Does Sonic HealthCare USA have Good Mutual Funds in their 401k Plan?
As with all 401k plans, it is always important to have a fiduciary to exercise prudence on the investment menu. I think the biggest issue with plan sponsors in general is that they trust the investment menu being given to them by their provider. They do not see the conflict of interest in receiving proprietary mutual funds. Plan providers give companies mutual funds that cost way too much for participants to own. They do not bring extra value and in fact hinder returns overtime. The plan participants are not active hedge fund managers. Their horizon is retirement age, so it is important to judge a mutual fund based off its long term performance. Even with the market down now, everyone believes they should be exiting their mutual funds to more conservative investments. It seems most participants still don’t understand the concept of averaging down.
Sonic HealthCare USA’s Investment Menu
As with everything, if you simply want to see how I got the investment menu from Sonic’s plan. Simply go to the DOL 5500 search and type in “Sonic HealthCare USA” in the search box and hit enter. From there you will see a list of Sonic’s 5500 filings populate in the drop down. Choose the most recent year filed, which in this case is 2020. As I usually mention, form 5500 forms are like tax returns. We can only judge a company’s plan by their most recent filing. It is not like we have the current user name and login for Sonic’s plan to check everything now. Also, you may think it is old. I assure you, it is highly unlikely that any company changes their mutual funds in the plan. Plan providers do a great job brain washing ahem…educating plan sponsors that their investment menu is great.
So, I do not want to spend all day here going through every single fund because I do not have to. If even one fund is bad out of the bunch, the plan sponsor is already violating their fiduciary duty. I mean can you understand how mad participants would be knowing if even one of their investments could have been higher?
T. Rowe Price Blue Chip Growth
The fund I would mention is the T. Rowe Price Blue Chip Growth also known as $TRBCX. It has performed decently over the years, but I think the most important thing to keep in mind is like with any mutual fund, there is always a better alternative. If there is a better investment choice for your employees AKA, your participants then you are violating your fiduciary duty. This is not always about returns. This is about the cost for owning the mutual funds because if it costs more to own a mutual fund then your net returns will also be lower. The better alternative I chose is The Vanguard Growth Index fund also know as $VUG.
Why this mutual fund? Well, it’s easy. First off, they are identical to one another. Both funds have high correlation with each other which means they are both carrying the same type of investments. Does this mean you would expect the same returns? Well not exactly. The catch is the expense ratios. This is the cost for owning the fund as the participant. It costs less to own $VUG over $TRBCX. If you were a participant in Sonic’s plan and you owned $VUG instead of $TRCBX, your investment would be 40% higher right now. That’s a pretty big chunk if you think about it. Sonic reported roughly 28 million dollars in assets in $TRBCX. I calculated, if they were to simply make this change today from $TRBCX to $VUG, participants would save 3.8 million dollars over a 10 year period. Yes, that much!
So why doesn’t Sonic do it? Well chances are they simply do not know, and I don’t blame them. The entire 401K industry has kept companies in the dark of what they can and cannot change. You can imagine the facepalm I experience when I ask a company, “How do you know your investment menu is up to par?” and they say “My plan provider told me so.”. You don’t see the conflict of interest there? That is like telling me the painter who painted your bedroom did a good job because he told you so. It is not for them to decide. There is a reason 401k fiduciaries get paid annually to manage this aspect of the plan. It’s a constant struggle to make sure your plan provider is operating in your best interest. It is not the plan providers responsibility to care about you, it is your responsibility as the plan sponsor.
If you are responsible for managing your company’s retirement plan and are concerned about your current investment options, I can help. My specialty is reviewing and adding 99% value to all of my clients’ retirement plans. Contact me today If you’re ready to get the most value from your company’s retirement plan and protect yourself from personal liability as your company’s fiduciary.