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Americans rely on more and more retirement accounts such as 401K and IRAs to fund their future retirement. Financial professionals are helping company plan sponsors and participants in retirement investing. It is thus interesting to look at some of 401k plans in these financial institutions and see how well they serve their employees. In this article, we will discuss The Bank of America 401(k) Plan.

Bank of America Corporation (NYSE:BAC), a financial holding company, provides banking and non-banking financial services and products to individual consumers, small- and middle-market businesses, large corporations, and governments in the United States and internationally. Bank of America acquired Merill Lynch in 2008.

The Bank of America 401(k) Plan's 401K plan consists of 55 funds. These funds enable participants to gain exposure to 4 major assets: Fixed Income, US Equity, Foreign Equity, Emerging Market Equity. The list of minor asset classes covered:

Target Date Funds

It is interesting to see that the Real Estate Investment Trusts (REITs) funds are missing in the offering even though the bank handles millions of commercial and residential mortgages.

As of October 15, 2010, this plan investment choice is rated as above average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are. It has the following detailed ratings:

  • Diversification -- Rated as above average (80%)
  • Fund Quality -- Rated as below average (24%)
  • Portfolio Building -- Rated as great (85%)
  • Overall Rating: above average (65%)

It is worth noting that funds in the plan are not impressive at all. This is clearly reflected in the following performance chart and table.

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies (SAA and TAA , both provided by MyPlanIQ). For comparison purpose, we also include the moderate model portfolios of a typical five asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

Performance chart (as of October 15, 2010):

Performance table (as of October 15, 2010):

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
The Bank of America 401(k) Plan Tactical Asset Allocation Moderate 12% 112% 10% 108% 11% 120%
The Bank of America 401(k) Plan Strategic Asset Allocation Moderate 14% 213% 3% 27% 6% 51%
Four Core Asset ETF Index Funds Emerging Markets Tactical Asset Allocation Moderate 2% 17% 6% 44% 14% 88%
Four Core Asset ETF Index Funds Emerging Markets Strategic Asset Allocation Moderate 10% 76% 1% 4% 8% 37%

Clearly, employees in Bank of America can be better served with higher quality fun d picking and more diversification -- adding Real Estate Investment Trusts (REITs) is one option. We would hope financial professionals can utilize their know how to better serve themselves.

Disclosure: No positions

Source: BofA's 401K Plan: Well-Designed ETF Choices for its Employees