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Wal-Mart Answers Excessive 401(k) Fee Allegations (free login)

Rebecca Moore for PlanAdvisor – 07/21/2008

 

In response to participant allegations, Wal-Mart said ERISA doesn’t require fiduciaries to select the cheapest option. ...Among other things, Braden claimed in his suit that the company cost participants $60 million in unnecessary expenses over six years by offering what he said were expensive mutual funds and not their less expensive alternatives

 

From Participant Files Excessive 401(k) Fee Suit Against Wal-Mart

Fred Schneyer for PlanAdvisor – 04/21/2008

 

...The complaint alleges that all plan investment options were retail class shares, which historically carry higher fees than institutional class shares, and that plan trustee Merrill Lynch & Co. Inc. received revenue sharing and other unspecified payments without providing any services.

--

It appears to be OK to negotiate/beat up suppliers in the name of low costs but not the financial services industry on behalf of employees.

 

Dan Otter

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It appears to be OK to negotiate/beat up suppliers in the name of low costs but not the financial services industry on behalf of employees.

 

Dan Otter

 

... As if Wal Mart even gives a rat's !@# about its employees. The purpose of Wal Mart is to enrich the Walton family, period. Although this is perfectly defensible, the company should just be honest about it and not pretend, through its "feel good" television commercials and use of the word "associates" (rather than "employees") that they care about anything else.

 

I must say, though, that a part of me (probably not the better part of me) wants to tell Wal Mart employees to take responsibility for themselves, get some education and training, get a better job, and tell Wal Mart to go straight to !@#$.

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Dan,

 

 

Thanks for sharing this. Its just all unbelievable to me really. Corporations yield way too much power.

 

 

 

I am currently struggling what to do once I get the message that Vanguard won't be available anymore because they won't sign all the Security Benefit forms/agreements. I'm hoping that this won't happen but I can't see our TPA administering Vanguard funds when they would rather sell their high cost products.

 

I guess I will have to go the taxable and roth route. Simply can't go back to all that high fee nonsense anymore. No question it makes a difference in nestegg accumulation.

 

I've sent our personnel director all sorts of info on why we need low cost options. I think he gets it but I believe it just was too good an offer to have Security Benefit do all the work. I guess the employees ultimately pay the price one way or another.

 

 

Thanks for the great service your website does to tell the truth!! I just wish folks would get it!! Its amazing and great that at least someone at Walmart got it-even if they did fail.

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Dan,

"I am currently struggling what to do once I get the message that Vanguard won't be available anymore because they won't sign all the Security Benefit forms/agreements. I'm hoping that this won't happen but I can't see our TPA administering Vanguard funds when they would rather sell their high cost products."

 

I feel your pain. I am involved with the RFP process in my school district. It looks like we are already at 75 basis points for plan administration and plan consulting fees. This does not include any fees for the underlying mutual funds; they will be chosen later. We chose AIG Retirement to administer the plan since they were the best option presented. (I guess a shit sandwich is better than a smorgasbord of shit.) We do have a self-directed option that is supposed to make fee-conscious investors happy, but I am still unclear as to how much this option will cost. One thing is for sure, it will cost more than our Vanguard 403b account.

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This is rich ...

 

Wal-Mart Answers Excessive 401(k) Fee Allegations (free login)

Rebecca Moore for PlanAdvisor – 07/21/2008

 

In response to participant allegations, Wal-Mart said ERISA doesn’t require fiduciaries to select the cheapest option. ...Among other things, Braden claimed in his suit that the company cost participants $60 million in unnecessary expenses over six years by offering what he said were expensive mutual funds and not their less expensive alternatives

 

From Participant Files Excessive 401(k) Fee Suit Against Wal-Mart

Fred Schneyer for PlanAdvisor – 04/21/2008

 

...The complaint alleges that all plan investment options were retail class shares, which historically carry higher fees than institutional class shares, and that plan trustee Merrill Lynch & Co. Inc. received revenue sharing and other unspecified payments without providing any services.

--

It appears to be OK to negotiate/beat up suppliers in the name of low costs but not the financial services industry on behalf of employees.

 

Dan Otter

 

 

Dan/AP: Could you enlighten the rest of us why institutional class shares would be better for participants taking into account all of the various legal and regulatory requirements that a $10B plan is subject to.

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I'm sympathetic to your concern about TPA + MF management + MF Admin + 12(b)-1 fees + annual account and custodial fees + MF hidden fees that don't show up in the expense ratio such as soft money fees, internal MF transaction costs and market-moving bid-ask spreads for small company stocks.

 

This raises the question of whether an employee would be better served to direct the same contributions into a taxable account through payroll deduction and invest in a portfolio of diversified ETF's with periodic (annual?) rebalancing. Due to the regular transaction costs of purchasing ETF's, the employee could simply direct the monthly payroll deductions to a MM fund and then each year, make the ETF buys. Or if done monthly, purchase index MF's from a MF that offers a broad selection such as Vanguard or TR Price.

 

Disadvantages of this approach: after tax contributions, no creditor protection (so adequate liability insurance is a must) and a requirement of self management and self discipline

 

Advantages: tiny fund fees (except purchasing/selling transaction costs), full liquidity and favorable capital gains/qualified dividend tax treatment.

 

Which would be the better option? Only your spread sheet knows.

 

BruceM

 

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Hi gerry,

Love your blog. I am going to use the YouTube "millionaire" clip as an introduction to my financial workshop at my union leadership conference next week.

 

The 75 basis points for plan adminisration is very high. However, if you can get an all index fund line up from Vanguard, TIAA CREF or Fidelity Spartan Funds, the total price to the employees should be under a 1%. If you can get the institutional share price for those index funds, the total expenses would be very competitive.

 

Good luck,

Steve

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