Sunday, December 28, 2014
Trimet apologist tells us why Trimet future retirees are so lucky
Not only does it yield much smaller monthly payments you are also tied to stock market performance. The potential exists for a retiree to lose the entire pension which was never a possibility previously.
You also have to make contributions out of your paycheck, which was not previously required.
It's the exact opposite to a 'secure' pension plan which the former Trimet defined plan was.
The Oregonian is making the case that its so wonderful basically because there are supposedly less fees.
Obviously I find the article suspicious, I would even go so far as to say its pure propaganda. The reason I say this is because Trimet has seriously degraded employees pensions, yet this article completely avoids making specific comparisons between the one featured in the article and the previous defined benefit.
Trimet employees took a huge hit, the article never even bothers to mention that leading me to conclude its a piece of mainstream media's mind control policy.
Think about it....
Why would this even be "news worthy" unless there was some other factors at work.
Why would this be in the paper at all?
It appears its only true purpose is to make Trimet "look good."
Earlier this year, at a financial literacy conference for teachers, renowned investment author William Bernstein paid a Portland employer a nice compliment. And not just any Portland employer.
Bernstein projected TriMet's 401(k)-type plan on the screen behind him and said that, outside the federal government's Thrift Savings Plan, this was "the best I've ever seen."
This was high praise coming from the author of "Intelligent Asset Allocator" and other books on investing (including, most recently, a self-published e-book for young investors called "If You Can: How Millenials Can Get Rich Slowly").
Take a close look, and it's easy to see why he said it. TriMet's Defined Contribution Retirement Plan has extremely low-cost options, an attractive fund lineup and an 8 percent employer contribution made regardless of how much the employee elects to save.
How did the regional transit agency get such a good 401(k) plan for its more than 2,700 employees? The answer can serve as a lesson for other employers. It put management of the entire plan up for bid, eliminating redundant layers of service providers. It also got rid of revenue sharing - a hidden and costly form of kickbacks inside the industry.
The firm that advised TriMet in this process -- Hyas Group in Portland -- has done the same type of plan restructuring for the cities of Portland, Eugene and Corvallis as well as for Metro and Clark County.
"TriMet used its institutional buying power to get access to quality investment funds with low overall costs," said Lori Baker, TriMet's financial services director.
But Jayson Davidson, Hyas Group's managing director of consulting services, said he believes private companies employing as few as 100 people could improve plan costs in the same manner.
"The opportunity is there for smaller plans as well," Davidson said. "I feel like they all could benefit from this. It's just sometimes they don't have the resources to go through this process."
Cost cutting is a hot topic in the retirement plan world. This year, the U.S. Supreme Court is slated to hear Edison International's appeal of a class-action lawsuit over the cost of funds in its $3.8 billion 401(k) plan. Lower courts have ruled Edison violated the federal Employee Retirement Income Security Act by picking higher-cost, retail-class mutual funds for its plan without considering lower-cost, institutional-class funds.
Before we go any further, a caveat: TriMet's plan ought be that good. In a cost-savings move, the regional transit agency stopped offering its defined-benefit pension plan to unionized employees hired after August 1, 2012. The defined contribution plan essentially replaces a plan that promised workers a pension upon retirement.
But many other employers – most in the private sector, in fact – don't have traditional pension plans anymore, either. So what makes TriMet's plan so good?
Fees. Research suggests that one of the few ways investors can improve their returns is by limiting the fees they pay for their funds. TriMet did that for employees in 2011 when it restructured the plan and put its management out to bid. In the process, it consolidated multiple recordkeepers and streamlined investment options.
It also ended the practice of revenue sharing. That's where mutual fund companies pay a portion of their expense ratios to the plan recordkeeper (Fidelity Investments, Paychex Inc. or ICMA-RC, for example) to get a spot in 401k plan lineup. Participants don't see the expense because it's embedded in the fund's expense ratio.
Hyas Group favors recordkeepers that design plans without revenue sharing, Davidson said. Instead, they charge a separate administrative fee. Either plan participants or the plan provider pay the administration fee. But in either case, the cost is no longer hidden. And it's usually lower as a result, he said.
"Since costs can have a major impact on returns, Tri-Met wanted to ensure that participants' long-term investment performance wasn't hampered by fees," TriMet's Baker said.
TriMet's plan offers The Vanguard Group's Institutional Index Fund, with a 0.04 percent expense ratio. That means for every $10,000 invested in the fund, Vanguard pockets $4 for expenses. Many actively managed funds would charge $100 or more for the same investment – and be hard pressed make up that difference in performance.
Even Vanguard's Target Retirement fund fees in this plan are low -- 0.17 percent, on average, or $17 for every $10,000.
Fund lineup. Research suggests that actively managed mutual funds don't beat their benchmark indexes. For that reason, many experts, including Bernstein, believe workers should use low-cost, passively managed index funds.
TriMet's plan affords investors both options. Each major asset class has a low-cost, passively managed index fund option from Vanguard. But for workers who want to try to "beat the market," each major asset class also has an actively managed option with solid track records. That includes Becker Value Equity (from Portland-based Becker Capital Management), for example, and TIAA-CREF Social Equity, a fund that invests in companies that pass socially responsible screens.
The plan also offers several funds from Dimensional Fund Advisors. DFA's funds aren't index funds, but they are managed more passively than other actively managed mutual funds. In many cases, DFA fund returns have been better than their index and actively managed peers. For retail investors, DFA funds usually are only sold through approved advisers, so this is a rare benefit for Tri-Met workers.
Finally, the plan offers a solid selection of Vanguard target-date retirement funds, where investors can pick one fund to deposit money and let the fund adjust their mix of stocks and bonds over time.
Employer contribution. It's not a match. It happens regardless of what the employee chooses to put in. It equals 8 percent of an employee's base pay, and it vests 100 percent on the worker's three-year employment anniversary.
The upshot? Increasingly, private employer plans are moving this direction.
According to one recent survey of more than 100 such plans, 14 percent had no revenue sharing in any funds, according to NEPC, a Boston-based retirement-plan adviser.
If you aren't sure if your employer plan has joined this trend, bug your finance or human resources office. Ask your plan's investment committee when it plans to review your plan. Suggest they hire an independent investment adviser like Tri-Met did and follow a similar cost-cutting process.
Employers with fewer than 100 workers, unfortunately, are at a disadvantage. They don't have a large asset base or the number of workers to spread administrative costs across.
Some lower-cost plan providers are trying to help the little guys, including Employee Fiduciary and ExpertPlan Inc. Other employers can explore lower-cost SIMPLE IRAs and SEPs. But until small employers form cooperatives to buy retirement plans, as some have done for health insurance, cost savings will be limited.
Here's what a great retirement plan looks like | OregonLive.com