So you invest $1000, and your company matches that with $1000 (or $250 or $500). How long does it take those expense ratios to eat through +25% or +50% of extra money?
Even an expense ratio that's 1.2% higher takes a very long time to overcome a company match. And with a +50% or +100% match, you might retire first. The company match is always valuable.
The funds with the worst expense ratios are still equity mutual funds. They will still tend to beat other investments like cash, so I'd go with the lower expense ratio choice in your 401(k) plan.
Most people don't stick with the same job for that many years, so when the time comes to change jobs, you can also change your 401(k) into an IRA and make your own choices.
In the meantime, ask your 401(k) department uncomfortable questions. Like if they have to act in your best interest, why can you only pick 1.3% expense ratio funds instead of Vanguard funds - and Vanguard also offers retirement plans for every size of company.
I've noticed the companies that don't seem to care about expense ratios tend to be smaller - and probably haven't had a lawyer look at their legal exposure from only offering high expense ratio funds (which might be a breach of their fiduciary duty to plan participants).