Scott Burns: How Good Is Your 401(k) Plan ?

Ted

FYI: Is that gift horse 401(k) plan you have a good deal? Have you examined its teeth?
Maybe it’s time.
The issue here is simple. This gift horse is one you may have to ride until you retire. When 401(k) plans got their start 30 years ago they were imagined as a supplement to pension plans. Today they are the main deal for retirement saving
Regards,
Ted
https://assetbuilder.com/knowledge-center/articles/how-good-is-your-401(k)-plan

Derf

Received a Whoops ! I will try later.
Derf

msf

The problem is that the URL contains () as in 401(k), that MFO seems to strip out. Here's a URL that works (with escape sequences):

https://assetbuilder.com/knowledge-center/articles/how-good-is-your-401(k)-plan

msf

There's a lot of stuff Mr. Burns isn't telling you. Got to dash, so for now I'll just say that with TRP, he's looking at two different funds and comparing costs. One is T. Rowe Price Blue Chip Growth Fund TRBCX, and the other is T. Rowe Price Blue Chip Growth Portfolio (no ticker symbol, according to TRP, see page below).

Even without any added fees, "direct from T. Rowe Price" (as Mr. Burns writes), the latter costs more than 0.71%. Here are the TRP pages on each:

Fund: https://www4.troweprice.com/gis/fai/us/en/funds/us-products/blue-chip-growth-fund.html

Portfolio: https://www4.troweprice.com/gis/fai/us/en/funds/us-products/blue-chip-growth-portfolio.html

msf

As this ICI paper states, 401(k) plans are complex to maintain and administer, and are subject to a slew of regulations. You can find some detail about this on p. 3.

This costs money, and 401(k) plans charge fees to recoup the costs (and to make a profit).

Large employers aren't charged much per employee. So they just eat the costs. Small employer plans cost more per employee, so these employers often pass the costs through to the participants.

Rather than charge employees so many dollars per year to participate (which would discourage participation), the plans tack on a percentage fee to all the funds. They do this by wrapping the plans inside an annuity, and using the annuity fee to pay for the plan.

When the annuity fee is added to a fund fee, it looks like the fund costs a lot. But that's just slight of hand. The fund fee itself tends to be reasonable if not low.

This obfuscation makes it appear to employees that they're getting the plan "for free", when it's actually the employer who is not paying for the plan. All these costs are disclosed to the participants (they don't have to ask for more docs), but most participants don't look past the "all in" fee per fund (fund fee plus annuity fee).

(I know that the plan mentioned is a VA from the name of the TRP fund, which is only offered to VAs. In conflating the "all in" fee with the fund fee, Mr. Burns promotes this obfuscation. He knows better than that, but cost shifting isn't something he wants to discuss. That's a matter with more than one side, and he'd have to discuss what constitutes reasonable costs and how costs could be divided between employer and employee.)