Question:
So (finally) my question:  anyone know of some 401k administrators that deal with small companies (less than 50 participants, less than $500,000 in the current plan)?

Answer:
So, my first question is whether you are getting a partial subsidy from your employer for the billed administrative expense *OR* if the plan (and the accounts) are hit for the administrative fee as well.  The answer to that question will help determine the next step.

One piece of reality is that the costs to administer a 401k plan do not grow in a linear fashion based on the number of participants.  There is a high fixed cost component of administering the plan, and a much lower cost of accounting for one additional participant.  So, because of that fact, the cost per participant of running a 50 person plan is much higher than the cost per person of running a 500 person plan.

A whole bunch of plan administrators are out there that work with small plans.  However, be prepared for the fact that the "unbundled" fee will be much higher than what is currently being paid directly.  Again, who is paying this fee may have an impact on how important this is.

Art In my experience, there are several ways to accomplish a 401K plan.

 1.You can use a "turn key" program where the fund company is the administrator as well as the provider of the investments.This sounds like your plan.  The fund company may charge a load (if you are purchasing front loaded shares) on the investments purchased or in the case of some of the companies that I deal with if you have over 1mill or 200 employees the funds can be purchased at NAV. If you stay with your current provider you might ask about this threshold and if there is ever a break.  By turn key I mean that they provide the approved plan documents, provide the investment selections, and do all of the administrative reporting (as well as actuarial functions like making sure your plan doesn't become top heavy and remains in compliance.)

2. Hire a third party administrator (TPA) and use a brokerage firm to invest in you selection of investments. You are the trustee, the brokerage firm holds a shell account in the name of the 401Kplan and multiple accounts FBO each participant. The administrator coordinates all of the reporting and legal stuff.  In this case you need to provide the plan documents yourself. The cost of a TPA can vary based on the plan assets, the number of participants and your location in the US.  TPAs are usually listed in the yellow pages under pension planning services.

It may be that the 3% cost of administration is less than that charged by a TPA until your plan becomes larger. On the otherhand you could be investing in no load funds and shop for a fee based advisor who may be able to provide the administrative functions.  You will need to crunch numbers to see which way is best for you.  You also should look at the fund company your agent has selected for you to see if there may not be better (more diverse) selections available.

I usually deal with smaller companies and find that the "turn key" plan is most affordable and less headache for the trustees.

First of all, I want to emphasize that you're fighting an uphill battle here.  Simply having a 401k at such a small company is something of a victory.  I can tell you're upset about the situation, but please take this in the constructive spirit in which it's offered.  You may not be getting a bad deal on your 401k even if you have to pay a 3% load.  An employer match would make up for it, and the tax advantages are worth something to you.

To evaluate how good a deal you're getting from American, you need to compare several things.  The things to consider are (IMO)

- administrative fees paid by your employer directly to the company administering the 401k. - loads paid by you to the 401k company - expenses paid by you into the mutual funds held in the 401k (the expense ratio in the prospectus). - number of funds being offered - employer match, if any.

Obviously, you'd like to move as much of the first two fees either to your employer or completely eliminate them.  You also want to minimize number 3, maximize #'s 4 and 5.  Unfortunately, it's not a perfect world, so you're not going to get all those things.  If the administrative fees go up, the employer match (if there is one) is likely to go down.  If the number of funds goes up, then the administrative fees go up, and the employer match will go down.  If there is no match, and admin. fees get too onerous, then the 401k may be discontinued altogether.  Especially important is the trade-off between 2 and 3.  A no-load fund is still really expensive if it charges an expense ratio of 2% per year.

Fidelity administers 401k's.  I'm not sure whether they handle plans this small, but I'm sure they can send you a packet.  Vanguard and T Rowe Price also are in this game.  I don't know whether TIAA CREF handles 401k's, but you can probably find out from their web site.

Only by comparing the specifics of your alternatives to the plan you've got can you tell whether or not you can do better.  The 3% load by itself, if the alternative is to have no 401k at all, doesn't mean that you're being screwed.

Finally, if you really think the 401k terms are that bad, and your company won't change what it's doing, you don't have to participate.  You can invest in a Roth or invest in a tax-efficient mutual fund outside the 401k.

It may be that the 3% cost of administration is less than that charged by a -TPA until your plan becomes larger. Of course, remember that in the fact pattern we have that the 3% is paid by the participants, while the administration fee is being paid by the employer.  So, even if the overall cost of administration is higher than it would be with a TPA, there would still be the issue of "selling" this proposal to the employer.  After all, for both parties it's easier to spend other people's money.

administrative fees paid by your employer directly to the company -administering the 401k. -- loads paid by you to the 401k company -- expenses paid by you into the mutual funds held in the 401k (the expense -ratio in the prospectus). -- number of funds being offered -- employer match, if any. I think you make an important point here about the trade-offs involved.  Obviously, from the employee's perspective, you'd love to have all administrative fees paid by the employer (with the administrator being extremely responsive--daily updates, lots of top notch people available to handle questions, etc.--which will generally mean higher cost <grin-), no load paid on any investments, fund expense ratios in the Vanguard index fund range, a huge number of funds and extremely generous employer matches.

Oh yeah--and all salaries equal to at least $160,000 <grin-.

Of course, an employer might not feel too good about all of this.  They might prefer a plan with lowest possible employer costs, no concern about loads paid by employees (just as the employees had no concern about administrative fees paid by the employer), no concern on expense ratios, a limited number of funds (makes life simpler) and no employer match (costs money).

Most likely, any realistic plan is going to fall somewhere between those two extremes.