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What exactly is the 401k Revolt Plan?
It’s a new, alternative plan that is designed to be “successful” for your company and your participants. For the plan sponsor, success is defined as a plan that has broad appeal and appreciation among employees, is highly cost-effective and compliant. For employees, success is defined as an easy-to-understand plan that helps you save, invest and reach your goals without having to become an investment expert and at a very low cost. The Revolt Plan combines an all-model portfolio approach with fixed advisor fees, a new savings education strategy and the use of index funds – all designed to minimize cost and maximize employee savings growth.
Can we keep our current plan provisions?
Yes. Provisions such as eligibility, plan entry, loans, vesting, etc. can remain unchanged, although this may be a good time to re-think those provisions. The Revolt Plan introduces a new investment approach using all model portfolios constructed of low-cost index funds. Our investment advisor builds, monitors and reports on the models. We provide the education strategy and materials and our selected recordkeeper administers the plan and provides a compatible, customized website for model portfolios.
So my current investment advisor is out of the picture?
For the purpose of recommending investments, yes. The Revolt Plan does that for you at a low, fixed cost. However, you may want to retain the services of a trusted advisor to conduct local employee meetings or other education-related services utilizing your new plan materials. You decide what you’d like him to do and what those services are worth and we will add them to the cost of the plan.
You talk a lot about cost. We have a Vanguard plan that offers only index funds. Are you saying you can save us money?
No. If you’re using all index funds in your plan, you have already won the cost part of this battle. What we may be able to do, at a similar cost, is to help make your plan more successful. Do you have great participation (not “industry comparable”)? Are participants saving enough? Investing in a way that makes sense for their risk tolerance and time horizon? Running when the market goes down? Cost is one part of the battle – participation, savings and investment behavior is the other.
What you’re saying seems to make a lot of sense but you're a very small firm. We’re doing business with John Hancock right now; how do we make the switch to a no-name firm like yours?
You're not. If you follow our model, your new recordkeeper will be Ascensus, the largest, independent recordkeeper in the U.S. Your plan assets will all be invested at Vanguard the largest provider of index funds in the world.

Our firms are small, yes – although you’ll note that our senior members have worked with major firms and large clients in prior lives. Our common thread is that we now all work as wholly independent advocates – always serving the best interest of our clients. There are no large firms doing what we're doing. They are the ones who have caused the need to revolt. They are the ones selling high-cost funds and siphoning exorbitant fees from your participants’ accounts.

We’re not beholden in any way to the 401k establishment and we are not competing for assets. You are relying on us for knowledgeable guidance and employee education. We never touch your assets.

At the end of the day, the biggest name player is you and your company. Ultimately it’s your company’s plan and your participants’ money. We are providing a solution that is in your best interest and we are your advocate in getting you to a successful plan.
How do I know you’re not another Bernie Madoff?
We are not holding or investing any of your plan assets. They are all being invested via Ascensus's Trustee into Vanguard funds. You as plan sponsor, your authorized parties and participants have immediate, online access to your account 24/7. Bernie "made off" with peoples' money but we can't!
You talk about the high cost of actively managed funds, but we have Principal Financial for our plan and we don’t send them any money at all! Our advisor told me there was no cost to the company for our plan.
You may not write them a check, but you send them plenty of money in the form of participant contributions and all your costs are taken from those funds. In your case, your participants pay the entire cost of investments, services and administration – so there is “no cost to the company” for the plan. The law requires that Principal provide you with a fee disclosure and they almost certainly have – but if you didn’t understand it and don’t really know what your participants pay, you’re not alone. We will help you decipher your disclosure and tell you exactly what participants (including you!) are paying in real dollars.
You mention the “high cost and poor performance of actively managed funds” but is this true; Our funds have done very well this year. What are you recommending – all index funds? Do you have any examples here, such as how assets you manage have outperformed others?
Are actively managed fund costs high (even taking into account services)? Yes. Have actively managed funds performed poorly? About 80% of the time they underperform their index counterparts and yet on average they cost 5x as much. We’re not saying that actively managed funds never perform well. We’re reporting to you what study after study has shown: that they rarely perform as well as the index over time. What the industry (funds and advisors) says over and over is that the higher cost of actively managed funds gets you better returns, but saying something over and over doesn’t make it true. We’ve all been led to believe that there’s a trade- off between cost and performance – a totally logical notion. But in this case much less expense begets more reliable and comparatively superior results and this is very readily verified.

The model portfolios in the 401k Revolt plan are currently made up of 8 underlying funds. We have monitored quarterly performance on these portfolios since inception in 2005 and we will happily share that information.
A strong sell here seems to be cost of services, but I don’t think administrators know what their plan costs. I know I do not, but I think performance is more important than cost.
We agree whole-heartedly that despite the disclosure law plan administrators don’t know the cost of their plan. It’s to your credit that you say you don’t – but now you really must find out! We can point you in the right direction and/or interpret your disclosure for you. The industry incessantly declares that higher cost means better performance because that suits their purpose – to get more assets under management at high fee levels. In reality, there is no such trade-off. Low cost index funds outperform actively managed funds about 80% of the time.
I don’t understand what is included in fees and fund expenses.
The industry doesn’t want you to. That’s why we routinely see fee disclosures that are 30 pages long and “explanations” written in vocabulary that most humans don’t readily understand. Here’s the simple scoop. There are 5 basic expenses that a 401k plan incurs on an ongoing basis. We’ll tell you exactly what they are, in dollars, and how they are calculated. Here’s the list with our definition of what they are (not necessarily the industry’s definition!)
  • Fund expenses – In the Revolt plan: the lowest possible percentage charge on each mutual fund in your plan. This cost is assessed by the funds in your plan and netted out of participant returns. Funds express this fee as “basis points” but it’s simply a percentage of assets. 1 percent = 100 basis points. This is the largest cost associated with your plan.
  • Recordkeeping and Administration – self-explanatory, should be largely an explicit per participant fee. Total cost should be expressed in dollars; increase only with consent
  • Investment Advisory – In the Revolt plan: selects funds, builds the model portfolios, monitors and reports performance. Flat annual fee; increase only with consent
  • Trust/Custody – Holds funds, executes trades, etc: only other asset-based cost
  • Employee Education – In the Revolt Plan, services include custom plan identity/logo, 2 PowerPoint presentations (current employee and new hires), Web-based live seminars, customized employee booklet/forms, website design, quarterly participant updates with reports on model portfolios, retirement expense/income worksheet. – Flat annual fee for these services; increase with consent only
There may be some one-time expenses in Year 1 for set-up, document and plan introduction. Our fee disclosure lays out the cost of each component in dollars on one page.
More on model portfolios would be helpful. I assume they would vary by age.
First, we use model portfolios to enable the employee education to focus on saving as opposed to investing. Studies show that the single biggest factor for low participation is the fear of investing and not having a clear understanding of the investments in the plan.

Model portfolios are managed by the investment advisor. All the employee has to do is select the “bucket” that’s right for him. He is taught to be a saver, not forced to become an investor. He answers a simple risk questionnaire to discern his risk tolerance – conservative, moderate or aggressive. Then there are 4 different “time horizons” – fewer than 5 years to retirement, 5-10, 10-15 and more than 15. The participant is coached to “set it and forget it” except as his time horizon changes – and he is reminded of that quarterly. This creates a “grid” of 12 buckets.

The model portfolios are available to highly interested prospective clients but this provides the framework. The buckets are constructed from 8 underlying funds, all of which are index funds.
I have questions you didn't answer here.
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