10/24/2012 5:00 PM ET|
A price war for your 401k
Facing new cost-disclosure rules, some mutual funds are creating cheaper shares to win a piece of your retirement plan.
The jury is still out on Washington's big effort to wring costs out of America's 401k system by making the industry disclose those costs more clearly. But a wave of recent price cuts by big-name mutual fund companies suggests that the new reform efforts are gaining traction.
In recent months, MFS, Putnam, John Hancock, Janus and Columbia separately began offering cheaper versions of many of their funds to use in retirement plans. For example, MFS now offers a retirement-plan share class of its $21 billion MFS Value (MEIKX) fund, which costs investors $60 a year for every $10,000 invested. That's in addition to the company's four other retirement share classes, which charge anywhere from $69 to $169. Likewise, new share classes for the $4.5 billion Putnam Fund for Growth & Income (PGREX) charge as little as $58 a year per $10,000, compared with $137 for its other retirement shares.
Across the market, the average annual fee paid by investors in active stock funds last year was $93 per $10,000 invested, according to the Investment Company Institute.
While investors won't all realize such eye-popping savings -- 401k's are a bit more complicated than that -- the changes are good news for retirement savers, according to Ryan Mullen, the head of the defined contribution investments business at MFS. "Ultimately, this is going to mean lower fees," he says.
Experts say the moves, previously reported by the trade journal Ignites, are a response to the Labor Department's effort to squeeze waste from retirement plans by requiring plan providers to give employers much more information about who pays what.
Among regulators’ key concerns: pricier mutual fund share classes that collect money from investors not only for picking stocks, but also to defray other plan costs such as keeping track of account balances, mailing out statements and even paying the stockbrokers who helped design the plans. To be sure, these gold-plated versions will still remain available to employers that prefer them. And because the new cheap versions are bare-bones, some plans that adopt them may need to slap participants with separate administrative fees to make up lost revenue.
Nonetheless, touting the potential of the low-cost shares is something of a departure for Wall Street. Last year, when the Investment Company Institute, the fund industry's powerful trade group, published a major study of retirement plans, it emphasized plan size and account balances as "primary drivers" of costs -- and didn't examine whether fee structures might inflate what investors pay.
Last week, a spokesman for the institute said, "Long experience in the mutual fund industry shows that disclosure fosters competition and competition drives down fees, to the benefit of investors."
One way the new, low-priced share classes are likely reduce overall fees is simply by focusing employers' attention more closely on what they are asking their employees to pay, experts say.
That's especially true when small companies grow into large ones, according to Peter Whitman, the head of a Putnam group that focuses on defined contribution investments.
Because of economies of scale, it’s a fact of life that workers at small employers tend to pay more. In the past, however, fast-growing companies haven't necessarily been aggressive about grabbing the discounts that their greater size entitles them to. For those companies in particular, the emergence of lower share classes could still have a significant impact. "It's more transparent," Whitman says. "It lowers expenses."
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$93 per $10,000 invested. Wow! And that's just the average.
Suppose you're incredibly lucky and make, say, 6% per year on your investments. That's great, right?
That means you're paying more than 15% or your investment income to the so-called management. Most people don't give 10% of their income to their churches (it's called tithing in the Bible). Why would anyone tithe (plus 50% more) to their investment "managers" or "advisors"?!
No one is going to retire unless they have cash. Period. The math just doesn't add up.
1. Forget about Social Security. When the country does go off the "Fiscal Cliff" the country's AA credit rating is going to fall to junk. You won't even be able to pay the electric bill from your "share," if Social Security is not completely bankrupt by then.
2. Last year Pew came out with their latest study and estimated that all Americans looking to retire will need $240,000.00 just to cover medical costs. Shoot, I can pull that out of petty cash. Can't you?
3. Most studies indicate that Americans now require $2,000,000.00 to retire. We are talking Baby Boomers here. However, the value of the dollar is falling so fast that it is causing this figure to go up, doubling ever ten years, maybe even in as little as 5-years. That's compounding interest in reverse, folks.
Even at zero interest. Just dividing the check into 16 (the number of expected years of actual retirement, that's a gross annual income of $120,000.00. Tack on your money to offset geriatric care. See why the government thinks the middle class is anybody making $250,000.00?
The government knows a lot more than they are telling us. Nothing new there. Move along.
4. All of these phony retirement funds, all these 401ks, IRAs, and Roths, all have somebody else's name on them. The first being the fund manager who is going to retire sooner, on your money, than you are.
Medicare, Medicaid? Forget it. They are broke, robbed, plundered, stolen from, and completely defrauded. Haven't gotten the memo yet? You will.
People will work longer? Talk to any unemployed 60-year-olds lately? Yeah, they will find new jobs, like anybody likes looking at old people. People will be dying sooner. That's all.
Face it, folks. The only people who will retire are our senators and congress-persons and representatives. The only people who will have health insurance will also be our representatives. The same, and only group, that are getting raises, because they give themselves raises.
Go ahead. Say it. I know you want to. "God Damn America."
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