Gyroscopic Investing

I am the (part-time) finance director for a non-profit.

One of my tasks is to assist the organization in finally putting in place a (long overdue) pension plan.

I'm in the process of gathering all details of each of the three plans that I am investigating.

Once I finish I will present my findings and recommendations to the Executive Director.

He and I talked about them briefly last night and he and I differ on who should be involved in further discussions and the ultimate decision.

I want him to primarily discuss with him, with him making the final decision. He wants to include the staff and finance committee on the discussion and probably the finance committee on the final decision.

I'm all for wide participation but I'm not a fan of large group discussions when there are so many details to be decided and so many decisions to be made in a tight time frame.

We are looking at a January 1, 2020 start date, which means in the remaining 53 days of the year, we'd need to continue to investigate, discuss, decide, and implement. And, the dreaded (for getting work done purposes) Holiday season is imminently going to be upon us. Not the recipe for getting all done with involving so many people.

Since my time in this forum I've clearly seen that there are many people here who are intelligent, can analyze, and who are financially astute, particularly when it comes to investments.

I'm starting this topic so as to get some feedback on certain aspects of the pension plan design and specific plan aspects to see how you respond from both an investor level and your experiences as an employee participating in a pension plan.

I don't think any of the three options I'm looking at would allow any form of Permanent Portfolio set of funds for one to choose from.

Therefore, an initial question would be giving feedback on what you think might be the second best type of investing plan to choose from. e.g., an investing philosophy such as Vanguard's asset allocation based upon risk.

The three options I am looking at are:

1) SIMPLE IRA. Fund choices would be all that are here: https://investor.vanguard.com/mutual-fu ... nd-returns

2) MA CORE. This is something offered by the State of Massachusetts with State Street Funds composing the underlying investments. It is a 401(k) (both traditional and ROTH).

3) Vanguard pairing with an administrator. It is a 403(b) (both traditional and ROTH). There is an initial lineup of 40 Vanguard funds allowed. But it is open architecture to an extent. Therefore, it is possible that a Permanent Portfolio could be created if such funds as TLT and the gold funds can be added to the choices. The organization, in this case, would be the ultimate fiduciary and we can elect to 1) offer everyone those 40 Vanguard Funds 2) eliminate some of them as choices 3) add to the 40 by adding from the open architecture.

In sum, I'm looking for feedback from you on anything you have read so far here (again from your point of view as both an investor or a pension plan participant). If I see enough interest in participating in this feedback, I'll definitely be adding more questions. So, think of this as a chance to relate what you see as deficient in your pension plan and what you wish it was offering to you that it is presently not.

Thanks

Vinny

The most important thing is to control costs. And 40 choices are way too many.

Offer US equity, International equity, Aggregate Bonds, Treasury Bonds safe haven, Gold safe haven, REIT, and a Money fund.

If an employee chose 1/7 of each, blindly, they would do fine.

ochotona wrote: ↑Fri Nov 08, 2019 1:11 pm The most important thing is to control costs. And 40 choices are way too many.

Offer US equity, International equity, Aggregate Bonds, Treasury Bonds safe haven, Gold safe haven, REIT, and a Money fund.

If an employee chose 1/7 of each, blindly, they would do fine.

Thank you for your response. It's EXACTLY the type of feedback I am seeking.

Yes. I have many times read in the behavioral finance literature that more choice is not necessary better. I'm a perfect example of "paralysis by analysis".

That said, here was my first cut at narrowing down the choices (the full initial Vanguard lineup available with my paring down accounts in light yellow - the ones I'd offer):
Some explanation for my rational of choice.

For a significant percentage of our employees this will be their first investing experience ever. Therefore, they will initially have relatively small amounts invested for awhile. In the case of the SIMPLE IRA choice, Vanguard charges an annual $25 fee for each fund you use. $25 may not be a lot but if you choose four that's $100 and that could be a significant percentage of the participant's investment. Which is against the Vanguard philosophy of controlling costs and maintaining low costs as a percentage of the amount being invested.

In conversation with the Vanguard representative she brought up what was already in my mind. Trying to steer the participant to just one fund. Hence my including both all within the Target Date Retirement funds and the Asset Allocation funds.

Thanks again.

Vinny

MangoMan wrote: ↑Fri Nov 08, 2019 2:24 pm We have our 401k with Fidelity as the fiduciary. I let my employees choose any mutual fund Fido offers, but just steer them toward the appropriate target date fund as most of them are not astute investors.

You bring up another issue - Fiduciary.

1) 403(b) option. We'd have to pay an investment advisor $1,000 a year to assist us in setting up the plan and overseeing all. They'd somewhat share the Fiduciary role.

2) SIMPLE IRA. The Vanguard representative stated that this would not be an issue (?) since the SIMPLE IRA follows IRS regulations?

3) 401(k). They would be the fiduciary. And, this has been a major point the representative has been pushing for a reason to choose their plan as our option.

Getting back to your plan. What percentage of your employees have chosen just the one target date fund?

Vinny

MangoMan wrote: ↑Fri Nov 08, 2019 2:54 pm

yankees60 wrote: ↑Fri Nov 08, 2019 2:34 pm

MangoMan wrote: ↑Fri Nov 08, 2019 2:24 pm We have our 401k with Fidelity as the fiduciary. I let my employees choose any mutual fund Fido offers, but just steer them toward the appropriate target date fund as most of them are not astute investors.

You bring up another issue - Fiduciary.

1) 403(b) option. We'd have to pay an investment advisor $1,000 a year to assist us in setting up the plan and overseeing all. They'd somewhat share the Fiduciary role.

2) SIMPLE IRA. The Vanguard representative stated that this would not be an issue (?) since the SIMPLE IRA follows IRS regulations?

3) 401(k). They would be the fiduciary. And, this has been a major point the representative has been pushing for a reason to choose their plan as our option.

Getting back to your plan. What percentage of your employees have chosen just the one target date fund?

Vinny

Maybe I misspoke. Fidelity holds the investments but does nothing else. Reporting and tax filing is done by an outside administrator. I handle the deposits since I do my own payroll. Who is the fiduciary in that scenario?

My son and I (both dentists) use specific investments. The staff (2 auxiliary employees) both use the target date funds.

We have used several types of retirement plans over the years, such as Simple IRA. We stayed away from 401k bc of the fees and top-heavy issues. But our current admin uses an IRS approved 'safe-harbor' plan which eliminates the top-heavy issue as long as certain requirements are met, and he only charges $500/year for everything, including compliance, form 5500 filing, record keeping, etc, for up to 10 participants. The 401k allows much larger salary deferrals than the Simple IRA, and I can do additional profit sharing if I wish.

I would believe that you are the fiduciary. You are the one responsible for insuring that you are providing a prudent lineup of funds for which your employees to choose from.

That $500 fee for all is QUITE low! I also work for a business that has about 15 employees, a 401(k) and their fees from their actuary are MUCH higher than that. And, I'm looking at the a maximum of 18 participants for our non-profit and the fees for both the 401(k) and 403(b) will also be MUCH higher than $500 a year.

Our 403(b) costs would be about $1,300 from Vanguard plus $1,000 for an investment advisor. The 401 (k) fees would be $1,500 a year. There would be some additional one-time fees at inception and, in the cases of the 403(b) about a $500 fee every six years or so to keep the plan up to IRS / ERISA standards.

Vinny