Author Topic: Help! - High Fee 401k  (Read 2441 times)

BiggerFishToFI

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Help! - High Fee 401k
« on: June 28, 2017, 03:09:44 PM »
The 401k offered by my employer is American Funds. The only funds I can invest in are all class "R-2" with the lowest expense ratio 1.35%. I'm currently in the "Target Date 2050" fund with an expense ratio of 1.53%....

They also offer a 4% match.

I have about 10k in there currently, but I just switched to deferring enough to max out this year. Now I'm not sure if that is the best option. I still plan to max out my Roth IRA regardless (Don't qualify for deduction on traditional IRA).

So the question is, is this high of a fee worth maxing out or should I just get the match, max out Roth IRA and put the rest in low cost index funds with Vanguard?

I want to talk to our plan administrator about them offering lower cost funds, but not really sure how to present it and what their response would be. I'm assuming employers choose these high cost funds to avoid any flat advising fees?

Thanks in advance!

dandarc

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Re: Help! - High Fee 401k
« Reply #1 on: June 28, 2017, 03:22:08 PM »
I mean, that sucks but if you're not eligible to deduct a tIRA, odds are you're in a 25% or higher tax bracket.  So you should still do the 401K.  See the math at the end of this post.

http://jlcollinsnh.com/2013/06/28/stocks-part-viii-b-should-you-avoid-your-companys-401k/

Anyone else at work concerned about this?  If you approach HR or the owner or whoever makes these decisions as a group, you might be heard a little better.  When you leave this employer, assuming the funds are still crap, then roll over to an IRA.  Roll over before you quit if your plan allows that - seems unlikely, but maybe the plan offers in-service rollovers.

Hargrove

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Re: Help! - High Fee 401k
« Reply #2 on: June 28, 2017, 04:47:57 PM »
Still worth it. Shouldn't be so shitty, but, they usually are.

Sadly your plan probably has an administrative fee on top of the expense ratio in your account documents.

Just be sure to roll it over into a self-managed IRA whenever you leave (as soon as you leave).

JumpInTheFIRE

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Re: Help! - High Fee 401k
« Reply #3 on: June 29, 2017, 09:59:45 AM »
Your company has a fiduciary responsibility to you in providing a 401k plan (https://www.irs.gov/retirement-plans/retirement-plan-fiduciary-responsibilities).  One could argue that your company is failing that responsibility by only providing high-fee funds.  The following page says that fees are one of the most important duties:

"Small businesses that sponsor a 401k plan have a fiduciary responsibility to only pay necessary and reasonable fees from plan assets. Keeping 401k plan fees in check is one of the most important fiduciary responsibilities because excessive fees reduce investment returns unnecessarily, making a comfortable retirement for plan participants less affordable. Not meeting this responsibility can also mean severe consequences for plan fiduciaries including personal liability."

https://www.employeefiduciary.com/blog/401k-fees-frequently-asked-questions-by-plan-fiduciaries

I would approach your HR department and express your displeasure at the lack of available funds with reasonable fees and express doubt that they are meeting their fiduciary responsibility.

BiggerFishToFI

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Re: Help! - High Fee 401k
« Reply #4 on: June 29, 2017, 12:52:14 PM »
Ok, thanks for the advice! The company I work for is small (~10 employees), I want to build a case this weekend to present to them next week about how much these fees may affect me over the next 10-20 years (which they should care about if they want me to stay!).

What would be considered reasonable fees for an employee sponsored plan? What about reasonable amount/diversity of funds to choose from? Can a low-cost index fund offered through an employer 401k be as low in fees as a Vanguard index fun?

I know Fidelity and Vanguard have low fees, is there a chance the current company they work with has lower fee alternatives?

I get along well with my employer so want to present this on a factual base with alternatives, I don't want to be accusing them of not fulfilling their fiduciary duty (even if that is the case). I'm assuming its ignorance on their part at this point.

Thanks again!
« Last Edit: June 29, 2017, 12:53:57 PM by soontoberich »

dandarc

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Re: Help! - High Fee 401k
« Reply #5 on: June 29, 2017, 01:05:01 PM »
Good discussion here with various low-cost alternatives:

https://www.whitecoatinvestor.com/your-small-practice-401k-may-be-ripping-you-off-friday-qa-series/

I'd appeal to the owners greed - surely the owner is a participant in the plan.  1% of the owner's likely stake in the plan every year could compound to a huge amount of money.

https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost

Illustrates just how bad this is in an easy-to-use calculator.

JStrider

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Re: Help! - High Fee 401k
« Reply #6 on: June 29, 2017, 01:26:41 PM »
I want to build a case this weekend to present to them next week about how much these fees may affect me over the next 10-20 years (which they should care about if they want me to stay!).

correction " How much these fees may affect everyone at the company over the next 10-20 years"

Beach_Stache

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Re: Help! - High Fee 401k
« Reply #7 on: July 08, 2017, 09:29:39 AM »
Can you rollover money that you've invested into your company's 401k into an IRA in Vanguard or Fidelity?  I know most companies make you keep your matching amount within the company for a certain amount of time, but if you put in 18k (not including your matching) would they allow you to rollover that amount each year into your own IRA in your personal account?  That way you move the bulk amount of your money over to something you can control at much lower fees each  year, or twice a  year or however often they let you do it?  You should check with them on that and see if that's possible.  It may be a pain doing it every so often but once you do it once you'll know the process and can probably spin it fairly quickly.