How much money is in your 401 (k) or similar DC plan?

[Baron von Schtinkenbutt]

Indirectly they may be.  My current company's 401k program is managed by Fidelity, as is Raytheon's.  Raytheon determines the fund lineup and investment restrictions for their plan; my company takes a pre-made plan from Fidelity, since we are so small.  My current fund lineup is not stellar, but it does include the excellent Fidelity index funds mentioned earlier (with their 0.07% expense ratios).

[Admiral Yi]

Pearson is a monster company, and I believe I read somewhere that the funds in our 401k were selected by a Pearson committee.

[Warspite]

How do 401(k)s work? Are you bound to a plan or can you switch them around to find the best funds? I'm currently in a DC plan that is rather uncompetitive in terms of management fees (and, I suspect, lacklustre returns) but because my employer doubles my contribution, it's worth sticking with until I leave. What do you yanquis do from job to job?

Also, another question: why have no financial service providers tried to lure in more customers by charging a fixed sum management fee per year rather than a percentage? My money isn't more costly to the firm to manage because I have £1,200,000 vs £12,000 in it, but a percentage management fee differs remarkably between the two amounts. Surely in a competitive market someone will have worked out they could snaffle a lot of business by charging that richer person £1,000 a year rather than £10,000? Or does that impede the fund managers' purchasing of yachts?

[Admiral Yi]

You set a % of gross income you want to put in the 401k each pay check.  Different companies offer different matching formulas.  There is a gross amount you can contribute tax free (17K IIRC).

My 401k has around 12 funds to choose from.  I can put various percentages in one, some, or all the funds.  I can change the mix any time I want to.  I can also change the contribution amount any time i want to.

The management fees are charged by the funds, not by the 401k.  The company match is independent of the fund(s) chosen.

[OttoVonBismarck]

You can generally rollover a 401k into a private IRA when you go from one job to another, or you can roll money from a previous employer's 401k into your current employer's 401k--but your current employer has to allow for that and not all are set up for it.

I think if you combine Fidelity and Vanguard that's probably more than 50% of the 401k market in the United States all by itself. Vanguard is a unique investment management company in that the individuals who own Vanguard's mutual funds collectively own Vanguard itself. It thus has no shareholders looking for profit or private ownership group, and in a lot of ways functions very similarly to a credit union in that regard.

Fidelity is owned mostly by a family of billionaires, and for that reason I've heard Fidelity likes to setup 401ks so that people are more likely to buy into the more expensive, traditional actively managed Fidelity mutual funds. However, it's really all in the hands of your employers. HR/a benefits committee at larger companies set these plans up, and some of them basically do the equivalent of telling Fidelity "hey, set a plan up for us and don't bother us with the details." When that happens you're going to see the higher priced mutual funds as the primary plan offerings.

However, Fidelity despite being more of a traditional mutual fund company, has the amazing Spartan Index funds I mentioned. They are actually probably the lowest expense ratio funds on the market today, and if your employer cares enough to actually ask that those be provided in the 401k plan, those are solid options.

[Baron von Schtinkenbutt]

My Raytheon 401k has a Northern Trust S&P 500 index fund with an expense ratio of 0.02%, which beats the Spartan funds.  It does not appear to be available on the open market, though.

That is actually an advantage of a well-constructed 401k plan.  You may have access to funds through the plan that an open-market investor cannot buy into.  For a long time I was able to buy into Vanguard's PRIMECAP Admiral fund, which is one of their best-performing funds.

[OttoVonBismarck]

My Raytheon 401k has a Northern Trust S&P 500 index fund with an expense ratio of 0.02%, which beats the Spartan funds.  It does not appear to be available on the open market, though.

That is actually an advantage of a well-constructed 401k plan.  You may have access to funds through the plan that an open-market investor cannot buy into.  For a long time I was able to buy into Vanguard's PRIMECAP Admiral fund, which is one of their best-performing funds.

Yes, you also get institutional share classes of Vanguard funds. Even Admiral class funds which typically are $10k+ holdings, are not as low cost as the institutional shares of Vanguard funds.