How should I react to this? I feel like I'm being gouged here, is there anything I can do about it?

You could talk with HR and find out who chooses the 401k administrator and talk with that person....

I made my equation like so:

(1-tax rate)*((1+arbitrary annual return - expense ratio)^years)

It seems like my tax rate doesn't really go down that much whether my taxable income is 70k or 45k -- only by about 5%. It looks like the 1% compounding expense ratio wipes out all tax savings in all reasonable scenarios.

However, this is not taking into account the fact that I can't (as far as I know) get my money into an equity or bond-exposed account in a pre-tax fashion any other way. Should I open an IRA, contribute the pre-tax maximum, then put my post-tax money into a roth? With expense ratios like these I'm not even sure if the 401k employer match is worth it (I think it maxes out at 2.5% of what I put in, plus a vesting scheme).

That seems the correct equation for starters. Some thoughts:

- If you file single, your tax rate won't change at all between a taxable income of 70k or 45k: it will be 25% of the $25K difference, or $6,250.

- The full comparison you might want is from "before tax now" to "after tax in retirement". In other words,

- Start with $25K

- Either pay taxes now and invest $18,750 in a taxable account, or don't pay taxes now and invest $25K plus the employer match into your 401k

- Let the funds accumulate at the appropriate returns (higher in taxable) and pay some amount of yearly taxes on the taxable fund distributions

- Withdraw funds and pay the taxes on the 401k at ordinary income rates and pay the taxes on the taxable appreciation at LTCG rates.

How does it look if you do that? The answer will depend on the assumed returns, future tax rates, and number of years invested.