blackjack200 · Jun 25, 2010

dullard said:
At this point the fund probably doesn't matter much. Honestly, not many target funds for people his age are very different. If he does see one that is much more aggressive, I'd steer him towards it. I suggest an outside fund mostly to get the out-of-the-401K ball rolling. That way, he'll see that it isn't difficult to do, it'll eliminate the hurdle of starting something new later, starts him down the path of having enough money in an investment firm to eliminate account fees, and it gives him a very convenient place to roll his 401k when he leaves his job (if he chooses).

I agree for the most part, at his age it wouldn't matter much. I'm just not really a fan of TDFs.

For an amount of up to $5k (current IRA limits), I highly doubt he'd sue anyone. The chance of winning a little money in court isn't probably worth the very expensive legal battle.

These are almost always class action lawsuits filed on behalf of the plan participants. I agree that $5k wouldn't be worth chasing, but I was more thinking a few years out when he has more substantial balances.

ViviTheMage · Jun 25, 2010

boomhower said:
The good news is that I don't have to contribute to this. My employer is required by state statute to contribute ~5.5% of my salary. So I can take the 6% I am contributing elsewhere. I need to start looking at other options that don't take much to enroll. Thoughts or ideas?

What? I've never heard of this.

Anyone elses 401k suck this bad?

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