401k Lineup Tweaks
Our balance in Vanguard Inflation Protected Securities went over $100K in August so I sent off a note to our contact at Employee Fiduciary to switch from Investor to Admiral class. When that gets settled, this is how our fund lineup will look like:
Out of the 13 funds, 7 have been either upgraded to a lower-cost share class or switched to an alternative fund tracking the same index/strategy. The asset classes with no changes:
With these changes, our overall plan E/R has gone from 0.38% at inception to 0.29% which comes out to about a $50 savings per year per plan participant. When all Vanguard funds are either Signal or Admiral, plan E/R would drop to 0.27%. Unfortunately, we would probably be above the $1M threshold for waiving pass-through trust fees.
Now for kicks, let's project how our plan might look if we were still using our previous 401K vendor with an average expense ratio of 1.25%. Note that I make no assumptions about rate of return as the majority of plan balance growth is from employee contributions through employee hiring and employee salary increase.
Uhhh, OMFG? Total projected expenses paid over 20 years under EFC 401K is about $200K. Under the average 401K plan with 1.25% E/R (whether direct fees, wrap fees, 12b1 commmissions or hidden in reduced fund dividends), $7.5M.
UPDATE: Ooops, somebody on Bogleheads pointed out a spreadsheet error. Stupid OpenOffice auto-formatting decided to guess the % I entered were a magnitude larger. Actual difference is $560K over 20 years.
Class E/R Alloc --------------------------------------- -------- ----- ----- Vanguard Prime Money Market Investor 0.23% 1% Vanguard Intermediate Government Bond Signal 0.15% 17% Vanguard Inflation Protected Securities Admiral 0.22% 14% Vanguard Value Signal 0.12% 9% Vanguard Growth Signal 0.12% 5% Vanguard Small Cap Value Investor 0.37% 8% Vanguard Small Cap Growth Investor 0.26% 5% Vanguard European Stock Signal 0.14% 5% Vanguard Pacific Stock Signal 0.15% 6% Vanguard Emerging Markets Signal 0.22% 6% Vanguard REIT Signal 0.12% 6% Harbor Commodity Real Return Instl 0.94% 7% American Century Global Gold Investor 0.69% 10% ------------------------------------------------------------ Dollar-weighted E/R 0.29%
Out of the 13 funds, 7 have been either upgraded to a lower-cost share class or switched to an alternative fund tracking the same index/strategy. The asset classes with no changes:
- Money Market -- There are no other optiions for a small 401K plan. There are institutional MMFs with lower E/Rs but with a $5M minimum, the Roman Empire (Planet of the Apes version) will return first.
- Gold -- Vanguard has a lower E/R precious metals fund but American Century's fund tracks gold more closely as Vanguard invests in a wider range of metals. Plus Vanguard has a 1 year early redemption fee which makes it costlier to rebalance and with how volatile gold/gold miners are, rebalancing is good.
- Small Cap Value, Small Cap Growth -- Vanguard just announced Admiral classes for these funds but I have yet to hear of a similar announcement for Signal classes. Obviously we would switch to Signal the moment Vanguard offered it. But if we had to wait for Admiral, our current allocation percentages would see us meeting the Admiral $100K minimum at $1.2M plan balance for Small Cap Value and $2M for Small Cap Growth.
With these changes, our overall plan E/R has gone from 0.38% at inception to 0.29% which comes out to about a $50 savings per year per plan participant. When all Vanguard funds are either Signal or Admiral, plan E/R would drop to 0.27%. Unfortunately, we would probably be above the $1M threshold for waiving pass-through trust fees.
Now for kicks, let's project how our plan might look if we were still using our previous 401K vendor with an average expense ratio of 1.25%. Note that I make no assumptions about rate of return as the majority of plan balance growth is from employee contributions through employee hiring and employee salary increase.
Balance EFC ER EFC Exp 1.25% Savings
--------- ------ ----- -------- -------
1 150,000 0.38% 570 1,875 1,305
2 300,000 0.38% 1,140 3,750 2,610
3 500,000 0.38% 1,900 6,250 4,350
4 700,000 0.29% 2,030 8,750 6,720
5 900,000 0.29% 2,610 11,250 8,640
6 1,100,000 0.35% 3,850 13,750 9,900
7 1,400,000 0.34% 4,760 17,500 12,740
8 1,700,000 0.34% 5,780 21,250 15,470
9 2,000,000 0.33% 6,600 25,000 18,400
10 2,300,000 0.33% 7,590 28,750 21,160
11 2,700,000 0.33% 8,910 33,750 24,840
12 3,100,000 0.32% 9,920 38,750 28,830
13 3,500,000 0.32% 11,200 43,750 32,550
14 4,000,000 0.32% 12,800 50,000 37,200
15 4,500,000 0.31% 13,950 56,250 42,300
16 5,000,000 0.31% 15,500 62,500 47,000
17 5,500,000 0.31% 17,050 68,750 51,700
18 6,000,000 0.30% 18,000 75,000 57,000
19 7,000,000 0.30% 21,000 87,500 66,500
20 7,500,000 0.30% 22,500 93,750 71,250
------- ------- -------
187,660 748,125 560,465
Uhhh, OMFG? Total projected expenses paid over 20 years under EFC 401K is about $200K. Under the average 401K plan with 1.25% E/R (whether direct fees, wrap fees, 12b1 commmissions or hidden in reduced fund dividends), $7.5M.
UPDATE: Ooops, somebody on Bogleheads pointed out a spreadsheet error. Stupid OpenOffice auto-formatting decided to guess the % I entered were a magnitude larger. Actual difference is $560K over 20 years.
(Filed in retirement plans)
Your numbers are off by one decimal point in the 1.25% ER column.
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