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Nationwide’s Not On Your Side…

By JLP | October 28, 2013

A friend of mine gave me her 401(k) information to look at. Her company changed 401(k) providers and went with Nationwide. I wasn’t fond of their previous 401(k) provider (I forget the name now), so I was happy to see a change.

I flipped through the information packet and landed on the page listing their options. I was pleased to see companies like DFA, Vanguard, American Century, etc. Expense ratios for the funds were fairly low too (the highest was 1.21% for a SmallCap value fund).

Then I turned the page…

IN ADDITION to the mutual fund expenses, Nationwide tacked on an additional annual management fee ranging from 1.02% to 1.27%.

So…the Vanguard Index 500 Signal Class, with a .05% management fee, now had a 1.32% annual fee! FOR AN INDEX FUND!!!!!

Now, I know why companies do this. Small companies are struggling. Health insurance premiums are going up. Gas is expensive. So, a broker or advisor comes along and offers a 401(k) plan that is really cheap to the business owner and the costs to the employees are either glossed over or buried in the information. Sadly, most employees don’t have a clue.

To give you an idea of the impact of a 1.27% additional fee, I ran some numbers. I assumed an employee socking away $10,000 per year in the S&P 500. Using monthly returns, I calculated that at the end of 10 years (2003 – 2012), the 1.27% annual fee would have lead to a loss of $8,800 to fees (you can see my numbers here). That’s a sizable chunk of change.

My advice would be to only invest enough to get any company match and then max out a Roth IRA (assuming you qualify) or a traditional non-deductible IRA. There is no sense in throwing away money due to useless fees.

Topics: 401(k), IRAs, Retirement Planning | 18 Comments »


18 Responses to “Nationwide’s Not On Your Side…”

  1. Money Beagle Says:
    October 28th, 2013 at 9:07 am

    I totally agree with the recommended strategy. To charge an extra 2400% or whatever it works out to be is absolutely crazy and I wouldn’t pay that as a consumer.

  2. Retiredat40 Says:
    October 28th, 2013 at 2:51 pm

    It doesn’t have anything to do with economic problems or the price of gas or anything else. It has been this way always. It is simply insurance companies taking advantage of the situation because they can.

    Small companies go with these plans because they don’t cost the owner much. The owner/business is clueless about how much it is going to cost them in terms of investment performance or maybe it is worth it anyway.

    Sadly, most people that work for small businesses and even moderately large businesses have these types of plans which is one of the major reasons 401(k)s are a failure as a retirement savings plan and will continue to be.

  3. JLP Says:
    October 28th, 2013 at 3:03 pm

    It’s pathetic and it angers me.

  4. Retiredat40 Says:
    October 28th, 2013 at 3:59 pm

    What? You’re a Republican. Just good business. It’s very profitable. Profit — it’s not a dirty word, you know. Besides, these people need to get more informed. If they don’t, they deserve to get fleeced.

    The next thing you know you’ll be sounding like one of these Dems wanting the 401(k) providers be required to be fiduciaries.

  5. greg Says:
    October 28th, 2013 at 4:47 pm

    @Retiredat40….pointing out the obvious, fiduciary duty is not one thing to Republicans and another to Democrats. Such remarks tend to tarnish your attempts to paint yourself as a concerned, caring, counterweight to Scroogelike old JLP.

  6. Retiredat40 Says:
    October 28th, 2013 at 4:51 pm

    That’s not true, Greg. You are just uninformed. Wall Street is very against fiduciary responsibility and Republicans like the 401(k) system just the way it is because that’s the way Wall Street likes it. There is no initiative from Republicans to change the retirement system in any way. It’s fine just the way it is. And Nationwide is providing these people with a service which they deserve to be compensated for, thank you very much.

  7. greg Says:
    October 28th, 2013 at 5:25 pm

    Politicians, Retiredat40, politicians…..
    I’m not implying Republicans are immune from venality, just that Democrats are right up there with’em….(trying to be snide is unbecoming, btw)

  8. Retiredat40 Says:
    October 28th, 2013 at 5:38 pm

    I’m not even referring to venality. I’m referring to policy. And the position of Republicans on 401(k)s and specifically JLP’s positions which you are likely unaware of.

    JLP has always believed that people were responsible for the plans they are in and that they deserve to underperform. He believes everyone should become a investment manager and to hell with the consequences if they don’t do it.

    He’s also opposes any other type of plan and regularly makes posts about any arguments against 401(k)s in righteous indignation. He even opposes allowing a person to get an annuity for lifetime payouts which would be in their best interest simply because he doesn’t approve of it and wouldn’t do it himself.

  9. JLP Says:
    October 28th, 2013 at 6:31 pm

    I don’t think being a Republican or conservative pins me in a corner of having to cheer these kinds of plans. I’m about fairness, whether you want to believe that or not, Retired.

    My problem with annuities inside 401(k) plans is that they can be abused. I am not against fixed immediate annuities per se.

  10. Retiredat40 Says:
    October 28th, 2013 at 6:46 pm

    You’ve always believed that people were better off with a bad 401(k) than no 401(k) at all and never really believed that 401(k)s overcharged as excessively as they do. And even if they did, you’ve always thought it was the fault of the participants. They should just go to their employer and complain. Good luck with that when the employer is saving money on the plan.

    I found this post to be fairly ironic which is no surprise because you regularly make those type of posts whether it be on the flat tax or people not paying taxes because of the exemptions you support.

    I was not referring to annuities inside 401(k)s which are the height of corrupt practices. I’m referring to a specific post you made against people being able to annuitize their 401(k) balances which was a proposal made in the past few years and you felt strongly enough about it to take a position against it. That’s apparently something you have forgotten about and is neither here nor there.

  11. JLP Says:
    October 28th, 2013 at 8:02 pm

    Annuitization should not be forced.

  12. Retiredat40 Says:
    October 28th, 2013 at 9:06 pm

    Who says anything about it being forced. It was just going to be a payment option. You wouldn’t do it so you didn’t think anybody else should either.

  13. Jack Says:
    October 29th, 2013 at 7:21 am

    It still beats the hell out of the (negative) returns from Social Security.

  14. BG Says:
    October 29th, 2013 at 6:53 pm

    An alternative is to allow the 401(k) to be detached from the employer altogether. Allow people to go to vanguard.com and open their own accounts to sock away $17.5k tax-free yearly without the excessive management fees.

    However, my favorite solution is to close these loop-holes altogether (401k, IRA, SEP, HSA, etc tax loop holes) — all income should be flat-taxed with none of these complications to the tax-code.

    “…Good luck with that when the employer is saving money on the plan…”

    I wouldn’t be surprised if we hear about class-action lawsuits on this some day — this stinks of kickbacks.

    Anyhow, can people in these situations roll the 401-k money into an IRA to avoid these charges (do you have to leave the job first)? No way I’d leave my nest-egg sitting in an account that these jagoffs are skimming.

  15. Jack Says:
    October 29th, 2013 at 8:26 pm

    That’s called an “Individual Retirement Arrangement” (IRA).

    And it is not a “loop hole.” Loop holes and unintended consequences of the predictable stupidity of those making the laws. IRA’s, 401(k)’s, 403(b)’s, etc., were intentional.

  16. BG Says:
    October 29th, 2013 at 8:45 pm

    A loophole is only valuable if somebody (else) can’t take advantage of it. A good portion of the population do not have the means to stash $17,500 tax free into a 401(k) each year. Hence the people that can’t are subsidizing the people that can.

    I know these accounts are intentional, but when viewed from a flat-tax utopia: these accounts are loopholes and need to be thrown out. Until that happens, it is wise to try to maximize them wherever possible. The tax code is a massive distortion in a supposedly free market.

  17. Jack Says:
    October 30th, 2013 at 9:59 pm

    > I know these accounts are intentional, but when
    > viewed from a flat-tax utopia: these accounts are
    > loopholes…

    But that’s not a “loophole,” BG. You don’t get to change the meaning of a word because you don’t like the one it has.

    The tax breaks in these laws are intentional, therefore they are NOT “loopholes.”

  18. Valkyrie Frost Says:
    November 4th, 2013 at 2:22 pm

    JLP – you should throw a party and invite Jack, BG, and Retired. The rest of us can buy tickets to the event. :)

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