Unpacking the Complex Web of Insurance Company 401k Fees

In a small business 401(k) fee study, we found that 7 of the top 10 most expensive 401(k) providers were insurance companies.  I can’t say I was too surprised by this finding due to the complex web of 401(k) fees charged by these companies – which can include hidden 401(k) fees that other 401(k) providers can’t charge legally and additional fees for unrelated service partners.

So how do insurance companies with high 401(k) fees get away with it?  

Likely their lack of 401(k) fee transparency. Insurance companies typically don’t report their 401(k) fees in 408b-2 fee disclosures as a simple dollar amount – instead, they estimate them as a percentage of assets.  Or worse, bury them in dense annuity contracts.

If you’re a 401(k) plan sponsor, you should understand the complex web of 401(k) fees possible with an insurance company.  Generally, these fees will make it harder for you to meet your fiduciary responsibility to pay only reasonable fees from 401(k) plan assets.  


Here's the biggest worry on Wall Street right now

China's latest efforts to curb risky debt levels are not only shocking local markets but raising worries globally about another market shock.

As a result, China has replaced Europe as the top worry for global money managers, according to the latest Bank of America Merrill Lynch survey published Tuesday. 

Thirty-one percent of the 184 respondents consider Chinese credit tightening the biggest "tail risk" for markets. The second worry is a crash in the global bond market, at 19 percent, followed by trade war, at 16 percent.

Top market risks


Source: BofA Merrill Lynch Global Fund Manager Survey

The resurgence in China fears is the first since January 2016, the report showed. Back then, worries that a spillover from a sharp slowdown in China's economy sent the Dow Jones industrial average and S&P 500 plunging in their worst start to a year on record

In the nearly 18 months since, Chinese stimulus has helped the world's second-largest economy stabilize. U.S. stocks, in turn, have recovered to hit record highs. Despite the UK's surprise vote to leave the EU and a growing populist movement there, the major U.S. indexes haven't fallen more than 10 percent from a recent high, or into correction, since the drop early last year, prompting Barclays Head of Global Equity Strategy Keith Parker to write in late February that "China is mattering as much as politics."

Increased financial regulation in China has sent stocks lower and the 10-year government bond yield spiking to a high last week not seen in more than two years. The five-year bond yield also climbed above that of the 10-year in a rarely seen "inversion."

Fears about China have increased while worries about Europe are on the wane. Centrist Emmanuel Macron's decisive win in the latest French elections and pro-EU candidates in an upcoming German election have alleviated concerns that the EU could break up. The euro hit $1.1088 on Tuesday, its highest since Nov. 9.

China's economic data isn't getting better. The Caixin Markit manufacturing PMI fell to 50.3 in April, close to the breakeven 50 level and the lowest since September. The services PMI fell for a fourth straight month in April to 51.1, the lowest since May 2016. Trade data for last month missed expectations, while reports earlier this week showed softness in industrial production, fixed asset investment and retail sales.

The China worries also feed into existing worries about expensive stocks.

The BofAML survey found that 37 percent of respondents think global equity markets are overvalued. That's the most since January 2000, just before the burst of the tech bubble.

On Monday, the Nasdaq composite, S&P 500, German DAX, and Hang Seng closed at records — survey respondents also said buying the tech-heavy Nasdaq is the most crowded trade.

Net % who think global equity markets are overvalued 


Source: BofA Merrill Lynch Global Fund Manager Survey, CNBC annotation

Of major global indexes, only the China Shenzhen A Share market remains more than 10 percent below its closing high. 

To be sure, only 11 percent of the BofAML survey respondents expected tighter Chinese monetary policy to "cause a meaningful drop in PMIs and cause financial market volatility."

BlackRock's Helen Zhu also said at a media panel last Friday that she sees the recent policy tightening as healthy and shouldn't turn into extremely aggressive measures. 

"I think the tightening is inevitable short-term pain [with] long-term gain," Zhu said, noting like other analysts that Chinese policymakers are likely taking advantage of the improved economic growth to tighten policy, she said, noting that the rise in rates also follows the gains in U.S. rates.

It's not in Beijing's interests to allow significant financial and economic disruption in the next few months. The country is preparing for a key 19th Communist Party Congress this fall, at which President Xi Jinping is expected to shuffle leadership in consolidation of his power. 

Watch: Why Cramer says China may have already beaten Washington


Cramer Remix: Why China may have just beaten Washington  Monday, 15 May 2017 | 7:21 PM ET | 01:04


Americans may soon have to kiss these lucrative personal tax deductions goodbye

President Trump has taken aim at itemized tax deductions.

On Wednesday, Trump unveiled his long-awaited tax plan, reducing the U.S. tax code for individuals to three brackets. He is proposing a 35% top tax rate for individuals, lower than the current 39.6% rate (but above the 33% rate he backed during the campaign) and two lower brackets set at 10% and 25%. Trump will get rid of most personal itemized deductions to compensate for the three-tiered tax rates, but will keep the popular mortgage interest relief and tax deductions for charitable donations. (He will eliminate the estate tax and alternative minimum tax.) 

Here is a list of the main personal income tax deductions that are likely to be cut under Trump’s tax plan, assuming these proposals are approved by Congress:


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The Nasdaq is on the verge of cracking 6,000 for the first time ever

U.S. stock futures were higher this morning after the Dow, S&P 500, and Nasdaq on Monday logged their biggest gains since March 1. The Nasdaq closed at a record high and about 16 points away from 6,000. (CNBC)

Dow components 3M (MMM), DuPont (DD), Caterpillar (CAT), Coca-Cola (KO), and McDonald's (MCD) report earnings this morning. The afternoon after the bell list features AT&T (T), Chipotle (CMG), Texas Instruments (TXN). (CNBC)


The market suddenly doubts the Fed will raise rates twice more this year

A recent string of less-than-stellar economic news has injected some uncertainty into whether the Fed will deliver a steady diet of rate increases ahead.

In fact, current trading in the fed funds futures market indicates that the U.S. central bank will not be able to enact the two additional rate hikes that officials have indicated are on the way this year.

As of Thursday afternoon, market indications were for a 57.3 percent chance of a quarter-point increase in the benchmark short-term rate in June, while there's just a 41.1 percent probability that it would move again in December. The June probability was less than 50 percent on Wednesday but rose Thursday on the heels of better-than-expected 0.4 percent growth in the leading economic indicators barometer and a stock market rally.


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