Comments on: How Much is Your 401(k) Costing You?

By: Jim Bigham

Jim Bigham — Wed, 16 May 2007 19:32:03 +0000

I love your quote from Hewitt. They INVENTED the concept of sub-transfer agent fees year ago. These are the payments made by funds to the TPA that are gererally hidden from sponsor view and ALWAYS hidden from participants. HILARIOUS!

I read one of the Hewitt booklets published on their web site about managing plan expenses. I couldn’t find sub TAs or revenue sharing payments anywhere in that document. No surprise.

Cheers,

Jim Bigham

By: Dreamer

Dreamer — Fri, 27 Apr 2007 03:01:05 +0000

Hi JLP,

I’ve been a passive reader of your blogs for quite sometime and i’ve a learnt a lot abt finance.
I am indian student in F1 visa status. I recently got a job and i plan to work for around 5 yrs in H1B status before i go back to india. I dont wanna settle down in the US till my retirement. My company offers 401(k). For the first 3% they match every dollar. next 2% they match 50 cents a dollar. I dont want to lose the free money from my employer. Is it worth investing in 401(k) even after knowing that i would be taking the money before retirement and will be paying the tax and penalty when i withdraw it. I wanna know if i could profit, even after taxes and penalty, from the free money that my employer matches. My gross salary is 78k and i fall under 28% tax bracket.

By: Shadox

Shadox — Sat, 07 Apr 2007 06:28:27 +0000

This is an excellent post. Thank you.

I am a member of the management committee of my company’s 401(k). I got into this role a few months ago and the first thing I tried to figure out were the costs. Even with full access to the information and asking some direct questions of our providers this is proving to be pretty tough.

Our current provider is ING. Not only do they charge us outrageous expense ratios (1% – 2%) until very recently they also charged us “wrap charges” to the tune of an additional 0.3% to 1%… it’s crazy. Because of our inquiries they now dropped these wrap charges. However, I am still advocating for our company to switch providers.

I am telling you, 401(k) expenses are a scandel. These guys are draining the retirement assets of an entire generation of American workers. This is something Congress should intervene with and address immediately.

By: Brigil

Brigil — Fri, 06 Apr 2007 13:44:09 +0000

This issue burns me up! My wife’s 401(k) has a sorry collection of choices, all with moderately high expenses (avg=1.1%). I really want to take the money out and put it in index funds/ETFs–but the company matches 50% on the first 6%, and that’s too good to pass up.

By: Free Money Finance

Free Money Finance — Fri, 06 Apr 2007 10:19:48 +0000

Star Money Articles for the Week of April 2

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: MightyBargainHunter tells of a man who bought a house by selling coins with errors. Five Cent Nickel lists the Roth IRA income limits for 2007. Blueprint

By: Foobarista

Foobarista — Wed, 04 Apr 2007 19:16:37 +0000

One of the dirty secrets of 401K plans is the funds in the plan drive the cost to the employer. A bunch of high-cost garbage in the plan means fat commissions to the 401K administrator, and they will charge the employer less for these. Plans with lower-cost – and lower commission – funds make less money for the 401K administrator and cost the employer more.

Also, the bigger the plan, the cheaper it is to administer on a per-employee basis. And many better administrators like Vanguard won’t touch employer 401K plans unless the plan pool is over $1M.

This is why small company 401Ks tend to be bad, unless the management makes it a point to find a good one and pay for it. And, sometimes, they don’t know better – most little companies aren’t in the finance biz.

By: tinyhands

tinyhands — Wed, 04 Apr 2007 15:06:20 +0000

@Bob,
They’re going to charge you those fees as long as you have money in the plan. Usually you cannot withdraw contributions and roll them into a Rollover IRA until after you leave the company. Check your plan specifics. But unless the fees are extremely excessive, a 401k is probably still a good tax-deferred retirement savings strategy simply for the amount that you can contribute. Since your employer already offers a qualified plan, your options are pretty limited. It is PROBABLY in your best interest to max out your Roth IRA first, and then contribute as much as you can afford to the 401k. Your mileage may vary.

Otherwise, your next best (or simultaneous) course of action is to lobby your employer to switch plan administrators.

By: Kurt

Kurt — Wed, 04 Apr 2007 14:10:54 +0000

Bobby, it isn’t easy, but the biggest portion of the expenses has nothing to do with the 401(k) itself but rather of the funds within it. Check out which funds you hold, and then use a place like finance.yahoo.com to determine the expense ratios on those funds. Take on a few basis points (1.5 bps in my case) and that will give you a rough approximation. But again, the funds are the big culprit here, not the 401(k).

By: Bobby

Bobby — Wed, 04 Apr 2007 02:39:31 +0000

I agree that there should be full disclosure of all fees for 401(k)s and I am trying to find out what our fees are. Unable to locate the info online so far.

By: Kurt

Kurt — Wed, 04 Apr 2007 00:16:40 +0000

“I am fortunate to be in the Federal Thrift Savings Plan. According to their web page http://www.tsp.gov, the current (2006) expense ratio is 0.03%. Having a couple of million participants must give some economies of scale. Needless to say, I’m maxed out on contributions.”
That’s impressive. Probably a combination of economics of scale, no marketing expenses and virtually no turnover. Maybe the gov’t picks up some of the admin costs as well? Either way, good deal.