Forbes contributor John Wasik wrote an article recently titled Is Your 401(k) Overpriced? Three Ways To Tell. In the article he compared Intel’s 401(k) plan to the similar sized plan of Accenture ($7 billion vs. $6 billion in assets respectively) using his three-step framework of:
- Compare plans of similar size
- What are the expense ratios?
- What does this cost you?
And his conclusion is that Intel employees are overpaying for their 401(k) investment options. According to his analysis “Intel’s plan costs 0.75% on average for its standalone mutual funds and 1.33% for target-date funds (TDFs)”. This compares to “0.23% on funds and .07% on TDFs” for the Accenture plan. (Side note: most of the standalone funds in the Intel plan aren’t mutual funds—see this to find out what they are.)
It total, according to Wasik, the cost savings to Accenture employees adds up to $40 million annually. He makes the point, something we have written about before (posts here and here and our white paper “An Overview of Fees in the Industry”), that employees should understand the fees they are paying and take action to minimize unrewarded expenses. We completely agree with this point.
Not all the funds in the Intel 401(k) are high cost. You can build a very low-cost, globally diversified portfolio with the investment options available right now in the Intel plan. For example, the venerable 60% stocks and 40% bond portfolio could be built using five, low-cost funds currently in the Intel plan. These funds give you an allocation to U.S. large, mid and small-cap stocks; international developed-market stocks; emerging market stocks; and U.S. government and corporate bonds. The costs for this globally diversified allocation to more than 22,000 stocks and bonds? A meager 0.05% annually! ($50 per $100k invested)
So, is the Intel 401(k) overpriced? Maybe it is on average. But it doesn’t need to be overpriced for you.
Minimizing costs are important, but there’s more to successfully navigating your investment options in the Intel 401(k). Expenses are only one of the four steps in our framework to optimize your Intel retirement assets.
Put the remaining steps (Allocation, Active vs. Index, and Performance) to work for you download our free eBook “Navigating the Intel Retirement Plan: A 4-step guide to making the most of your investment options”. After reading it:
- You will understand the importance of setting an allocation that is right for you
- You will be able to discern between the actively managed and index funds offered
- You will know how to reduce the investment costs that can stifle your gains
- You will know what to look for when assessing fund performance.
The eBook also includes a free tool to help you visualize and organize your options—The Intel Periodic Table of Investment Options.