Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, September 19, 2016. You can also find the re-balance calendar for 2016 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Your 401K Finally Draws Attention

We were the very first (as early as in 2009) to point out that American workers were underserved by their retirement plans such as those 401k and 403b. The good news is that finally, issues in 401k plans are drawing more and more attention (read, class-action lawsuits). This newsletter summarizes some of these hot issues. We hope readers can look at your own plans and help your employer/plan sponsor to improve them. 

Issues that drew legal actions

There have been many reports recently on various 401k plans under class action suits from their current or ex-plan participants. Here is a summary: 

  • Excessive fees: This is perhaps the number one hot issue for many 401k retirement plans. A typical example is a class-action suit against Cornell university’s 403b plan: the lawsuit alleges that for some funds in the plan, they have much higher expense ratio than those of identical funds available for institutions. An example is a fund that has 0.44% expense ratio compared with 0.19% of an identical institutional one. This is not surprising, we have repeatedly pointed out such an outrageous arrangement. Notice that for some plans with smaller asset sizes, they might be forced to pay higher fees for certain funds. But it’s not an excuse for many large plans or even for a small plan, there are many cheap good index funds available. 
  • Expensive or too many record-keepers: Another example is that a plan pays too much fee to record-keepers. In a lawsuit against Johns Hopkins University, it is alleged that the plan annually pays around $300 per plan participant for its record-keepers (as many as five of them). It is claimed that a reasonable record-keeper fee should be around $35 per participant. This is yet another example that a retirement plan is overlooked or underserved. There is no excuse to pay almost 10x fees here. 
  • Self-dealing funds: Some financial companies are accused to select mutual funds to be included in their employees’ 401k plan because of special business/financial relationship with mutual fund companies, not based on objective fiduciary criteria. An example is the lawsuit against brokerage firm Edward Jones. Another example is the lawsuit against MIT because of its tie with Fidelity’s owner Johnson family. Unless there is conclusive evidence, it’s very hard to prove a company would sacrifice its employees’ interests. However, the existence of such lawsuits can certainly help to warn against such abuse. 
  • “Bad” funds based on performance: A lawsuit against Morgan Stanley alleges that it includes its own proprietary funds in its 401k plan. An example is a small cap fund that underperformed 99 percent of similar funds in 2014 and 94 percent in 2015. Though  it’s hard to use short term performance to judge a fund’s quality, we believe such a lawsuit would drive more plans to use low cost index funds that would fall into a safe zone for plan sponsors. 
  • Too many fund choices: We believe that this is actually an example that shows how pervasive this type of class-action lawsuits have become. Several universities’s 403b plans were under attack because of large selections of funds (Columbia, Northwestern, USC etc.). While we believe that it’s a good idea to offer tiers (such as core tier and complete tier) of options, it’s ridiculous to limit participants’ choices here. 

Employers are now more fiduciary aware

The good news from this flurry of lawsuits is that now your 401Ks are finally drawing serious attention, especially from your plan sponsor. Bloomberg reported that more than 38% of plan sponsors are more concerned about their plans now. On the other hand, the downside of these lawsuits might force plan sponsors to spend more to fend off the lawsuits by hiring retirement plan advisors or expensive lawyers to look over their plans. 

From MyPlanIQ’s point of view, a good 401k plan should at least include the following

  • Major asset coverage. Major core assets should include at least US stocks, Intl stocks, REITs, US bonds, emerging market stocks and optionally commodities funds. 
  • Cheap index funds representing the core assets. For US bonds, some good total return bond funds. 
  • Optional main style funds such as small cap stock funds and dividend stock funds. Optional short term bond funds and international bond funds. 
  • Competitive money market funds. 
It shouldn’t be that hard. However, why we end up with today’s situation is anyone’s guess: it’s certainly a good synopsis of our past/current financial products/sales culture (our guess). 


We don’t necessarily encourage readers to pick on your plans and initiate class action suits against your plan sponsors. At the end of the day, our goal is to improve the quality of a plan, not to enrich a lawyer or destroy your employer. However, current environment does serve as a good background to push reform through, if there is a need.

A example retirement plan

Finally, we present a good retirement (403b) plan THE UNIVERSITY OF PENNSYLVANIA MATCHING PLAN. The plan provides several investment options including from TIAA-CREF and Vanguard. The link above is for Vanguard’s funds. It covers the major asset classes mentioned above and it’s average fund expense ratio is 0.28% because of the inexpensive Vanguard (index) funds. This plan has a MyPlanIQ’s plan rating 89 out of 100:

Market Overview

Stocks, bonds and gold are maintaining their high level after a mini-scare from last Friday’s Federal Reserve’s statement. At this juncture, several major key factors are interplayed: president election year politics, extended (overvalued) stock/bond market and Federal Reserve’s desperate attempt to raise interest rate so that it can resort to interest rate policy when the next recession hits. A popular belief at the moment is that markets will be on hold till the election is over. However, whether the over-extended markets can sustain for that long is by no means guaranteed. 

For more detailed asset trend scores, please refer to 360° Market Overview

We would like to remind our readers that since the financial crisis in 2008-2009, we have not seen substantial structural change in the U.S., European and emerging market economies. Economies have heavily relied on low interest debts. Capital might be misallocated to unproductive investments and consumption. U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic on U.S. economy in the long term and believe much better investment opportunities will arise in the future. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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