Last week, I was introduced to Bob. He works at a local Minnesota company. I was not familiar with his company 401(k) retirement plan offering. I was very eager to find out what how well his company 401(k) retirement plan menu would compare to other Minnesota companies.
My goal was to review the default company 401(k) retirement plan menu. Next I wanted to provide Bob with an analysis of the investment performance of the mutual fund options that he currently owned on that menu.
It turned out that of the four mutual funds that Bob currently owned, three of them woefully lagged the recent stock market advance. Bob had taken a great deal of stock market risk the past few years, but his stock market reward fell far behind.
The three mutual funds were also very expensive for Bob to own on an annual basis. To make matters worse, Bob was paying high annual investment fees and not getting the investment performance equal to the popular stock market averages.
I noticed that the company 401(k) retirement plan menu also included a brokerage window option. The name of that account at Bob’s company was the Schwab Personal Choice Retirement Account® or PCRA.
The PCRA account allowed Bob to transfer part of his company 401(k) retirement plan account monies from the default mutual fund company 401(k) retirement plan menu. With those monies, he could open up a self-directed brokerage account within his same company 401(k) retirement plan account.
In the Schwab PCRA account, Bob can buy any stock, mutual fund, or exchange traded fund. In Bob’s company 401(k) retirement plan brokerage window account there were no restrictions on ownership.
The cost to open the Schwab PCRA account was $75 per year. The cost to buy or sell a security is $15.95. I found that these costs were only slightly higher than the cost of a standard Schwab online brokerage account.
I will write more on this topic later. Today I just wanted to make you aware of the fact that there may be a low-cost investment option hidden in your Minnesota company 401(k) retirement plan account menu.
Ric Lager
Lager & Company, Inc.
