Changes in the TAG 401(k) Plan

We get questions:

[You say:] "[F]ees will go up a few basis points for people in Vanguard index funds -- which now pay zero fees."

Index funds are not managed, that's why they are cheap and historically they outperform managed funds.

People are catching on and moving more to these. Is the Union just trying to get more money to the admins?

Managed fund fees cannibalize a large amount of individual gains and usually for lower returns, sounds very fishy or the trustees are grossly uninformed... simple math.

http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/how-retirement-fees-cost-you/

Actually, the union is working to chop expenses. Here's why changes are happening. ...

The TAG 401(k) Plan has had expenses since its inception in 1995, all of them borne by Plan participants. (This is the same deal participants get in the Motion Picture Industry Pension Plan, in case you're wondering. Expenses of the billion-dollar MPI Pension Plan are paid by the people in it.)

PIMCO, T. Rowe Price, Neuberger Berman and other funds on the TAG 401(k) Plan platform charge fees, and a slice of those fees get remitted to the plan administrator (Mass Mutual) to pay for operating all the moving parts of our multi-employer plan. Vanguard Target Retirement Funds are the only funds that give no fees back to the plan administrator.

(Good deal for people in the Vanguard Funds, yes?)

Since last year, 401(k) plans nationwide have faced new regulations that require them to be more transparent. (What are the costs of the American Beacon Large Cap Value Fund? How much are participants paying for for T. Rowe Price Spectrum Growth? "Participants need to know," sayeth the government.)

There have also been lawsuits against 401(k) plans that don't use the lowest-cost share classes for the mutual funds inside the Plan. This being the case, the trustees have directed the plan administrator to reduce every mutual fund offered to the lowest possible expense ratio. (Most are already at the lowest ratio, but a few aren't.)

This will be a good thing for plan participants, but it could leave the Plan's operating budget under-funded because cash flow coming back to Mass Mutual from different funds will be lower. To make up any difference, plan participants will pay some of the costs on a pro rata basis out of their accounts, including individuals in the Vanguard funds.

Here are current costs of TAG 401(k) Plan's most popular funds:

Expense Ratios

PIMCO Total Return -- .67%
T. Rowe Price Spectrum Growth -- .8%
Vanguard Target Retirement Funds -- .17%-.19%
MM S & P 500 Index Fund -- .21%
Mid Cap Index -- .16%
Northern Small Cap Index -- .38%
International Equity Index -- .37%

(My opinion? Avoid the higher-priced, actively managed funds, dive into the index funds.)