401(k) Admin Costs

One more narrowcast, asked for by TAG members concerned about the costs of TAG's 401(k) Plan...

The big question: How does a participant know what the plan's administrative costs are? There's a simple answer. The plan's expenses are broken out in the Mass Mutual retirement book, on the "investment profile" pages.

On each page, in the lower left-hand corner, is a header titled operations. Directly under it is the expense ratio, which varies for each fund. (.20%, .68%, .89%, etc.)

One example is PIMCO's "Total Return" bond fund. The expense ratio (cost) is .68% (68 basis points). So, if you had a thousand dollars in the fund, you'd be paying $6.80 per $1000 of assets.

Simple.

And if you were in, say, "Select Indexed Equity" (this one a relatively low-cost index stock fund), you would be paying .20% (20 basis points). "SIE" is a large-company fund that shadows the Russell 1000; if you had a thousand bucks in it, you'd be paying $2 per $1000 of assets.

So. The easiest way to find out what you're paying (and this applies to any 401(k) plan) is to scope out the expense ratio for each fund in which you're investing, then do the math for each one (.60 x $1500 = $9) plus (.20 x $2000 = $4) equals $13. And so on.

These costs come out of plan assets, and in 401(k)-land, the plan participants pay them.

For our plan, there are the admin costs charged by Mass Mutual and two small, supplemental administrators (the smaller administrators cost a total of about ten basis points); there's the fund's basic cost; there's also a plan lawyer who bills the TAG 401(k) Plan for services rendered a few times each year. Six plan trustees, three from participating companies and three from the guild, oversee the operation of the plan without compensation. All the directors are covered by insurance for performing their fiduciary duties (and the insurance is billed to plan assets.)

All these costs are borne by plan participants, and are reflected in the percentages shown under Operations.

This is pretty much how every 401(k) Plan in the country runs. The Animation Guild's operation is relatively low-cost. Administration fees run from 20 basis points (.2% of assets) up to 161 basis points (1.61% of assets.) Costs are similar to charges on retail mutual funds like Fidelity or Franklin.

Most of the offered funds are managed funds, reviewed quarterly by plan trustees for superior performance. (If a fund falls behind similar funds in its category, the trustees replace it with one that flies higher.)

Larger 401(k) Plans with built-in safeguards work pretty well. (Obviously, they're tethered to the various markets they track, but that's a different story than how they work.) No plan is perfect, and no plan is cost-free. But they're a pretty good way to build up retirement savings, and that's why TAG fought to get one a dozen years ago, and works hard to keep the one we've got growing and expanding now.