401k plan selection

[Guest FtCollins]

We are small company trying to select a start up 401k plan. We have narrowed it down to two candidates Country Financial and OneAmerica. Last minute we have noticed that OneAmerica is setup as Group Variable Unity account were the entire company funds are aggregated from investments are made in a wide selection of leading mutual funds from different industry leading companies. Is that a bad thing the way it is setup in a Group Variable Annuity? Just the name Variable Annuity is raising issues like Surrender Fee or M&E fees. We have not seen any of those fees in their proposal. We want to be careful and do not want to get stuck in to a bad situation. One America is cheaper once our assets gets above $1M.

Any advice or experience with the two companies 401k will be greatly helpful.

Thanks.

[Guest 401kConsult]

We are small company trying to select a start up 401k plan. We have narrowed it down to two candidates Country Financial and OneAmerica. Last minute we have noticed that OneAmerica is setup as Group Variable Unity account were the entire company funds are aggregated from investments are made in a wide selection of leading mutual funds from different industry leading companies. Is that a bad thing the way it is setup in a Group Variable Annuity? Just the name Variable Annuity is raising issues like Surrender Fee or M&E fees. We have not seen any of those fees in their proposal. We want to be careful and do not want to get stuck in to a bad situation. One America is cheaper once our assets gets above $1M.

Any advice or experience with the two companies 401k will be greatly helpful.

Thanks.

Before you firm anything up I would look at the T Rowe Price 401(k). also I would call The Online 401(k) Plan.

[Guest FtCollins]

Thanks. We are running against time as we need to decide quickly as almost half of this year is gone. any opinion on One America with Group Variable Annuity or Country Financial? One America appears to using a Group Variable Annuity as a way to aggregate the asset for the company and then investing in the mutual funds selected for the 401k.

Any advice is greatly appreciated.

Thanks.

[K2retire]

Annuity based products often come with high surrender charges if you later decide to move the plan to a different vendor platform or for participants who take distributions. Be sure to figure that into the total cost comparison.

[Guest FtCollins]

Yes, I understand and I am looking out for that. So far it does not appear that it has any surrender or exit fee. It appears to me that they are using a Group Variable Annuity as a company wide account to pool all the money before investing in mutual funds. But we are going to look into greater detail at any of those hidden fees.

Thanks.

[Bird]

Most 401(k) investment options these days don't have surrender charges. The important thing is to figure out the expense ratios of the funds, and any wrap or asset fees added on by the insurance company.

I'm not familiar with either product, but both appear to be insurance company products, probably similar. You might want to call a local third party administrator and ask for a proposal, just to see what else is available; in particular, just for the sake of getting something not so similar, ask if they can offer a single mutual company's funds. There's a clear bias in this industry that "different funds from different families" is better - the truth is that looking backwards at past performance, you definitely have to pick different funds from different families to get "the best", but looking forward, past performance is not predictive of future results, and my own opinion is that any slight advantage gained from offering funds from different families is offset by the higher fees associates with that - .50% to .75% or even 1% or more extra. Especially for small plans, it's worth looking at a single family of funds.

[HCbs]

I agree with the suggestion to compare against a proposal from a local TPA. At your size you might find a more attractive package with far fewer investment restrictions / requirements. I'm not in that business but would be happy to provide some names offline.

[Guest FtCollins]

Thanks for you insights. We did get a quote from Schwab third party administrator. Being a small company we do not want to have any responsibility of selecting mutual funds ets. so we want third party trustee and independent investment analysis and selection process to reduce our risk. Schwab was way more expensive. Based on the feedback I wish I had called T. Rowe price but probably do not have time get a proposal from them.

At this time I am trying to compare fund fees. One America's proposal is Group Annuity based and is cheaper in the long run. Country Financial's proposal is not annuity based and is 0.15% more expensive than OneAmerica and they also use a few of their proprietary funds. So the fund fees are going to be the key here, besides customer service etc.

Thanks for all your great advice keep them coming. I really appreciate it.

[GMK]

I wish I had called T. Rowe price but probably do not have time get a proposal from them.

Call them and find out if it's too late to get a proposal or an estimate.

Be careful not to rush into something as important as a retirement plan. Take the time now to set up something that best meets the long term needs. Think about questions like "Is this probably the best plan we can provide for the participants at this time?" and "Will the participants and the company probably be happy with this plan 5 years from now?"

[Bird]

I wouldn't rush into it! Changing your mind later is a nuisance at best and can be expensive as most decent outfits charge a conversion or takeover fee. I know it can be a cash flow issue but if you wait another month or two employees can just contribute more in the remaining part of the year.

There really are many options. Yes, using Schwab for a small plan is probably expensive. But something like the T. Rowe Price option might surprise you. And recognize that although T. Rowe Price is a no-load company, they use a "special" (more expensive) share class in their program to help offset costs. That means that a load fund family like American Funds might be competitive or even less expensive. And, you get to work with a local TPA which is potentially a big advantage (yeah, I have a TPA firm). A local TPA can help you set up the right kind of plan for your company. I can't tell you how many plans we've taken over from large payroll companies that are just setting up boilerplate plans for small companies because the owner and/or Highly Compensated Employees want to make 401(k) contributions, but then after the end of the year they learn about this little detail called compliance testing and have to either take most of the money back or make contributions on behalf of the employees because they didn't know what they were getting into.

[EBDI]

I work for a TPA firm and we have used OneAmerica. We were happy with the client service, the website and the reports. Can't speak to the fees as that isn't my area of expertise. I agree with other posts that you should take another month to review other options. The variable group annuity isn't the same as an individual variable annuity. You are correct that it is a pooling of all funds before investing in the selected mutual funds. Working with a good TPA firm can help you ferret out the expenses and insure the right type of plan is selected.

[SFSD]

Do not rush into establishing a retirement plan! I've been doing this work for more years than I care to admit and can only "second the motion of the earlier posters" who recommended you take your time. It's important to work with someone who is into the administrative aspects of retirement plans, not just the investments. Be careful and don't enter into any contracts you don't fully understand. Good luck. You will be glad you took the time to chose carefully. Moving a plan is expensive and a lot of work too.