Our experience in assisting entrepreneurs and established businesses encompasses a full scope of financial services, from strategic planning to financial modeling. To learn more about our services for business owners call us at 423.756.4800.
A Better 401(k) Plan
401(k) plans can be an excellent way to tuck away extra savings as an owner and offer retirement benefits to employees, but a downside to this excellent employee benefit is that hidden costs and high fees too often eat away at owner and employee savings.
Add in the provisions of the Pension Protection Act of 2006 that call for increased fiduciary liability of plan sponsors, and the lack of fee transparency in the 401(k) and 403(b) marketplace creates a real and legitimate liability for plan sponsors that don’t know how and where investment fees are being directed. More transparency is required.
On top of that, according to University of Illinois’ Jeffrey Brown et al, only 11% of US equity mutual funds in 401k plans were “indexed” to the broad market. This means that the actual investments in the remaining 401k plans are actively managed (ie stock picking, etc.) by an investment manager completely and hopelessly stuck out of touch with the company plan.
Over the long term, the majority of active managers underperform the broad market (index funds). Selecting a bad manager is, unfortunately, an easy thing to do. Solution? Index Funds. Better yet: Exchange Traded Funds (ETFs).
401(k) plans using ETFs as an investment vehicle offer the answer to all of these problems. ETF fees (measured by the “expense ratio”) are typically about 0.20% per year. Mutual funds recommended by a broker might be in excess of 2.0%. Wow. Why the difference? Well, from that 2% quite a few people get paid, including the broker, the fund company, potentially the custodian and the recordkeeper. There are a variety of arrangements and it can vary by fund, plan, broker, or all of the above.
Sound confusing? It is. And confusing is directly outside the intentions of the Pension Protection Act. It also directly outside of our mission. At DeMoss Capital, the 401(k) plans we set up have every single expense separated.. so you know who is making what, how and why… and better yet, the sum of them all is usually less than a traditional plan.
Oh, yeah, and did we mention that every client of DeMoss Capital gets customized portfolios to implement in their plan?
DeMoss Capital is pioneering this plan type in Chattanooga, enabling a higher return on investments through lower fees, and providing the needed transparency for employers to make the best decision and protect themselves from employee lawsuits.
Secure. Reliable. Inexpensive. Superior Investment Alternatives. As always with DeMoss Capital, we believe in leveraging the complexities of the market and our expertise to give you a simpler solution and a greater degree of transparency. To suit the needs of business owners and employees, for today and for years to come.
For more information on an ETF 401(k) or 403(b), call us at 423.756.4800.