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Selecting A 401k Provider

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I am posting this question about 401k plans here because the site has been helpful to me in the past.


Here is my situation:


* Started as the CEO of a 11 docs general surgery group almost 5 months ago

* Our current plan has expensive and poorly returning AIM funds. We pay AIM through our high fees and lousy returns.

* We pay a local TPA $7,000 a year to deal with our plan

* Our plan has about $2,700,000 with about 40 participants that includes 11 docs

* 11 docs each get max of $42k per year and the employees get a 3% match and 3.5% profit sharing contribution

* I like being able to offer my employees either Vanguard Target Retirement Funds or Fidelity Freedom Funds since we don't have anything similar to that with AIM now

* I have 45% of my employees including docs invested in cash with AIM earning 1.70% over the last 5 years

* I have conviced my Board of Directors to make the switch and I am just trying to make a recommendation to them on March 20th


I got quotes from 4 companies and here is a background on each one


Vanguard Institutional - Because we have less than $5 million in our account we have to use one of Vanguard's own TPAs they worked with called Pension Specialists based in California (I am based in FL). However, their annual charge is over $15,000 a year. In addition, we have to use their 401kMax.com web site and not go through Vanguard's site directly. Customer service is also not through Vanguard but 401kMax.com. I love Vanguard and love the fees and index funds. Pension Specialists references check out pretty darn good. I also have to pay $1,500 a year for an annual education to my employees (2 days),


Fidelity Direct - Fidelity offers the entire package of funds and TPA through their company. They have a flat fee of $7,000 for TPA services, but of course higher fees than Vanguard. However, when I stack up Vanguard vs. Fidelity funds it seems like the Fidelity Funds have higher returns (I know about past results). However, I don't know if Fidelity will give us good customer service since we are so small and deal with my cross-testing and profit maximization for my docs. Fidelity promises great education and I think it will be pretty decent with coming out one time a year.


Fidelity does offer a few index funds that I can utilize to cut costs down, but there bond funds and retirement money market funds are no where near vanguard. However, it seems vanguard doesn't have a great performing actively managed funds.


Bank of America - I did this for 2 of my docs and it was terrible. Two crappy offers that totally pushed me away from them. One was a dam annuity.


Current TPA - My current TPA is saying he can stay our TPA and go through Vanguard Small Business Services. He can't go under INstitutional because he can't offer daily valuation, trustee services, etc. However, he doesn't help with picking funds, keeping up with my fiduciary responsibilities, etc. In addition, because it is small business if we go below $3,000 on a fund our company get charged a fee. I think this plan is for really small companies.


Any opinions. I want to go with Vanguard, but it seems too dam expensive compared to the Fidelity option.


Most people cut on HR people selecting plans, but when you are small company the options limit you considerably because the big companies don't want to take you own. I can see how it is confusing for HR people that don't have this type of background. It is confusing for me and I am an MBA and CPA that is very interested in retirement plans.




John (aka Tampa Gator)

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I am an independent fee-only advisor and focus most of my practice on qualified plans.


1) If you are happy with your TPA; do what you can to keep them. $7000 seems somewhat average-to-high but if they are giving you good service, try to keep them. A good TPA is typically hard to come across. I have found companies who use a "bundled provider" (essentially have Fidelity offer the TPA, recordkeeper and investment services) have had problems on the TPA side. I believe an "unbundled approach" using a independent local TPA makes much more sense.


2) I have many clients who go directly to Vanguard Small Business Services and haven't had any problems. The TPA typically would act as the recordkeeper so they may charge a bit more for the service (typically not much).


3) As far as finding an advisor to help you select the funds and offer employee education; call a fee-only advisor or an hourly rate advisor. In my practice, I can either charge a hourly rate, flat rate or % of assets. An advisor who works on commission is typically limited to the types of products he/she can offer. A fee-only advisor does not get paid commissions or any revenue from the products they may offer to your company so they can give unbiased independent advice.


Good luck and Go Gators against them Wildcats this weekend.




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My wife is a 3rd year resident who just this week signed a contract with her residency program to stay on in a 1/2 time clinician, 1/2 time faculty role. The program provides her with a good profit sharing package and an optional 403(b)(7) on top of that. They allow employes to pick any 403(b) plan they want but steer them towards Vanguard, T. Rowe Price or Fidelity if they don't have a preference or a clue.


The program hires a fee-only advisor to come give group seminars to the different groups of employees. I just attended the session for doctors last night. He basically created a hyothetical young married doctor with 2 kids and then drew up a complete financial plan that included:


1. Profit sharing

2. Maximizing-out the 403(b) in an age-based Vanguard target retirement fund

3. Maximizing ROTH IRAs for both doctor and spouse

4. 529 plans for the kids at $750/mo per kid

5. Lots of term life and disability insurance

6. Charitable giving


I was pretty impressed. No nonsense about variable annuities or load funds. Tonight's the second part of the seminar dealing with doctor-specific issues such as sheltering assets from liability and estate planning.


I suspect that the program actually didn't have to hire this guy. I'm guessing he does these seminars for free. Because I think he probably generated a half dozen individual clients last night. I think that works out well for everyone.


This doesn't directly address your question. But I think you would be hard pressed to give your folks a better option than Vanguard. I was a Federal employee for 15 years before leaving my job when we moved to Texas for my wife's residency. The Federal employees 403(b) plan is called the Thrift Savings Plan (TSP) and when I started they only had 3 fund options, a G Fund (Gvt securities) F Fund (Total Bond index) and C Fund (S&P 500 index) with ridiculously low fees at 0.06% per fund. Now they have added an S Fund (Wilshire 4500) and I Fund (Int'l index) and some lifestyle retirment funds that are age-based combinations of the 5 main funds.


When I was younger I chafed at the lack of actively managed funds and the ability to play the market with narrow targeted funds. But after riding Janus funds into the ground in 2000 with my IRA money I now really see the wisdom of how the TSP program was set up and I think for 99% of employees it is really hard to do better than an age-appropriate allocation of low fee index funds for the long haul. Doctors who want to play the market will still have plenty of cash to goof around with in non-retirement funds and personal IRAs for that matter. But for the core retirement funds, all but the most obsessed investment junkies are probably better off with a Vanguard type age-based porfolio.




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It sounds like Vanguard costs about $8,000 more per year.


If you have $2,7000,000 invested, that $8,000 works out to a fee ratio of 0.29% if I'm doing my math right.


That should give you a better comparison between Vanguard and Fidelity. Recognizing of course that its always better to pay the management fees separately rather than through a deduction in fund value so that you don't lose the compounded earnings on the amount paid in fees.



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Find a better TPA and select an investment fund lineup that includes Target Date Funds, Index Funds, and an assortment of carefully selected actively managed investment funds. Careful fund selection includes several elements (Low expense structure, no intermediary costs, manager tenure, organization stability, and a predominantly employee-owned boutique management firm)


A state-of-the-art TPA will be able to provide you with a fully-integrated (investment funds/custodian/employee communications), daily-valued platform and do the special testing your plan needs. It is not cheap and $7,000 is too low for a qualified & experienced service provider.


The investment platform should be open - allowing you to use the funds that you want - as selected by your fiduciary committee. You should also control all fees and any revenue sharing - if the funds you select provide any of those elements.


To have 45% of plan assets sitting in cash is ridiculous (unless you have some really large balance people very close to retirement) if not a major fiduciary no-no!


If you are not comfortable bringing the true cost of a qualified TPA to the Board or you do not want to go to all of the work to put this together, I think your best solution is Fidelity. They have the elements down on the investment platform & employee education side and although you'll be restricted to many of their funds, that is not too bad of a compromise. But you should be forwarned - no bundled service provider is going to give you the expertise and competence of a qualified TPA as needed for a Physician Practice. You'll likely need to augmest Fidelity with some local expertise.





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Ditto to Danc's comment about using a local TPA. I would try to find one that is independent and only specializes in administration.


Check out BenefitStreet (www.benefitstreet.com). I use them for my clients. They are technology driven and your current TPA can download all of the reports needed. They allow me to build model portfolios (conservative to aggressive) using institutional-share class funds. They also allow me to utlize DFA Funds. I credit any revenue or 12b1 fees received back into the plan. All fees are disclosed (recordkeeping, custodian, advisor, mutual fund, etc.). Most fees can be invoiced outside the plan if you wish (this allos for a business expense deduction and therefore less expenses for the participant). I have no complaints with them and I think a group of Doctors would like their high technology and easy to use internet capabilities.


Best of luck.

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I am meeting on Wednesday with my current local TPA that is charging $7,000 now and would raise his fee slightly to go with Vanguard under Small Business. I want to see what limits this option has. From what I can tell, there might be some limitations.


As for Fidelity, sounds like it is the easist option, but everyone is saying my TPA services won't be that good especially with my calculated formulas. That opinion is not only from this board, but others as well. In fact, I asked Fidelity if they forgot about the fact that my plan is cross testing and they came back and said the fee is now $8,500 instead of $7,000. This would be a bundled service, which most people are saying not to do. They also owed me a quote and were over a week late and getting me the proposal. I like Fidelity as a second option, but I don't have a good feeling about their TPA.


If I have to augment Fidelity with a more qualified TPA their costs are going to go up from $8,500 plus the other TPA and my costs will be close to Pension Specialists $14,000-$16,000. Fidelity has also not gotten me references and it has been over 2 weeks that I asked for them.


Yes, 45% in cash is poor, and we will try to change that with education, index funds, and target retirement funds. I saw that right away and was like wow. I have one 41 year doctor in 95% cash.


Pension Specialists ($14k to $16k) actually seems like the most professional TPA is I decided not to stick with my local TPA and go with Vanguard Institutional. Much more expense, but they seem to be the most professional with a proposal in less than 2 weeks, references right away, e-mail reponses quick, etc.


I will keep you all updated as I hope to get closer in the next 2 weeks because my target is a reommendation to my Board on March 20th.


This is tougher than I first thought it would be.


Keep the suggestions coming if you have any thoughts.




John (aka Tampa Gator)




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