6 January 2010
Why are my 401(k) Unit Values Different?
Have you ever closely looked at your 401(k) statement and compared the values of the funds to the quotes available online for those funds? I did recently and got a bit of a surprise.
My company provides a 401(k) option through John Hancock, which I have participated in for the last couple of years. I would often check the account balance on the website and I would skim the quarterly statements that they sent in the mail, but I never spent much time tracking the details of each fund. A couple of months ago I decided to a put a little bit more effort into actively managing my investments. A good friend of mine works at one of the larger investment firms in our city, so I decided to let him have a look at my fund options. He gave me a set of recommendations which I implemented for my ongoing contributions.
I thought that I’d keep a closer watch on the performance so that I could let my friend know how his suggestions panned out. I haven’t used Google Finance much, so I thought I’d give their portfolio tool a try. I just took all of my current funds and entered them into the portfolio as if I had purchased them today. For example, I entered a BUY of DFA Emerging Markets (DFEVX) for 57.007 units at a value of $42.538 per unit just as my John Hancock Statement indicated my current balance to be. I wanted to be able to see day-to-day from now on, how my invesmtents performed. After saving the transaction, what I saw confused me a bit. The tool correctly labeled the cost of purchase at $2,425.06 (the current value), but listed the current value as only $1,856.15 showing a loss of over 23%. This didn’t make any sense to me. I was trying to enter the values as of today, so I expected to see a gain/loss of 0% and begin tracking from today forward. Then I noticed that the last price was listed as $32.56 per unit. Why would this state $32 when my account stated that they were $42 each. I double-checked my prospectus and the ticker symbols matched.
I decided to run this question by my VP of Finance before I went any further to see if he knew the explanation. He didn’t know why it was like that. I confirmed that several other funds had the same issue. I decided to give John Hancock a call. It took a few minutes to get through the menus, but to their credit, a live person picked up right away. They didn’t even ask me for the same account numbers that I had already typed in. That was refreshing. After explaining my question, the agent attempted to answer to the best of her ability. I’m sure the explanation was fine, but I wasn’t sure how much it made sense in my mind as she described what was going on. Here is my best recounting of what I was told.
“You are not actually buying shares of that mutual fund (DFEVX). You are buying shares of a John Hancock fund that mirrors the performance of the fund. John Hancock is then in turn using that money to purchase shares of that specific fund, so the unit values will sometimes differ. When you first buy the units, the values match, but as the price fluctuates on the open market, John Hancock’s fund price doesn’t fluctuate the same. When dividends are paid, we don’t pay them to you because those would be counted as distributions. Instead, we purchase more shares of the same fund for you.”
I mulled this over in my head and then verified with her that the values listed on my statements would never match the values on the open market. I decided to attempt to find some more information about this through Google and came up with a few results, but never found a great answer. In fact, the best answer on Yahoo Answers was “This is a question that can only be answered by the manager of the fund.” I did find one person who referred to some small print in the prospectus, so I looked it up and this is what I found:
When contributions are allocated to Funds under your employer’s group annuity contract with John Hancock, they will be held in a sub-account (also referred to as “Fund”), which invests solely in shares of the specified underlying mutual fund. The ticker symbols shown are for the underlying mutual funds in which sub-accounts are invested. The ticker symbols do not directly apply to the John Hancock sub-account and therefore any public information accessed using these symbols will not reflect the unit value of the subaccount, nor will such information reflect sub-account or contract-level charges under your plan’s group annuity contract.
Well, I guess that about sums it up. I can’t believe that I’ve never noticed this before and I also can’t believe that I didn’t find more answers online. I’m a little bummed that I can’t use the Google charting to track my account. It looks pretty cool. If anyone has a better way to explain this, please leave an explanation or a link in the comments. Maybe I’ll hit up my friend for a descritpion of how it all works.
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4 Comments currently posted.
Where is my ticker says:
master shake says:
Agreed with the above poster. I too have a JH account with the very same issue. Some of these ‘unit values’ differ greatly from the ticker symbol provided on the fund information page. From the layout of the site, it would appear that they are actually offering the fund itself and do not draw much attention to what you are actually investing your hard earned money.
How is the 401k investor to know exactly where his finances are heading with this model. Say
Gary Duell says:
I’ve come up against the same issue with The Standard. Seems like an attempt to conceal expenses & fees and make it difficult to do cross comparisons with competing funds.
john oreilly says:
This is a common problem in 401(k) plans overall. You’ve seen the tip of the iceberg. Fee transparency is very poor in the vast majority of 401(k) plans. ERISA – the guidelines that regulate 401(k) is very weak and allows these shenanigans to exist without penalty. Several attempts have been made to tighten up ERISA to no avail. Best thing to do – ask your plan sponsor:
1) I want a better 401(k) plan with funds that do not pay 12b-1 fees. (12b-1 fees are kickbacks that create conflicts of interest among the vendors that provide the plan for you.
2) I want a better 401(k) plan with institutional class, low expense ratio, passively managed funds.
3) I want a real investment advisor to build my portfolio for me, matched to my risk tolerance, using these institutional fund building blocks.
4) I want an advisor that walks the fiduciary talk by taking on ERISA section 3-21 adn 3-38 fiduciary liability in writing. (Which helps your plan sponsor be relieved of a lot of liability.
Remember this is YOUR MONEY – SPEAK UP – your retirement dollars are being mistreated right now. Until you get into a plan as described, you are probably reaching the long term potential growth that you could have. 99% of you reading this, are in a poor plan.
I have had the same issue with a JH account I have. My concern is that they provide a ticker symbol that is publicly listed and quoted — and the prospectus for that symbol relates to the non-JH sold fund. If the share units and cost are not the same as they are for the prospectus fund, then how do we know and compare the costs/expenses shown for the fund?
Seems to me there is a lack of transparency and the opportunity for hidden costs and expenses – since there is no publicly available info on these rebundled funds.