SENATE BILL: Small Investor Protection Act (Law'd)

[Southern Senator North Carolina Yankee]

You must be logged in to read this quote.

Sponsor: DC al Fine

[Southern Senator North Carolina Yankee]

The sponsor has 24 hours to begin advocacy on this.

[DC Al Fine]

First, thank you Senator Yankee for moving my bill up in the queue. I thought I'd be on my 3rd term before one of my bills got on the floor

The logic behind my bill is simple. 401k administrators are mini monopolies in each firm with very little competition for investment dollars. The average American with a 401k has neither the inclination nor the ability to learn about and understand mutual fund pricing.

Providers like Vanguard sell their mutual funds with negligible MERs, while many 401k administrators charge 1% or more for their services. If you're the average Joe putting $200/month in their 401k, that extra 1% could cost you over $100 000 over the course of a working life, reducing your income substantially in retirement. The state therefore has an interest in reducing 401k fees in order to improve the prosperity of future retired people, which is what my bill is trying to accomplish.

[Southern Senator North Carolina Yankee]

I didn't move it up in the queue. I just plucked it from the middle or close to it.


In all likelihood, the clogging rule would have gotten it on the floor in two or three weeks in one of the in order slots had it not been so.

[🐒Gods of Prosperity🔱🐲💸]

What is the work and/or cost involved in managing a 401K account?  I really don't know much about this but I wonder if $1-2/month or so isn't a reasonable price.

[DC Al Fine]

What is the work and/or cost involved in managing a 401K account?  I really don't know much about this but I wonder if $1-2/month or so isn't a reasonable price.

There's three things:
1) Managing the mutual funds
2) Advising plan participants
3) Record keeping and administration

Vanguard, the Wal-Mart of this business, charges their retail rate for small businesses (typically between 0.1 and 0.2% of assets), plus $20 per person per year for record keeping, which is waived once the plan hits $1 000 000.

High priced admins tend to follow more complicated, active strategies which require high priced financial managers, more frequent advice, and lots and lots of record keeping. The low priced admins use index funds, which a trained monkey could manage, and tend to follow simpler strategies. A 22 year old could meet with an adviser once, set an allocation, and not have to talk to the guy again until age 30. This in turn reduces adviser and record keeping costs because the participants aren't jumping in and out of funds and needing advice all the time.

[Southern Senator North Carolina Yankee]

So where are we on this?

[DC Al Fine]

So where are we on this?

We've determined that no one finds my pet issue interesting

Can we bring it to a final vote?

[Sopranos Republican]

You must be logged in to read this quote.

Senators, a final vote on this is now open.

Please vote: AYE, NAY, or Abstain.

[Chancellor Tanterterg]

Aye

[Lumine]

Aye.

[Goldwater]

AYE

[DC Al Fine]

Aye of course.

[🐒Gods of Prosperity🔱🐲💸]

If you're the average Joe putting $200/month in their 401k, that extra 1% could cost you over $100 000 over the course of a working life, reducing your income substantially in retirement.

DC, I don't think I understand your math.  Do you mean $1000?  I'm looking at this 4000 years of working life is a long time

[President Tyrion]

Aye

[TNF]

aye

[Talleyrand]

Aye

[🐒Gods of Prosperity🔱🐲💸]

Nay

[bore]

Aye

[DC Al Fine]

If you're the average Joe putting $200/month in their 401k, that extra 1% could cost you over $100 000 over the course of a working life, reducing your income substantially in retirement.

DC, I don't think I understand your math.  Do you mean $1000?  I'm looking at this 4000 years of working life is a long time

I assumed that a balanced fund would earn 6%/yr before costs. A 1.25% fee would reduce that to 4.75%.

A) $200/mth @ 6% for 40 yrs  = $371 000 give or take

B) $200/mth @ 4.75% for 40 yrs  = $273 000 or so.

I should've aid 1.25% in my original example but oh well. OTOH I've seen 401(k) fees in excess of 2%

[🐒Gods of Prosperity🔱🐲💸]

If you're the average Joe putting $200/month in their 401k, that extra 1% could cost you over $100 000 over the course of a working life, reducing your income substantially in retirement.

DC, I don't think I understand your math.  Do you mean $1000?  I'm looking at this 4000 years of working life is a long time

I assumed that a balanced fund would earn 6%/yr before costs. A 1.25% fee would reduce that to 4.75%.

A) $200/mth @ 6% for 40 yrs  = $371 000 give or take

B) $200/mth @ 4.75% for 40 yrs  = $273 000 or so.

I should've aid 1.25% in my original example but oh well. OTOH I've seen 401(k) fees in excess of 2%

I was thinking the 1% would be taken out of the $200 monthly so instead it would be $198/month that was invested, but I guess that's not how it works.  When is the percentage on the assets collected?   

[Southern Senator North Carolina Yankee]

AYE

Vote on Final Passage of the Small Investor Protection Act:

Aye (9): bore, DC al Fine, Goldwater, Lumine, Mr. X, NC Yankee, Talleyrand, TNF and TyriontheImperialist
Nay (1): shua

The VP may 24 hours for vote changes.

[DC Al Fine]

If you're the average Joe putting $200/month in their 401k, that extra 1% could cost you over $100 000 over the course of a working life, reducing your income substantially in retirement.

DC, I don't think I understand your math.  Do you mean $1000?  I'm looking at this 4000 years of working life is a long time

I assumed that a balanced fund would earn 6%/yr before costs. A 1.25% fee would reduce that to 4.75%.

A) $200/mth @ 6% for 40 yrs  = $371 000 give or take

B) $200/mth @ 4.75% for 40 yrs  = $273 000 or so.

I should've aid 1.25% in my original example but oh well. OTOH I've seen 401(k) fees in excess of 2%

I was thinking the 1% would be taken out of the $200 monthly so instead it would be $198/month that was invested, but I guess that's not how it works.  When is the percentage on the assets collected?   

Typically it's an ongoing collection taken from whatever dividends, rent, interest etc. the fund generates. In higher fee funds or with assets that don't generate cash flows (like gold) they usually sell off small parts of the underlying assets.

[Southern Senator North Carolina Yankee]

Vote on Final Passage of the Small Investor Protection Act:

Aye (9): bore, DC al Fine, Goldwater, Lumine, Mr. X, NC Yankee, Talleyrand, TNF and TyriontheImperialist
Nay (1): shua
Abstain (0):

Didn't Vote (0):

With time having expired, the bill is passed and is presented to the President for executive action.

[Southern Senator North Carolina Yankee]

You must be logged in to read this quote.