Ameriprise Employees Filed A Suit Over Expensive 401K Plan Fund Choices

10/13/2011 0 comments

Reuters recently reported the following:

Analysis: Latest 401(k) lawsuit highlights ongoing fee concerns | Reuters

(Reuters) - While workers can't do much when a stock market sell-off hits their 401(k) balances, they can speak up about poor investment choices and unreasonable plan fees. Now, more are taking those complaints to the courts as they bring lawsuits against employers they believe have allowed poorly-performing and overly-expensive funds into their retirement plans.

"They put people into their products, and they were not vetted and were excessively expensive," Jerome Schlichter, who is representing the Ameriprise employees, told Reuters in an interview. He says the company was "self dealing."

Based on MyPlanIQ's rating, Ameriprise Financial 401(k) Plan has an overall score 19% out 100%. Here are the more detailed analysis:

Diversification -- Rated as average (44%)
Fund Quality -- Rated as poor (3%)
Portfolio Building -- Rated as below average (12%)
Overall Rating: below average (19%)

The 401K plan consists of 25 funds. These funds cover only 3 major assets: US Equity, Foreign Equity, Fixed Income.

The actual fund lineups and their ratings:

Asset Class Ticker Name Description Rating
INTERNATIONAL EQUITY
Foreign Large Blend AIZAX AllianceBernstein International A AllianceBernstein International 23%
US EQUITY
LARGE BLEND ALEIX RiverSource Disciplined Equity I RiverSource Disciplined Equity Fund 59%
LARGE GROWTH VIGIX Vanguard Growth Index Instl Wellington Trust Large Cap Growth Portfolio 81%
LARGE VALUE RSEDX RiverSource Diversified Equity Income R5 RiverSource Diversified Equity Income Fund 35%
LARGE VALUE RSEYX RiverSource Equity Value R5 RiverSource Trust Equity Index Fund III 35%
Mid-Cap Growth VMGIX Vanguard Mid-Cap Growth Index Inv Wellington Trust Mid Cap Growth Portfolio 57%
MID-CAP VALUE RMCVX RiverSource Mid Cap Value R4 RiverSource Mid Cap Value Fund 36%
MID-CAP VALUE RMCVX RiverSource Mid Cap Value R4 RiverSource Mid Cap Value Fund 36%
Small Growth ALSRX Alger SmallCap Growth Institutional I Alger Small Cap Fund 67%
SMALL VALUE JASCX James Small Cap James Small Cap Fund 77%
US EQUITY AMP Ameriprise Financial Inc Ameriprise Financial, Inc. Common Shares  
FIXED INCOME
Intermediate Government VFIUX Vanguard Interm-Term Treasury Adm RiverSource Government Income Fund 59%
Intermediate-Term Bond RDBIX RiverSource Diversified Bond I RiverSource Diversified Bond Fund 45%
Other
Moderate Allocation IDMYX RiverSource Balanced R4 RiverSource Balanced Fund 26%
ROOT CASH CASH Evergreen Money Market Fund  
ROOT CASH CASH RiverSource Trust Money Market Fund I  
ROOT CASH CASH RiverSource Trust Stable Capital Fund I  
Target Date 2000-2010 RSSPX RiverSource Retirement Plus 2010 Y RiverSource Retirement Plus 2010 11%
Target Date 2011-2015 RSFNX RiverSource Retirement Plus 2015 Y RiverSource Retirement Plus 2015 26%
Target Date 2016-2020 RSNFX RiverSource Retirement Plus 2020 Y RiverSource Retirement Plus 2020 11%
Target Date 2021-2025 RSMEX RiverSource Retirement Plus 2025 Y RiverSource Retirement Plus 2025 7%
Target Date 2026-2030 RPTYX RiverSource Retirement Plus 2030 Y RiverSource Retirement Plus 2030 14%
Target Date 2031-2035 RPOYX RiverSource Retirement Plus 2035 Y RiverSource Retirement Plus 2035 22%
Target Date 2036-2040 RPFYX RiverSource Retirement Plus 2040 Y RiverSource Retirement Plus 2040 21%
Target Date 2041-2045 RRPYX RiverSource Retirement Plus 2045 Y RiverSource Retirement Plus 2045 30%

From the above, one can see that RiverSource funds have very low ratings. These funds are expensive. For example, RiverSource Diversified Bond I (RDBIX) has 0.49% expense ratio, compared with Vanguard Total Bond Market Index Adm (VBTLX).

Here is the performance between RDBIX and VBTLX:

Portfolio Performance Comparison (as of 10/13/2011)

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
RDBIX 2% 54% 9% 164% 5% 79%
VBTLX 3% 121% 8% 163% 6% 118%

 

See RDBIX vs. VBTLX for more detailed comparison.

Interested readers can compare other funds using MyPlanIQ comparison tool.

The following are the model portfolio performance, compared with Simple Is Better (SIB) 3 Core Asset ETF portfolios.

Performance chart (as of Oct 12, 2011)

Performance table (as of Oct 12, 2011)

So not only the plan provides minimum diversification (only three major asset US stocks, International Stocks and Bonds), it also has many low quality and expensive funds. No wonder the plan participants rebeled.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Symbols: AMP, SPX, COMP, SPY, VTI, EFA, AGG, 401K Investments, Portfolio Management



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