Some companies are large enough that they have their own institutional funds to offer their employees in the 401K, some companies aren’t and thus rely on the offerings of a large brokerage house like T. Rowe Price, Vanguard, or Fidelity. Either way, it’s crucial that you review the fund fees of the funds you’re invested in so that you understand how much you’re paying per year to a manager to handle your money. When you do, remember that index fund mirroring most benchmarks for performance, usually the S&P 500, can be bought with expense ratios of less than half a percent (Vanguard’s 500 Index Fund has an expense ratio of 0.18%!).
So what do you do if your company has ridiculous fees? First, I would decide on which funds are cheapest and offer the right performance, both in terms of asset allocation and past performance (past performance is not indicative of future returns), and then I’d consider where I could move the funds to. If your company offers a self directed 401K, where you can buy individual stocks, consider moving your funds there and buying a mutual fund elsewhere.
Whatever you decide to do, it’s crucial to understand how much you’re paying because it can eat into your returns.
Comments
2 responses to “Review Your 401K Plan Fees”
I am on the management committee of my company’s 401(k) plan. We are now thinking about moving to a new plan provider because the fees and the performacne of the funds offered by our existing vendor (ING) are both horrible.
The number one thing you should do if your company offers a bad 401(k) plan is complain to your HR group.
Nobody likes paying fees but the reality is you need to in order to get the service. Employers have a fiduciary responsibality to make sure their employees have the ability to make smart decisions in the plan. Having cheap funds does not insure that. Generally an advisor makes 1/2% in a 401(k) plan so if the plan has $250,000 in assets, they make about $1,250. That is not huge money and considering it takes about 10 hours a year to manage that plan.
My point is simply this, if the fees pay a good advisor and your employees make better decisions, then the fees are justified and should result with your employees having more money.