Any company that wishes, for whatever twisted reason, to create a 401(k) for its employees that is both monstrously incomprehensible and costly, should studyÂ Sodexoâs retirement savings plan. Iâve looked at thousands of 401(k)s in my professional career, but this one just doesnât add up.
Sodexo is one of the largest food services and facilities management companies in the world, with 380,000 employees worldwide. After merging with Marriott Management Services in 1998, it became one of the largest food services providers in America. The company has a history of tumultuous labor relations, alleged low pay and sub-par job standards.
The Sodexo 401(k) plan has a poor participation rateâonly about 108,000 active participantsâand with almost $1 billion million in assets, itâs a mega-plan with plenty of bargaining clout. Given average account balances of $12,000, when these food services workers retire, they wonât be eating filet mignon.
Sodexo may claim to be a world leader in quality of life services that âbelieves the quality of daily life increases the satisfaction and motivation of individuals,â but, in my opinion, its needlessly complex defined contribution plan most assuredly is neither satisfying nor motivating to employees. It canât be.
Why? Simply put, IÂ doubt there is a single Sodexo employee who fully understands the inner workings of this beast. Worse still, the flawed design of the 401(k) virtually ensures, in my opinion, that errors in calculating account balances will arise.
Until 2011, Sodexoâs 401(k) used two different methods to track and value employee investments. For amounts invested in any of the planâs stable value, indexed or balanced investment options, the investments were tracked using investment âunitsâ which had unit values that were unique to the plan. That meant participants had to rely upon the plan for information regarding these investmentsâthey couldnât look to Morningstar or any other independent third party to verify the unique values.
On the other hand, the planâs mutual fund options were tracked using share values that were common to all investors in each mutual fundâvalues that were not unique to the plan.
401(k) investment options with unit values tend to confuse participants because the funds often have names and strategies similar to publicly-traded mutual funds but are opaque, with expenses and performance results that differ from the publicly-traded funds. That was confusing enough.
Starting in January 2011, Sodexo began tracking all the investment options in the plan using the unit value method. Participants were told, âUsing unit values that are unique to our Plan allows us to negotiate the most competitive arrangements possible with the Planâs recordkeeper (ING) and other operational vendors, while spreading the costs evenly across all Plan investments.â
Iâm not-so-sure that unitizing all the investment options offered within the plan will, as Sodexo says, result in the most competitive arrangements possible for participants. The recent Form 5500s filed with the Department of Labor do not evidence any savings; indeed, costs appear to have increased. Iâve called Sodexo for information about the savings related to unitizing all the 401(k) options. In the event I am provided with the savings amounts by Sodexo, I will provide them to readers.
In my opinion, using institutional mutual funds in a retirement plan of this size would have resulted in lower costs far more easily and with no loss of transparency. Further, since Sodexoâs unitized funds invest in mutual funds, as opposed to separately managed accounts, it is impossible that the cost of investing in the unitized trusts (which, in turn, invest in mutual funds) could actually be lower than the fixed-cost of the underlying mutual funds. Thatâs obviousâright?
The fee and expense information provided to participants that I have reviewed is confusing because the total annual operating expenses of each investment option, according to the company, âmay include certain plan related expenses.â In other words, the disclosure does not indicate exactly how much participants are paying for money management versus administration. Money management and plan related expenses are lumped together. The planâs not cheap.
For example, with a fee of 1.16%, the MFS Large Cap Growth Fund offered in the plan is no bargain. Worse still, why should participants pay an annual operating expense of 42 basis points to buy units in the Marriott International Stock Fund? They could simply buy Marriott stock (which is all this fund invests in), incurring only a brokerage commission, as opposed to a recurring asset-based fee on top ofÂ any commission.
How confusing can the Sodexo401(k) plan get?
I was recently contacted by a Sodexo senior management retiree who was perplexed as to seemingly inexplicable fluctuations in the value of her retirement savings account. Last December she had had a sizable capital gains distribution, approximately $30,000, credited to her account which was reversed out the next week without explanation. âThe money just disappeared, âshe says.
When questioned about the disappearing distribution in December 2012, ING, which did not have any immediate answer, indicated that it would research the matter and assigned a case number. Later that month a representative indicated that the capital gains distribution credited to her account was a computer error. When questioned about what happened to the capital gains distribution amount taken from her account, the ING representative had no answer. This is not surprising to me because itâs unlikely telephone call center staffers would be trained in the complexities related to unitizing mutual funds in 401(k)s.Â What they canât explain, Sodexoâs workers canât possibly understand.
The retireeâs CPA was also mystified. âMy biggest question is,â sheÂ said to him, âis there possible wrongdoing/mismanagement on INGâs part that is either limited to my account or greater than my own issue? If there could be, who do I engage to see if this is or could be true? You, a financial lawyer, an investment house or ??â
In January, the retiree contacted the mutual fund company involved for information about any capital gains paidÂ in December and was told there had been a distribution, furthering confusing the investor. In March, after contacting Sodexo, the company provided an email explanationÂ that I found to be truly mind-numbing upon first reading:
Source Article from http://www.forbes.com/sites/edwardsiedle/2013/05/22/sodexos-twisted-401k/
Sodexoâs Twisted 401(k)
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