Let us swerve away from the nuts and bolts of animation to focus on survival -- salting bucks away for the future.
Yesterday (Friday) trustees for the Animation Guild's 401(k) Plan -- now 12 1/2 years old -- sat down to review the plan's assets with Plan administrators.
Some statistics:
The Plan has $110 million in total assets.
The Plan has 2084 participants - most of them 30-59 years of age.
Four largest holdings: 1) Large Cap Stock Fund (15%)- 2) Fixed Interest Fund (12.4%) - Small Cap Fund (11.9%) - Euro-Pacific Fund (9.9%)
The Plan's tyro expert from 401(k) Advisors explained that:
401(k) Plans work really, really well when they serve as a supplement to a Defined Benefit Plan. (That's a pension plan which pays out a monthly check to its retirees.)
Small problem: DBPs are rapidly being phased out by corporations because they're expensive to fund and maintain.
401(k) Plans don't work very well when they are the only retirement plan someone on the cusp of her/his sunset years possesses.
Bigger problem: Most people in the country have an underfunded 401(k) (the average is $60,000 for people in their fifties) and Social Security.
Many TAG participants have a skosh more than that, and for some it's come in handy. After I finished an enrollment meeting at Fox Animation a few days ago, a storyboard artists told me:
"I've got to get back into the Plan. I had a bunch of money in it, but after I got laid off from Disney I had to tap into it. Thank God the 401(k) Plan was there. It helped me hang onto my house."
The Feds tack on extra taxes to 401(k) assets if you cash them out early -- like before the age of 59 1/2. But sometimes you have to do what you have to do.
Happily, many in the entertainment industry have union pensions to supplement 401(k) Plans. For everybody else, they need to put money away with energy and discipline.
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8 comments:
401(k) Plans work really, really well when they serve as a supplement to a Defined Benefit Plan. (That's a pension plan which pays out a monthly check to its retirees.)
Small problem: DBPs are rapidly being phased out by corporations because they're expensive to fund and maintain.
Ouch. I can only hope the defined benefits of Social Security still exist 30 years from now. I max out my Roth IRA every year, and I'm thinking of investing in a total stock market index fund in a taxable account on the side. I hope it will be enough.
Here's a suggestion:
Build an investment account with a total stock index fund, a total international index fund, a municipal bond fund. Tuck a REIT fund into your Roth-IRA.
Index funds are tax efficient and perfect for an investment account. You'll have a broadly diversified portfolio without a lot of funds.
Thanks, Steve! I was puzzling over how to deal with bonds in a taxable account. I'll look into municipal bond funds.
:^)
Hi Steve
Why don't we have cheaper (lower fee) funds like dfa or vanguard that I read about here...
http://www.fundadvice.com/articles/buy-hold/the-ultimate-buy-and-hold-strategy.html
It seems to me that 401k choices in general are never as good as I can find by rolling the money into a vanguard account as soon as I get a chance.
Apart from choice, which I understand is difficult to please all, my main complaint is higher expense ratios. eg
our 401k
International New Discovery (MIDAX) has a 1.63% annual fee
Vanguards International Value index (VTRIX) is only 0.45%
They have almost identical performance over 5 years except for those damn fees stealing $'s year after year.
cheers...phil
Why don't we have cheaper (lower fee) funds like dfa or vanguard that I read about here...
All 401(k) Plans have more expenses than Vanguard. Participants pay fees for the administrator, fees for the consultants, fees for the Plan attorneys.
This is true for any 401(k) Plan in the country; all of them are more expensive than Vanguard, or DFA, or Fidelity Spartan Funds.
The cheapest funds in TAG's Plan:
Select Indexed Equity (Large Cap Blend) .20%; Select Diversified Value (Large Cap Value) .68%; American Century Growth (Large Cap Growth) .67%; Oppenheimer Main Street Small Cap (Small Cap Blend .66%; SSg! Mid Cap Equity Index ((Mid Cap Blend) .69%.
But you're right, there's no low-cost international options. I'll talk to the administrator about that.
I tell participants at meetings that if they're out of the industry for ninety days, to flip their 401(k) accounts into an IRA Rollover with Vanguard, then start rebuilding the 401(k) accounts when they're back in the 'toon biz.
Some people take the advice, some not.
I was puzzling over how to deal with bonds in a taxable account. I'll look into municipal bond funds.
Vanguard has a wide range of muni options. I use their high yield tax exempt fund.
(There's a case before the Supreme Court that could impact municipal tax exempt bonds:
The Supreme Court is weighing whether to hear a Kentucky tax case that could turn the municipal bond market on its head.
The case was originally filed in 2003 by George and Catherine Davis, retirees who contend that Kentucky's policy of taxing out-of-state municipal bonds but not income from Kentucky bonds violates the Commerce Clause and the Equal Protection Clause of the U.S. Constitution.
A Kentucky appeals court ruled in the Davises' favor last year, prompting the state to appeal to the U.S. Supreme Court.
There's a case before the Supreme Court that could impact municipal tax exempt bonds...
Wow. I was eyeing Vanguard's CA IT Tax-Exempt fund because of the intermediate-term and the state tax exemption. It'll be interesting to see where the Supreme Court decision goes.
Thanks again for the info! :^)
"I tell participants at meetings that if they're out of the industry for ninety days, to flip their 401(k) accounts into an IRA Rollover with Vanguard, then start rebuilding the 401(k) accounts when they're back in the 'toon biz."
Thanks Steve for the explanation. I would agree ;-)
phil
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