401k Update – 404a5 Fee Disclosure

When it comes to knowing about your 401(k) Plan and savings, it’s good to know what fees and expenses you may be incurring, or what you might incur if you were to use various retirement planning services that are available.

You recently received a hefty mailing from our vendor, Great West Retirement Services. This mailing complies with Section 404(a)5 of the IRS code and details the fee and investment performance associated with the investment funds in the Alcott Group 401(k) Plan, as well as the other Plan and service related information.  If you are like most people, you probably took a look at this thick envelope and put it aside or maybe even filed it in the circular file. Who has TIME to go through all that paper?

Well, as the saying goes, “all good things come to those who wait”… and in this case, this article is the ‘good thing’, because I am going to save you the time and energy of trying to understand that big, thick envelope.  To wit: 7 of the 12 pages is a simple listing of the investment funds that are available in the Alcott Group 401(k) Plan. Each ‘bold-faced’ fund is in the Plan, and underneath is an industry-level comparison, or benchmark, fund that can be used to compare ‘apples to apples’. Each row contains performance returns for 3months, year to date (YTD), and 1,3,5 year periods. There also is the fund start date, and finally the Gross/Net Investment Expenses (i.e. investment fee/costs).  While Alcott HR does not charge you a fee to participate in the 401(k) Plan, the investment fund managers do charge these fees, and they are represented as a percentage , as shown in that last column.

This particular mailing uses performance returns from April, however, on the website, www.gwrs.com, you can get more recent figures, through June 30, 2013. As an example look at the T.Rowe Price Retirement Income Fund, this appears towards the bottom of page 2. You can see the ticker symbol, TRRIX, that you can use to follow the fund in the papers or online, and see that the last 3 months (ending April 30, 2013), it grew at a rate of 2.59%, almost a full percentage higher than the benchmark /comparison fund listed just below. Over the past year, the fund grew by over 8%, compared to the benchmark’s 3.68%.

Now, finally, the “costs”… the fees…. The far right column in this table shows the % that is assessed by the investment fund company, to manage the investment fund. Alcott works to make sure that the investment fees are on average, lower than what you would normally be charged, should you invest in the same or similar fund through an IRA, or an individual company’s 401(k) Plan. In the above example, the investment fund fee is listed as .57%. This means that for each $1000.00 invested in this fund, the investment manager assesses a $5.70 management fee to pay for all of the guidance, transactions (buying/selling-trading) of the underlying assets that are in this mutual fund.  Similarly, if you look at the Dreyfus Mid-Cap Index Fund on page 5, it has a fee of .51%, or $5.10 per $1000.00 in assets. As a general rule, index funds carrying a smaller investment expense because the fund is passively managed, as opposed to an actively managed fund, like the Eaton Vance Atlantic Capital SMid-Cap fund listed just below with a 1.32% expense.   For more information, please contact me at 1-631-420-0100, or by email at kenj@alcottgroup.com.

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