From: timlee@public.btr.com
Newsgroups: misc.invest
Subject: 401k plans Re: Fidelity Fund Options
Date: 11 Sep 92 04:05:09 GMT
Reply-To: timlee@btr.com (Timothy J. Lee)
Followup-To: misc.invest

Dmerrill@bnr.ca (Dana Merrill) writes:
|Furthermore, it has always seemed that it would be of benefiet for EVERYONE
|if a company had its 401 plan with someone such as Fidelity (as long as
|Fidelity waived the loads!!!).  [stuff deleted]
|
|Anyone care to comment?  Is this done at other companies?

A little while ago, I asked about various 401k plans.  I got many
responses, and posted a summary.  Here is a repost of that summary:
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I asked previously:

>1.  What is the contribution limit and matching amount?
>2.  How many investment choices are there, and what kinds of
>    are they (e.g. stock fund, bond fund, GIC (blecch), etc.)?
>3.  Customer service considerations, such as (a) information about
>    choices, (b) clarity of statements, (c) ability to change
>    choices, etc.
>4.  Fees and expenses.  Are fees and expenses disclosed up front?

Two respondents added another question:
5.  Loans.

Some general observations about the nine plans described:

1.  Contribution limits vary from 6% of pay to no limit except the
    government imposed one.  Matching ranges from zero to 1-for-1.
    The largest total matching amount is 5% of pay.
2.  The average number of choices is 4.6, with number of choices
    varying from 1 to 7 (although the one choice plan is a brokerage
    account, which can be viewed as having as many choices as what
    can be bought by the broker -- the fewest number of choices for
    the other plans is 3).  The number of plans which have the following
    choices:
	9  domestic stock fund
	6  more than one domestic stock fund
	6  GIC
	5  domestic bond fund
	4  money market fund
	4  balanced fund
	3  own company stock or warrants
	3  international stock fund
	1  global stock fund
	1  global bond fund
	1  GIC fund
	1  full service brokerage account
3.  The plans managed by regular mutual fund companies tend to have
    better customer service than those managed privately or by insurance
    companies.
4.  If there are any fees besides the obvious ones (e.g. the usual fees
    for mutual funds), they are mostly well hidden from the people who
    responded.  Load funds usually waive the loads.

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Here are the responses, with a summary at the end:

Company 1:

1.  The Federal maximum; matches employee's contribution up
    to 5% of salary.
2.  5 choices:  Fidelity Magellan, Fidelity Puritan, own company stock,
    own company warrants, fixed interest GIC (currently 7 or 8%).
3a. Abominable; no information at all about when your money invested.
    I think the company runs the plan.  They've gotten Fidelity to agree
    to accept our 401k money for Mag. & Pur.  I think the company handed
    out brochures (though they may have also handed out prospectuses) for
    the funds when they introduced the 401k plan to us in a meeting. 
    Fidelity did not send me a prospectus, either before or after I
    starting putting money into Mag.  Presumably the reason is, that in
    fact I contribute to the company 401k plan, and IT invests in
    Magellan etc.
3b. poor
3c. can change once a quarter
4.  We pay no fees that I'm aware of, and certainly don't pay the load.

Company 2, a small computer consulting firm:

The plan is a self-directed brokerage account at Merrill-Lynch.  I have
complete control of what I invest in (to the extent of what ML is willing
to sell).

1.  Contributions are limited to 20% of gross income, up to a maximum set
    by the IRS ($8k and change).  There is no matching by my employer.
2.  Anything Merrill-Lynch is willing to sell.  This specifically means
    that I can't do no-load mutual funds.  So, I'm picking good loaded
    funds with the 401(k) (and may later move to stocks and bonds as the
    account size increases).  I do my no-load investing with IRA money.
3a. Depends on the broker, and mine isn't great.  However, since all
    the things I'm investing in are covered in the major financial
    publications, being an informed investor isn't any tougher than it
    would be without the plan.
3b. I'm not real fond of brokerage statements in general.  The
    summaries sections seem to confuse me more than inform me.  I'd rather
    just have a chronological list of transactions.  I'll figure the rest
    myself. 
4.  Fee is $100/year which is steep in my view (it's a significant portion
    of my first year's contribution).  That was pretty well disclosed up
    front.  The inability to invest in no-load funds is a hidden fee.

Companies 3 through 5 are all software companies: relatively small,
relatively new, and relatively solicitous of their employees.

Company 3:

1.  Somewhere between 14 and 20%.  No matching.
2.  6 Scudder mutual funds:  money market, intermediate term bond,
    global bond, growth, g&i, global growth.
3a. Information is standard mutual fund prospectuses.
3b. Quarterly statements.
3c. Changes and inquiries can be made daily on an 800 phone number.
4.  Fund expenses only.  All other fees borne by employer.
5.  Permits loans for all purposes.

Company 4:

1.  Somewhere between 14 and 20%.  No matching.
2.  GIC and 4 funds managed by an insurance company:  money market,
    growth, g&i, bond.
3a. Relatively limited options and information.
3c. Changes can be made quarterly.
4.  Fund expenses only.  All other fees borne by employer.
5.  Used to have a loan provision, but dropped it.

Company 5:

1.  Somewhere between 14 and 20%.  No matching.
2.  GIC and 3 privately managed funds:  growth, g&i, bond.
3a. Relatively limited options and information.
3c. Changes can be made quarterly.
4.  Fund expenses only.  All other fees borne by employer.
5.  Permits loans only for education, medical, home-buying and financial
    hardship reasons.  In all cases, loans are fixed at the prime rate as
    of the time of the loan, and the interest is credited to the 401(k)
    account.

Company 6:

[didn't receive reply to request for permission to post]

Company 7:

1.  Matching, 3%.  Up to 9% may be contributed, but there are some rules
    about "highly compensated invididuals".  This before tax.  I think you
    can also stick in up to another 10% of after tax money (even though I
    can't imagine why anyone would do this).
2.  Index fund, GIC, and own company stock.  Matching contributions are
    always own company stock.
3.  There isn't a lot of education provided.  Statements are clear enough
    and come quarterly albeit a little late.  We are allowed to switch
    contributions twice a year.  It is possible that you can change where
    your deductions go more often than that, but you can't move the already
    in money more than twice a year.
4.  I don't remember.  There was undoubtedly some sort of prospectus
    provided at some time in the past.

Company 8, a small computer company:

1.  Contributions may be made up to 18% of pay, or government limit.
    Company matches 1/4 of first 6% (for a maximum of 1.5% of pay).
2.  5 choices:  GIC (rated S&P AA-, Moody's A1; pays about 7%),
    balanced fund, large company value stock fund, large company
    growth stock fund, international stock fund, all managed by an
    insurance company.  Matching amounts are only put into GIC.
3a. Poor information.
3b. Quarterly statements 6 weeks after end of quarter.  Statements
    lack information like unit (share) price and number of fund
    units (shares) owned.
3c. Changes can be made quarterly.
4.  Fees for the non-GIC funds are 1.21% annually, 2.35% for the
    international fund.  This is high considering the low quality of
    customer service.  Fees are not disclosed unless one asks and are
    not deducted from the advertised returns of the funds.

Company 9:

1.  Contributions up to 10% of pay, 6% for higher paid employees.
    Matches 1/3 of the employee's contribution.
2.  Own company stock and 4 Fidelity funds:  Magellan, stock index,
    bond, money market.
3a. Regular mutual fund prospectuses.
3c. Changes and inquiries can be made daily by calling Fidelity.
4.  Regular mutual fund expenses.  Magellan's 3% load is waived.

Company 10:

1.  Usual federal rules apply, including ratio of highly paid/lower paid
    participants, annual contribution limit, overall annual limit on tax-
    deferred contributions (going beyond just 401(k)), etc.

    Further, maximum contribution is 18% of salary (incl. assorted
    adjustments for sales personnel, hourly (overtime, shift
    differential...))

    Matching program is dollar for dollar up to maximum of $400.  It used
    to be better (25% of up to 6% of salary), but was modified as part of an
    overall change which included adding an ESOP.  Believe it will probably
    be enriched in the near future as well, since company demographics are
    changing and more emphasis on benefits for older employees is in the air.

2.  GIC pooled fund
    Money market fund
    Govt. securities fund (esp. mortgage backed, some treasuries too).
    Value-oriented growth fund
    Global stock fund
    Pacific-Rim fund (mostly stocks, some bonds and index futures)
    Asset allocation (qausi-balanced) fund

    To be specific, that's IDS Income Fund, and the rest are from Merrill
    Lynch (Ready Assets, Federal Securities, Basic Value, International
    Holdings, Pacific, and Capital), all "A" series (but no commissions).

3.  800 number access for daily account valuation.  Daily phone switching
    between ML funds, change allocation of incoming money (salary deferrals)
    by phone.  Quarterly changes in salary deferral amount through corporate
    finaicial services dept (electronic forms).  Switching involving IDS fund
    is allowed twice a month with early notice required.  Prospecti and fund
    reports available locally or thru mail (800 number).

    Quarterly account statements, recently improved, maybe now a B- instead
    of C- (personal opinion).  Still a bit of a delay in receiving, but
    has improved from past.

4.  Yes.  Company pays administrative fees.  No commissions involved.
    No special loan fees.  One fund has 12(b)-1 fees (Federal Securities),
    which are a hold over from it's previous life (originally didn't have
    "A" and "B" forms).  Paper still indicates 12(b)-1, but I haven't read
    a prospectus since it converted to see if "A" really does have 12(b)-1.

5.  Yes.  Two kinds available.  Both pay interest (into your own account of
    course) at prime + 1%, determined quarterly.  Max loan amount is
    50% of account value, capped at $50K, and no loans are made until the
    account balance is greater than 10% of your annual income.

           (1) personal loan.  term 4 years.
           (2) residence loan.  term 25 years.  purchase transaction only.

    Only one of each kind may be outstanding an any given time.
    (you can pay off personal loan and get a larger one though).

    Partial pre-payments are not allowed.  All payments by payroll deduction
    except for early pay-off.

    Loans fund in about 30 days.
    Fund shares are sold on a pro-rated basis from all holdings to fund loans
    (i.e. you can't pick just one fund to liquidate, though you can effectively
    do that by fund switching at appropriate times).
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Timothy J. Lee                 timlee@btr.com  ...!decwrl!btr!timlee
This message comes with no warranty, not even an implied warranty of
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Newsgroups: misc.invest