Author Topic: 401k Plan Administration Fees  (Read 713 times)

fdubz

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401k Plan Administration Fees
« on: November 14, 2019, 06:30:40 AM »
The small business that I work for is looking into adding a 401k plan for us.  This is very exciting, but the owner is going through his own financial planner, which of course sends my red flags up.
We are in the beginning stages, but the only info I have so far is that we will be doing a self-directed option and the administration fee (charged to us, not the company) will be .4%

Does this seem good/bad? Low/high?


terran

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Re: 401k Plan Administration Fees
« Reply #1 on: November 14, 2019, 07:00:19 AM »
It depends what investments are available. If the total expense ratio between this fee and those of the underlying investments is anything below 1% then you're doing better than a lot of people.

You could try to point them towards https://www.employeefiduciary.com/ and https://www.guideline.com/ which seem like good options for small businesses.

RWD

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Re: 401k Plan Administration Fees
« Reply #2 on: November 14, 2019, 07:33:13 AM »
0.4% is not terrible but it's not great either. It'll be about 10x more expensive than investing in Vanguard funds in your IRA, for example. Whether it's worth investing in this 401k plan depends on the available funds, company match, and how long you plan to stay at the company.

For sure you'll want to contribute enough to get the full company match, if applicable. Then max your IRA. Then consider if it's worth investing more in your 401k after that.

fdubz

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Re: 401k Plan Administration Fees
« Reply #3 on: November 14, 2019, 07:43:55 AM »
Thanks for the replies.

We don't know investment options yet. Hopefully some low fee Vanguard or Fidelity index funds.  That will definitely determine how much of my own money I put in.

My husband has a Fidelity 403b and 457, and we use his whole paycheck to max one and almost max the other. We also both contribute to our Vanguard IRAs.  So this 401k is the last place we will put money once we have maxed all others. Good to know it is not terrible. 

Because our boss/owner is using his own financial planner, there is unfortunately not much room for suggestion.  But I appreciate that he's doing it for us and he also plans for the company to contribute. Just not sure of the details yet.
« Last Edit: November 14, 2019, 09:18:10 AM by fdubz »

frugalnacho

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Re: 401k Plan Administration Fees
« Reply #4 on: November 14, 2019, 08:50:03 AM »
If the boss is using their own personal advisor they have likely drank the kool aid and there is not much you can suggest.  They likely trust their financial advisor over you, and don't see anything wrong with the fees, even when presented with evidence.  I went through the same thing with my boss, and when I presented evidence it was rebutted with "paying 1% in fees is completely reasonable to have someone manage your investments".  I can relay all the information I read from MMM, and JL Collins, and the various financial books I've read, and show him a chart of compound interest with an extra 1% taken out, but his mind was made up and he liked the advisor and believed the advisor had his best interest in mind and would earn his 1%. 

That said, 0.4% is not that terrible on the spectrum of all possibilities.  It's not optimal, and much higher than you'll pay in your own IRA, but it's also outside of your control so you just have to deal with it.  Hopefully the funds themselves have a low ER and it's not egregious.  Even when it is it's still probably in your best interest to utilize the tax advantaged space.  You probably won't be employed at this place forever, so you'll be able to roll your balance over to your own IRA at some point and eliminate those fees at that point. 

reeshau

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Re: 401k Plan Administration Fees
« Reply #5 on: November 14, 2019, 08:55:43 AM »
We are in the beginning stages, but the only info I have so far is that we will be doing a self-directed option and the administration fee (charged to us, not the company) will be .4%

Does this seem good/bad? Low/high?

My (US) company, a $16B revenue company, is with Fidelity and our plan fee is .11%.

Is your company also going to institute a match?  If so, then of course a measly fee is overshadowed by that.

bognish

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Re: 401k Plan Administration Fees
« Reply #6 on: November 14, 2019, 10:07:09 PM »
Admin fee seems normal. Especially for a small company. Its really hard to get a brokerage to run a small 401k plan. Fidelity won't even give you a sales pitch unless there is $5m in plan assets and the plan is growing. There are lots of rules and reporting for a 401k plan that the fee covers. Your employer needs to decide where to spend the benefit money to attract or retain employees. They could cover the admin fee on the 401k, but then maybe cover less of the health plan premiums. It comes down to what benefit will most employees value most.