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I have $41,000 in a 401K and am paying 1.5% in fees alone ($620 last year). I'm only able to contribute $4K per year. So, right off the top 15% of my contributions cover only fees. Can my employer find a cheaper provider?

I worry that this 15% less per year I can put into retirement is taking 10's of 1000's out of my final date, 30 years from now. I would prefer to roll this into a Rollover IRA and manage it myself. I can keep fees below 0.15%. One Tenth!! The 401K provider said I'd have to change employment. Am I stuck paying $620 in fees per year, effectively reducing my final retirement goal? Our company does not match or pay the administrative fees. They are a small company, prob $7 million per year in size, with approx 50 companies. Since I'm stuck, my question is, "Is 1.5% reasonable?" I would love to tell my boss of other 401K providers with lower fees. I'd be happy with ranges of 0.5-0.9% if that's possible. Under our current plan, 3 different people charge fees 1) Local advisor, 2) First Merc Trust, 3) The fund itself.

I find it odd that the law encourages switching employers. I don't know the motivation behind that law, but am curious.

Any highly rated providers with reasonable fees (I assume the larger the provider the lower the fees)? I know the fees I can get through my online broker are 1/10 that of my 401K. I'm sure you're seeing this question more and more with the new law that's passed. THANKS FOR ANY HELP.

THANKS, Robert

Nov 16, 2012 by Robert from Berkeley, CA in  |  Flag
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Robert-as to whether the fees are reasonable, that depends on the amount of assets in the plan. When you say your employer is a small company, $7mm in size, are you referring to company revenue or assets in the plan. If the latter, then for 401k providers in the small and mid-sized market, they are not a "small company." Once a plan has $1mm in plan assets, and actually even a bit lower, they can get signficant economies of scale in plan pricing such that the all-in cost can be well under 1%. For example, American Funds, a leading 401k provider in the small market space will offer a platform that can include Vanguard Funds priced at 25bp or less and if the advisor fee is an additional 25-50 bp, you're less than half of what your current fees are. You might wish to inquire whether your company is working with a Registered Investment Advisor who is able to access the lowest-cost share class for the investments in the plan and either way, the company would be wise to get competing quotes either from existing advisor or another one if the existing is not able to provide. That said, while fees are an important consideration, they are not the only one, and the service provided to both employer and employees is also important so that needs to be considered as well.

Comment   |  Flag   |  Nov 17, 2012 from Manhattan, NY

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Alfred F Level 13

Robert You ask a terrific question and also show how fees have an impact on participant account values over many years. I don't want to set a tone that depicts your current employer has a very expensive plan. There are many companies that have plans which are priced on the very high end due to the nature of the platform - mainly insurance based providers have more expensive internal costs than open architecture plans using unbundled consultants / advisors using institutional share classes.

Your plan - the investment share class, the advice provider , the recordkeeping and admin , the plan website , statements etc is all priced on a combination of plan assets and eligible participants. Generally if a plan has higher plan assets and few participants , the average employee account balance s larger - thus better pricing on these components.

Unfortunately you are correct about the need to leave employment to find a Cheaper plan alternative. I don't suggest moving because most smaller employer plans are priced in the 1.5% to 2% range anyway due to size and demographics.

Your best course of action is to use the funds inside the plan with some of the lower expenses ratios - like an index funds. You can also encourage your employer to benchmark the plan each year to compare it against plans in your industry with similar demographics - meaning number of employees and plan size.

Lastly if your plan is provided through an insurance company then you should definately be asking the boss man to benchmark the plan !

1 Comment   |  Flag   |  Nov 17, 2012 from Wayne, PA
Adam

What if the plan offered has no index funds?

Flag |  Aug 15, 2013 near Germantown, MD

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James Holland Level 18

Robert Congrats on putting the pieces together. It has been far too long that participants have getting the short end of the stick. YES there are MANY excellent providers who offer platforms with lower fees. Go to HR and demand they replace the current providers. ERISA clearly states the plan is for the SOLE benefit of the participant and their beneficiaries. It is your money and should be working for you not anyone else.

Comment   |  Flag   |  Dec 09, 2012 from Charlotte, NC

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