Post-Dispatch business writer Jim Gallagher weighs in on the announced changes to Lee’s 401-K

Fellow Guild members and Lee employees:

The Guild has been getting a lot of questions from members about changes to our Lee 401(k) plan.  I write our Sunday personal finance column at the Post-Dispatch, so I thought I might share some thoughts with my fellow employees.

Unless you let the plan know otherwise, all of your 401(k) money will soon be moved to the “target date” fund closest to date you turn 65.  The deadline for making a decision was last Friday.  It’s no big deal if you missed it.  Once the switch takes place, you can change back to your old funds if you like.

What Lee is doing is pretty unusual in the retirement plan trade.  Intel did something similar a while back, but few companies are so obviously trying to move employees into the target date option.

Basically, this is Mother Lee telling you how you should invest your money.  In this instance, I think that mother really does know best.

I say this despite my belief that our current top leaders in Davenport have made serious mistakes in other areas that have needlessly damaged the Post-Dispatch franchise and its employees.

I like target date funds for employees who aren’t investment pros.  I explain why in my Sunday column on target date funds, and here’s the link.

The upshot is that, unless you really know what you’re doing with investments, better let the target date manager run the show for you.

Rather than repeat the column here, let’s discuss the Lee plan options.

Lee offers JP Morgan SmartRetirement target date funds. They get pretty good ratings from people who study these things.

BrightScope, a company that helps companies design 401(k) plans, puts the SmartRetirement plans among its “top” target date funds.

Morningstar, an independent analysis firm specializing in mutual funds, rates SmartRetirement fund “silver,” the second highest of five ratings.

Morningstar notes that the funds are a bit more conservative than most as retirement dates draw close. Some other quotes:

“The experienced management team has proved itself adept at staying on top of both these smaller tweaks and larger forces that affect the ultimate success of a target-date series.”

On performance: “Over the past five years through June, 2013, all of the SmartRetirement funds rank in their categories’ top decile on a risk adjusted basis. Calendar year 2012 represented a big rebound from a disappointing 2011 when poor tactical moves hurt the funds. The lineup held up relatively well in 2008 and excelled in the vastly different 2009 and 2010 markets. It’s been more of a slog in 2013, but the funds have held up relatively well.”

On process: “JP Morgan has concluded that investors don’t always follow conventional retirement savings wisdom. As a result the glide path near retirement has been more conservative than the norm to focus on maintaining maximum income throughout retirement. The glide path diverges into asset classes such as REITs, (that’s real estate) high-yield bonds, commodities and emerging markets debt. The underlying equity fund roster features a mix of fundamental, quantitative and behavioral-finance driven funds. Management has done well to select many consistent performers from the JP Morgan universe.”

I put the full Morningstar report on the Guild bulletin board in the newsroom. I’ll get it up to the sixth floor on Monday.

That’s the good stuff. Here’s the bad. The damn expense ratios are high for the far-out target date funds aimed at younger workers – 1.06 and 1.07 percent. The near-dated funds are better at 0.67 and 0.79. Our superiors up in Davenport ought to be able to negotiate for a bigger discount. After all, these are large institutional-class funds, and they don’t cost much to run.

Memo to Davenport: Nationally, the average cost for a target date fund is about 0.58 And Vanguard offers direct-to-the-public target funds for 0.16 and 0.18 percent.

The expense ratio is the percent of your money that the fund managers take for their own profit and to cover the expense of running the fund.

That said, some other funds in the Lee plan are higher; For instance, the Wells Fargo small cap fund swipes 1.42 percent.

Vanguard uses a passive strategy, relying on funds that simply track stock and bond indexes, rather than employing very-well paid people to try to beat the indexes. That’s why they are so cheap.

Below is a link to a comparison of fund performance as calculated by Morningstar. The plus/minus is a measure of riskiness compared to similar funds. It also shows how the fund did compared to others in the same category:

JP Morgan 2015 fund

The retirement plan certainly affects our working conditions. If we have concerns about the company’s recent action, its fund selections or its lack of generosity, we may as a group bring them to Lee’s attention through collective action.