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Intel's Ronler Acres campus in Hillsboro.
Last year, I wrote about the large amount of hedge funds inside portions of Intel's workplace retirement plans.
On Thursday, a new manager took over those portions - Intel's
and
. The latter is where Intel directs the contributions it makes to employee retirement savings. Intel hired
to manage those funds, replacing its in-house investment committee. (AB will also manage Intel's SERPLUS plan for highly paid employees).
It's not yet clear how much the hedge-fund allocations will change, advisers familiar with the changes say. Often, employers change plan managers to cut costs. But it's not clear that's the case here. Intel said the change "may in fact result in lower fees," but did not provide specifics. A spokeswoman didn't elaborate either.
Contrary to what's happening in the rest of the industry, the expenses on Intel's target date funds have been going up. Early last year, most of Intel's target-date funds charged expense ratios of around
, or $107 a year for every $10,000 invested. But by the end of 2014, the ratios had increased to between 1.30 and 1.37 percent, or $130 to $137 for every $10,000 invested, according to
.
By contrast, the average asset-weighted, target-date fund expense ratio in 2013 was 0.84 percent, down from 1.02 percent in 2010, according to Morningstar. A few families charge below 0.25 percent, or less than $25 per $10,000.
Costs are one of the few factors investors can control. Research by Morningstar shows expense ratios do a better job at predicting returns than other factors, including its own star ratings. Generally speaking, the lower your costs, the better your returns.
"Expenses are a key driver in long-term performance," said Dave Hofer, an investment adviser with Brightwood Ventures in Tigard and former Intel employee. "Intel's target-date fund expenses are currently well above average."
Then there's the size question. Target-date fund fees are largely driven by asset size. The larger the assets, the lower the costs for investors. AllianceBernstein is one of the smaller target-date fund providers. It has market share of less than one-quarter of one percent of all target-date funds, according to Morningstar.
"Given the plethora of options available, there's no need for investors to subsidize fund companies' target-date funds as they attempt to gain market share," Morningstar wrote in its 2014 report. Yet it appears that's what Intel worker retirement money will be doing.
No doubt, target-date funds are a great way for workers to set it and forget it. Intel's target-date funds likely are also a better option for workers who otherwise wouldn't invest or who might pick randomly from the plan's stand-alone fund options. But Intel's management change was a lost opportunity to reduce costs even further.
Isaac Presley, director of investments at Cordant Wealth Partners in Portland, called the management change "curious" and said "we would like to see more information from Intel about why they are making this change."
If you're concerned, you have a couple options. You can devote time to research and construct your own diversified portfolio using the stand-alone funds in Intel's 401k. Its index funds are as inexpensive as any you'll find in a 401k.
Or, you can use the retirement plan's BrokerageLink to access low-cost target-date funds from other fund companies, including Fidelity Freedom Index funds, BlackRock LifePath Target Date funds and Vanguard Target Retirement funds. Use Morningstar's regular reviews of target-date funds as a guide. Move money into them once or twice a year to limit transaction fees.
Check back Sunday for more about a hidden risk in some 401k plans.
-- Brent Hunsberger is an Investment Adviser Representative in Portland. For important disclosures and information about Brent, visit ORne.ws/aboutbrent. Reach him at itsonlymoneyblog@gmail.com or leave a message about his columns at 503-683-3098.