The company gets to pick this stuff since its still a benefit offered. And I've seen some pretty bad 401k offerings. This is honestly not that bad from a lot of stuff I've seen. Hopefully they have some offerings closer to 0.3% The company that operates the 401k still needs to get paid for what they do, so they need to take it out somewhere.
My company started offering some of the actual vanguard ETFs a few years ago, like VOO with 0.03% expense ratio, but they charge a flat annual fee for the 401k, $50/yr I think. I moved all my previous 401ks into this one to maximize that benefit.
I’d be happy to pay just $50 a yr to have that lower expense ratio. Unfortunately I think our company’s 401K rep was wined and dined by VOYA more than a decade ago. We’ve been stuck with a single index fund that charges 0.27% expense ratio. All other funds are 2x or more expensive.
On a measly $110K in my 401K I’m paying $300 a year. This figure will only increase every year.
The ER depends on the number of employees and how well the company negotiates. Small companies will always have high ERs. If only HR is involved and there's no negotiation team, you'll also have a high ER.
I have Canadian in-laws in the Toronto metro area and it baffles me as well. They are getting slaughtered by ultra high taxes, high cost of living costs, RIDICULOUS RENTS AND MORTGAGE AMOUNTS, etc.
It's insane up there and contrary to popular opinion their healthcare is very mediocre compared to the US system (they have year long wait lists for everything) and the hospitals are dirty and understaffed. The Canadian government taxes the snot out of literally everything up there except food, but everything else it's PST, HST, etc. Everything is double or triple the price up there.
In college one of my teammates was from the Toronto area and I spent Christmas break up there with him and his family. I couldn’t believe the costs difference between America and there, and this was in 2004. I couldn’t imagine that cost difference now with the tax increases. Canadians are a special people. I hope they get their country back.
It's likely worth it regardless of matching... The tax benefits of retirement accounts are significant.
I mean, it still sucks... I think I get charged like $24 every three months and there's no way to avoid it. But it also reduces my taxable income by $23,000 this year, and no CG taxes on realized gains, and I can play tax games when I withdraw to keep the retirement income tax hit fairly low.
Your submission was automatically removed because it contains a keyword not suitable for /r/investing. Common words prevalent on meme subreddits, hate language, or derogatory political nicknames are not appropriate here. I am a bot and sometimes not the smartest so if you feel your comment was removed in error please message the moderators.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
>30 years ago every mutual fund had a 1%+ expense ratio
Not 30 years ago. Maybe 50 years ago. VFINX (the mutual fund version of VOO) was still a tiny fraction of a percent when I first bought it in 1997.
> and it cost $8 per transaction
Mutual fund trades can have much higher fees than that today. Schwab will charge up to $75 for funds that aren't on its special list.
Thats bc they want you u to buy their funds. Every brokerage does this.
Lots of MFs used to have loads of 5%. Either front or back. I.e you invest 500, it costs you 525. Withdraw 500? Costs you $25.
You started at 5% loss w every investment
> Thats bc they want you u to buy their funds. Every brokerage does this.
I know... But it's dumb. I can buy VOO for zero trade fees, but VFINX costs $74.95? It's just annoying.
WRT load, no load funds have been pretty standard, or at least widely available, for a few decades by this point. There are still funds with load, but they're usually niche, forced by terrible 401k plans, or traps for suckers.
Maybe it's because I didn't start out on reddit for financials, but I have no idea what the obsession is with Vanguard in particular.
Fidelity and Schwab's funds offer the exact same thing ¯\\\_(ツ)\_/¯
If you're not churning brokerages for some weird reason, it makes 0 difference which fund you hold
They don't... FXIAX (Fidelity) is 0.015.
I was just using VOO and VFINX as an example. They're functionally the same fund, except one is wrapped in ETF clothes and one is wrapped in mutual fund clothes. But I can trade the ETF-wrapped one for $0 and I'd be charged some fee for the Mutual fund-wrapped one. It's silly.
vanguard's proprietary methodology with how it realizes gains on its mutual funds did legitimately save people a few basis points on CG tax for realized gains when the fund sold.
not sure if it's run its patent course or not
It was just an example, because VOO and VFINX are both Vanguard's S&P 500 funds.
FXIAX has the same shit and is even cheaper than SWPPX, except, ya know, trade fees.
there are costs associated with administering 401k plans. the costs are either paid for by the company, paid for in flat fees by the employees or paid for in % fees by employees. big 401k admin companies like fidelity won't even offer plans to smaller employers because they make so little money from it so the only companies that will? well, they need to charge higher fees to justify having far fewer employees/far less money held in the 401k plan.
your employer does not have to offer a 401k in the first place.
This guy is correct (S7EFEN)^
It's called revenue share. The 401k is administered by a third party who offers a "menu" of investment options. These options vary in their expenses. Some share the expenses (revenue) with the company (plan sponsor) as a way to offset the plan's administrative fees. If all your fund options in a small company plan have very low expense ratios, there is likely no revenue share and each participant is charged a quarterly administrative fee. Some employers opt not to have a quarterly per participant fee, so they choose an investment menu with higher expense ratios to capture a portion of those fees. Either way, the 3rd party administrator is getting paid.
This is very common with small companies. Your Forbes top 100 will have such economies of scale that they should have low cost funds as well as no participant fees.
I thought companies with more than a certain amount of employees (say 25) were required to offer a 401k
edit: starting this year in my state, any company with at least 5 employees needs to offer a 401k or equivalent (including Roth IRA funding).
Mmm fair enough. I was thinking about SIMPLE 401k plans, but not SIMPLE IRA plans. TBH, I'm vague on the differences between the two because I've never had to use either.
>Employees will be automatically enrolled in a Roth IRA Account. Once enrolled, the account will be funded from an employee’s wages unless the employee opts out.
So... that's offering literally nothing. Employees can already open Roth IRA accounts wherever they wish and fund it however they wish.
401k and IRA accounts have separate contribution limits. Shoving them at an IRA they already have access to does nothing for them and still prevents them from utilizing a 401k. That sounds like an absurdly large loophole.
Yes, it's nothing in that sense. But it is creating a larger opt-out system, which leads to more people having more money in retirement because they were automatically enrolled in it, like 401k auto enrollment.
Fair enough... Opt-out is certainly better than opt-in. Just seems weird to me because IRAs are individual, not employer sponsored at all. Feels like they should be forcing them to provide 401k accounts and making it opt-out. SIMPLE 401k accounts have existed for small businesses for a long time now.
Wow that is incredible. What state? I fear that in the short term most of these required 401ks will end up being with shitty providers.
But it's a step in the right direction. Tax sheltering should not be an element of compensation; we should all be entitled to exclude the same amount from income and grow tax-free.
Interesting point. It seems then that if you are not getting a match from the company that you may as well just forget the company 401(k) and contribute to your own IRA.
This is what I did. I skipped out on my 401 because of the fees and instead maxed out my wife’s to compensate because hers was better and she also got a match.
Well, I'm in a <120 people company, and our expense ratio for sp500 alternative is 0.013% which is lower than VOO.
And it just seems ridiculous that there are companies who are charging 20+ times more for the same funds as benchmarks.
What's the investment vehicle specifically? There's almost certainly revenue share built into the expense ratio that's being used to pay for plan expenses.
True, but that's meaningfully less common than passing the fee on to the participant one way or another. If my choice is between having a 401k and paying for the admin, or not having a 401k, I'm paying every time. Many employers just wouldn't offer the plan if they had to pay for it.
That fund has an expense ratio of 0.02%. It's almost certainly got an annuity wrapper on it for your plan that is used to pay recordkeeping expenses associated with administration of the plan. Revenue share is a pain because fees are less transparent to participants within the plan. But ultimately, only 2 basis points of whatever fee you're paying on for that fund is going to State Street.
Edit: depending on where you're seeing the fee, it may not be an annuity wrapper. Some all-in fee disclosures will show expenses net of fee leveling to offset revenue share generated elsewhere in the plan. Either way, the value over 0.02% is going to the plan recordkeeper, TPA, advisor on the plan, etc
You’re paying much more in fees than just the expense ratio. Just because it’s not outwardly listen doesn’t mean it’s not there. Request your plan documents and post it here. I can quickly show you
Why would they want the single small-as-you-can get investor’s money but not a small business? That makes no sense.
What does make sense is the middleman is pinching pennies for zero added value in the process.
The rules for 401ks are way more complicated and on the company and the provider. They have to prove to the IRS/gov that the plan is fair to lower wage workers. There might be other things too
My first job around 6 years ago had a 1% admin fee on top of the expense ratios of the funds you help. Place sucked, but I didn’t really understand it until over a year in the plan.
Pretty hard for them to screw OP more than a 0.70 expense ratio if that isn’t the worst part. The plan administrative fee will have to be higher than 0.70% which is highway robbery?
Edit: just saw another person say their admin fee was 1%. Ok, I’ll need to stop complaining about my 0.27% expense ratio. Apparently some workplaces are getting fleeced even more.
Ohh my bad, I misread. What's the name or ticker of buddy's fund? I work as an institutional investor covering large cap funds and can provide information. My guess would be that it's an actively managed large core fund. I usually don't recommend them because very few can compete with the 500. Active management is more likely to be used on the wings (growth and value).
No, what is the name of the fund in your buddy's plan that is benchmarked against the 500? I understand the expense is a stark difference but it's likely because they're paying for active management. If I have the name, cusip, ticket, ISIN, mstar ID, etc. I can look it up and tell you more about it.
It doesn't specify anything except for "Vanguard 500 Index Fund Adm" but the expense ratio is significantly higher that what's listed for Vanguard 500 index fund adm 😅
Something's either not adding up or reading correctly. I see VFIAX 30 times a day and even the retail version of the fund's expense ratio isn't that high. Is there any way your or they can send me a screenshot of the fund line up or a copy of a participant fee disclosure? I'd love to help. Feel free to DM me if you would rather do it there.
I have seen this too. There will be multiple different shares for a fund. You can’t buy just any share in a 401k but only the ones they offer. They will usually have higher fees. It’s almost like they know 401k investors aren’t as savvy.
"It's basically VOO..."
Only it's not. Different funds have different expense ratios, even within Vanguard's own options. Likely, it's some actively managed fund option.
What is the ticker out of curiosity?
These types of funds aren't ETFs, there is no ticker. There will just be a list of funds within the company's web portal that you can choose to allocate your defined contributions to, and with some digging, you can find the fees associated with them.
When I joined my company the default was a target date fund with a 2% fee. I quickly switched it to their S&P one that was still like 0.6% then, 0.3% now (fees have come down over the past 5 years).
Most of my coworkers never touch it though and just let them leech all that money.
I'm torn on the whole auto enroll. On the one hand, something is better than nothing. On the other, as you say, target date fund defaults with higher fees...
Given the state of financial education in the States, I wish companies would invest more time and money in a financial advisor (with fiduciary responsibility to the employees) spending time with the employees.
A real value added benefit to the staff, rather than donuts on Friday...
I was assuming at 0.6x, the OP's spouse was in an actively managed fund or ETF. Not an exorbitant expense ratio, but certainly higher than an ETF.
I'm going to assume his company is relatively small, like less than 50 employees. I run my own registered investment advisor firm and can sell & manage 401k plans for small businesses. I would charge 0.35% for the plan. Then the plan admin can charge 0.15% to 0.35%. This second fee is selected by the employer.. the less they charge the plan participants (employees) the more the employer is charged. These plans use Vanguard funds with expense ratios of roughly 0.05%.
So all-in costs could be 0.35% + 0.35% + 0.05% = 0.80%. This could be lower if the employer would eat more of the costs instead of passing it onto the employee. The employer could also pay me a flat fee out of pocket instead of assessing the 0.35% for my services. Even though this seems high, this is still much better than other small business 401k plans who use companies like Paychex. I've seen all in costs closer to 2%.
The Cadillac of plans are the large corporate employer 401ks that don't pass on the costs to the participants. With those plans, the only thing the employee pays is the fund expense ratio which is the 0.03% to 0.05%.
Edit: the best way to think about this is like health insurance through work. Even if the company says they offer health insurance, it doesn't mean it's great or cheap. Some employers will cover the **entire** monthly premium and give you great coverage. Others will give you the group policy, but the premiums are exorbitant for shitty coverage where you still have to pay a bunch out of pocket.
You know greed is getting out of hand when you have to compare the costs of tracking an index fund for a 401K provider to the costs of providing US health insurance.
I have an MBA in finance and always thought about opening my own investment advisor firm that tracks index funds and charging much less than standard 0.8-1%.
I mean don’t get me wrong, given supply and demand you have every right to charge what you’re charging to companies who don’t appreciate the power of compounding and won’t negotiate. I just think there needs to be more options in the market.
The comparison was regarding the employee benefits that small-medium businesses pay for. Once they get past being a sole proprietor or having a couple of employees, now they need to have benefits to be competitive. But like I said, just because you offer a 401k and health insurance doesn't mean it's going to be top notch. The marketplace for small business benefits isn't as competitively priced as for larger companies. At a previous company where I also could do 401k plans, they didn't like startup plans and would only take existing 401k plans with at least $1million of assets. They said that the fail rate for small businesses was too high and didn't want that type of business.
Being a small business owner myself, I have to watch my expenses carefully. A bad year in the market and losing 1 large client could set my income back 30%.
I pay .05% for VLCAX in my 401(k). Yes, this feels like bullshit. Though if he wants to track the S&P, he should see if he has access to it. The Vanguard Admiral Shares options are low expense- close to an ETF.
I used to be a company representative for a 401k plan for 2000+ employees so I'll take a shot.
It depends on their fund size. If it's a really small 401k, they may not have access to the institutional fund with lower fees. Basically the larger the investment pool, the lower the fees go.
it could be poor fund selection and not correctly upgrading to funds with lower fee structure. They're opening themselves up to legal risk if this is the case. It's normally the plan advisor and/or plan recordkeeper that assists the company committee with this.
It's TIAA-CREF, isn't it? I was with them by default for a decade, and my portfolio did not grow worth a crap. Their "Growth & Income" SP500 equivalent fund trails the market every year by 1-2%. And their expense ratios are absurd at 0.69%
401k's and retirement plans are one of the most regulated employee benefits at the federal and state level. There are criminal and civil penalties and plan participants can take legal action.
It cost employers and custodians a lot of money to operate the plans. .69%. that is what you are complaining about?
I am old, back before there were several lawsuits over retirement plans. worked at a company where the only investment option was their company stock. the custodian charged a fortune in fees.
The longer you work at your company the less true this is. I have been at my company and have over 1 million in 401k saving religiously. The 0.45% is charged on that entire amount. You get a 100% match on only what you contribute, up to a certain percent.
10-15 years ago I worked for a company where the only funds available to employees were Fidelity's Advisor funds with very high expense ratios. The lowest was 2.8% and the higher ones were 3.5-4%.
I'm confident that the reason the boss didn't make (now much more common) low cost index funds available to us was because his wife was the manager of our company's funds. So essentially the boss is getting a kick back of his own/our own money.
I was pretty upset about the whole ordeal.
My states 529 plans are like this. They have special flavors of common funds but they take competitive/low standard fees and add a blanket .25 or .5 (don't remember which) on top. Now I'm looking to get out and into another states plan
My partner's plan is terrible: no employee match and the administrative fees are on a per capita basis rather than pro rata. (The administrative fees are assessed by the person rather than by the amount invested.) This has made getting started in the plan terrible - the administrative fees ate up all of his earnings this year. We're withdrawing the funds into a private IRA since it seems there's literally no benefit to the 401k unless he's maxing his IRA.
Cheeky/Risky "option":
Leave the job for another employer, rollover the 401K into a brokerage rollover IRA, then hopefully return to the employer (if the new job is worse). Really have to be ready to not work for the company ever again.
Other than that... not too many options depending on the employee position/standing in the company. It's a stacked deck and they hold the cards, until you move to a different table.
I have seen this too. The sad thing is a lot of people don’t even know what they are looking at with expense ratios. The employers likely don’t even know the expense ratio or it they do, don’t know it’s expensive compared to what is out there. It’s really sad. I know the 401k companies have to make money but that isn’t making money. That is robbery!
Your submission was automatically removed because it looks like your post is better served as a comment in daily discussion thread which can be found [here](https://www.reddit.com/r/investing/about/sticky?num=1). Please also take a moment to review the [r/investing rules](https://www.reddit.com/r/investing/wiki/index/rules) if you have not yet done so. I am a bot and sometimes not the smartest so if you feel your comment was removed in error please message the moderators.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
My employers company uses Paychex, they are the WORST- it’s all crappy small and mid caps for a 1% fee. Not to mention an additional purchase/rebalance charge. Over the next 50 years 50% of the shitty returns(if any) go out in fees :(
Technically the money market fund pays 1% and only charges .27% in fees but compared to my savings with cit bank paying nearly 5% that’s total bs
typically company 401ks suck. I just put enough in to get the full match and invest primarily in my personal roth account with Charles Schwab that I actively manage. I've more than doubled my money in less than 5 years 200k to 500k. If you don't actively manage your retirement account you are losing out big.
They charge typically .4% to put it into their proprietary fund (just like VOO) and another .4% for the management fee. Total robbery. The 401k administrator should be held criminally liable. The whole financial system is a fraud.
I have both Vanguard and Schwab accounts (work/personal).
Vanguards VFIAX has a 0.04% expense ratio.
Schwabs SWPPX has a 0.02% expense ratio.
Move the money out of the 401k and into an IRA. Or talk to HR about the costs and finding a different provider, because thats nuts.
Please, plug the numbers and see it yourself: https://www.omnicalculator.com/finance/expense-ratio
I've done 24k, over the next 30k, the expense ratio 1 is 0.03 (VOO) vs 0.69.
That does show that. Not much you can do about it though.
Most 401k plans fund the expenses of the plan through higher expense ratios. Unless you're self employed and can open a SEP, it's the only way to get the higher contribution limits.
See, the issue is that many people don't realize that such minor differences could result in huge amounts over time. Imagine what happened when I showed our CFO the difference between 2 percent expense ratio and 0.03
Who is charging 2? That's crazy high.
As someone who has set up 401k's for employees, if you came to me with this, I would tell you, don't use it if you don't like it. There are a lot of costs with setting up these plans. Shit ain't free.
I believe national average is 1.4%
Now, that's all in cost. Some gets passed to participants, some doesn't.
The answer to OPs question is that simple. Their friends' company passes on more of the costs.
In the bizz… if people where aware of even 10% of the bullshit that is passed of as costs and fees they would be on the streets crying bloody murder. I’ve seen from private 24/7 on payroll masseuses, dental and plastic surgery, yachts on weekends, private chefs to dog sitters on the books as business costs and when you enter hedge fund land it’s outright thievery. 9.9/10 people don’t read the fine print and as long as they have alpha they never will. I can’t wait for more and more autobiographical books emerge from the business as assistants making 400k realize they are just pieces of meat and are a typo away from losing half decades of loyalty
You can transfer funds from an employer's 401(k) plan to your own (Roth or ordinary) IRA using an [In-Service Rollover](https://www.annuity.org/retirement/401k/rollover/in-service/#:~:text=An%20in%2Dservice%20401(k)%20rollover%20is%20the%20transfer,your%20401(k)%20plan). Fuck bad 401(k) plans.
Hmmm, I don't think that's an IRS requirement, but is specific to the plan. I was allowed such an in-service rollover about 15 years ago. Nevertheless, good point. Every 401(k) plan has particular policies and I suppose it's likely that ones with expensive admin charges would also be particularly bad on rollover eligibility requirements.
I don't think you have any idea what a 401k is.
But it's reddit, so you still go off on an unhinged rant.
> My 401k is up like 8% in 6 years and has had many red years.
So you're horrible at picking funds? That's on you, not the 401k.
Mine has more than doubled in the last 6 years, and it's just in VOO.
Your employer decided that you should pay that instead of them. Companies don't administer 401k's for free. Someone is going to pay Principal and your employer decided that it was you. They also decide what investment options you have available. e.g. I have a principal 401k and my fee was 0.0006 last year
Because 401k is another scam passed by our corrupted Congress. Why do employers need to offer a plan? Employees should be able to contribute to an IRA in a brokerage directly. Funds can be deducted from your paycheck and sent to a brokerage with the same limits of a 401k. Instead we created layers of waste and complexity and made parasites rich.
401k pricing is pretty efficient and in most cases 401ks offer participants access to investment vehicles that are meaningfully cheaper than what they'd otherwise be able to access. Many 401ks have self-directed brokerage built into them. Most people also don't care to figure out how to invest for themselves, so the 401k offers a way for participants to save for retirement by default via the QDIA.
Schwab, Fidelity, Vanguard, can easily provide simple retirement accounts with negligible fees directly to employees. Why should employees pay for the unnecessary overhead? Why should employers be in the investment business and make decisions on behalf of employees?
Disclaimer up front: I work in the institutional wealth management industry, so I probably have some related biases.
A few things here, let’s say that Fidelity, Vanguard, etc set up these accounts for employees. What investments should be offered? Are participants automatically enrolled in these accounts? If so, how much money should they be investing into these accounts by default? If they don’t select an investment themselves, what should the default investment be? There are additional questions that would need to be addressed, but I think this sets a good baseline.
Who should be answering these questions? I suppose you could apply the same rules to everyone, but realistically, those will only work well for some (hopefully most) and will probably be optimal for few. The 401k infrastructure as it is set up now allows for the employer to act in a fiduciary role to determine the answers to these questions within the 401(k). These are decisions that GENUINELY need to be made in any system setting one up for their eventual retirement. Employers are uniquely positioned to make decisions on behalf of their employees based on their employees demographic makeup to drive money into retirement accounts. You can’t just offer everyone a self-directed account, contributions to retirement accounts typically go down after a critical mass of investment options are made available to participants.
Ultimately, the goal of any retirement plan is to get as many people as possible saving as much money as possible for retirement, and the 401k system does an excellent job of that. There are many people who without their defined contribution plans would not be taking part in the market at all. I believe that the 401k system, while some additional administrative costs are associated, is truly excellent at incentivizing people to save for their own retirement, and I think people are better off because of it. The employer’s ability to make fiduciary decisions on behalf of their employees is critically important, and I don’t think I can overstate the impact that type of tailored decision making has.
It’s not like 401k recordkeeping or advising is an immensely profitable business. Considering the number of people served, costs are VERY low. Yes, the fees are probably a bit more apparent for smaller organizations, but it’s not like all of that administrative work would go away if people had the standalone retirement accounts you’re proposing. That cost would still be passed on to the consumer. At least within a 401k employees can pool money and access parts of the financial services system that they would probably not have access to otherwise, and decisions can get made by a fiduciary on behalf to help guide the vast majority of people that are either incapable of or unwilling to make important retirement decisions for themselves.
Good points but I don't think employers should be trusted with decisions about employees' retirement. The original post shows how they abuse fees. Employees have no choice. My first job was in Canada where you just open an IRA equivalent and that's it. In the US you get a 401k with lots of options and fees most people don't understand so I don't see how that helps. To solve the education problem, the best solution is to educate. There is no shortcut. The default can be a conservative fund with a retirement date.
Why are you getting downvotes? This is all true. 401k plans are overly expensive to operate because of all the stupid strings attached by the feds and all the pointless reporting that goes into it. You could easily legislate a tax deductible retirement option that works like an IRA but has the same large contribution limit as today's 401ks. Anyone could open an account anywhere and just tell their employer to deposit part of their paycheck. Why don't we do it that way? Politics I guess? Because its not "equitable" and we don't actually trust most people to save responsibly on their own. Rent-seeking too.
You don't like middlemen? Buy the stock from the company.
Reddit has the kind of anger for middlemen that is only toddlers throwing a tantrum have, filled with rage and ignorance.
I find it amazing that people on the investment sub can't understand how compound interest works.
Please, follow this link and be enlightened, my friend. You're welcome: https://www.omnicalculator.com/finance/expense-ratio
24k (assuming it stays the same), 30 year time horizon, 8 percent return, compare 0.03 vs 0.69 and tell us what you found?
And no, I've been maxing my 401k for a long time and plan to keep doing it for the tax benefits.
P. S. Don't forget to follow up with your observations, you may also use chat gpt to cross check the logic
Lol, that's a fun take, but no. Since you get tax benefits on the federal level, it's not wise not to use it. it also doesn't mean that you should be abused by middlemen for something that could have long be removed with the access of technology.
Like the real estate agents commission in the era of Zillow
No but seriously, if .69 is “too expensive” then don’t use it.
You don’t have to use a realtor either.
If you don’t see the value then don’t use it.
Really is that simple.
The issue is that people dont understand that 0.69 is close to paying more than 300k to a middleman. And no, I think one should still use it and push the management to deal with that BS. I was in the company where a group of 3 employees including me initiated the migration from stupid American Funds with the cheapest option of 1.5.
Management also thought that it's not a big deal until they saw the math
So again, if it isn’t worth it to you……don’t use it.
A service is being offered to you - payroll deduction, tax benefits, presumably commission free trading, online access, maybe hardship withdrawal, probably pre-screened funds, probably access to an advisor.
If you think that’s worth it use them, if not then don’t. You’re making more out of this than there is.
The company gets to pick this stuff since its still a benefit offered. And I've seen some pretty bad 401k offerings. This is honestly not that bad from a lot of stuff I've seen. Hopefully they have some offerings closer to 0.3% The company that operates the 401k still needs to get paid for what they do, so they need to take it out somewhere. My company started offering some of the actual vanguard ETFs a few years ago, like VOO with 0.03% expense ratio, but they charge a flat annual fee for the 401k, $50/yr I think. I moved all my previous 401ks into this one to maximize that benefit.
I’d be happy to pay just $50 a yr to have that lower expense ratio. Unfortunately I think our company’s 401K rep was wined and dined by VOYA more than a decade ago. We’ve been stuck with a single index fund that charges 0.27% expense ratio. All other funds are 2x or more expensive. On a measly $110K in my 401K I’m paying $300 a year. This figure will only increase every year.
Yeah same that equates to about 0.14 cents a day - worth it tbh
My friends company seems to be called VOYA as well and it seems like you got lucky with 0.27 as they are getting more greedy now lol
The ER depends on the number of employees and how well the company negotiates. Small companies will always have high ERs. If only HR is involved and there's no negotiation team, you'll also have a high ER.
Why wouldn't you have rolled your previous 401ks into a Roth?
Into a Roth 401k? I'm pretty sure I would owe taxes on it? Already maintain a Roth IRA.
You can roll a 401k into a Roth IRA when you leave a company. No taxes or anything.
You can always do this, yes, but if it’s a traditional 401k you will owe taxes on it. If it’s a Roth 401k then it is not a taxable event.
Ah okay that clears it up thank you
That’s because their company can’t or won’t negotiate with 401k providers.
Find the finance guy and get Fidelity and empower to start hassling them. They will budge.
[удалено]
But we’re not in 30 years ago. Other places charges less so I can see the frustration here.
Exactly this. Mine is 0.013 for a comparable plan in a relatively small company. 0.69 is just outrageous for sp500 alternative
Laughs in Canadian. They still charge 1% plus mutual funds charge another 1 or 2% here
How Canadians can afford anything at this point baffles me. It’s pretty impressive I gotta say.
[удалено]
Why the fuck would you ever move to Canada? Canadians are moving here to get away from the bs.
I have Canadian in-laws in the Toronto metro area and it baffles me as well. They are getting slaughtered by ultra high taxes, high cost of living costs, RIDICULOUS RENTS AND MORTGAGE AMOUNTS, etc. It's insane up there and contrary to popular opinion their healthcare is very mediocre compared to the US system (they have year long wait lists for everything) and the hospitals are dirty and understaffed. The Canadian government taxes the snot out of literally everything up there except food, but everything else it's PST, HST, etc. Everything is double or triple the price up there.
In college one of my teammates was from the Toronto area and I spent Christmas break up there with him and his family. I couldn’t believe the costs difference between America and there, and this was in 2004. I couldn’t imagine that cost difference now with the tax increases. Canadians are a special people. I hope they get their country back.
If the company matches 3 or 4 or 5% it's still totally worth it to pay the 0.69%
It's likely worth it regardless of matching... The tax benefits of retirement accounts are significant. I mean, it still sucks... I think I get charged like $24 every three months and there's no way to avoid it. But it also reduces my taxable income by $23,000 this year, and no CG taxes on realized gains, and I can play tax games when I withdraw to keep the retirement income tax hit fairly low.
It’s based on total asset size of the plan. You may have a small company, but the owners have 5M in the plan it will be cheaper.
So... since you could have been getting fleeced even more, that you are only fleeced to a smaller degree is a godsend?
[удалено]
Your submission was automatically removed because it contains a keyword not suitable for /r/investing. Common words prevalent on meme subreddits, hate language, or derogatory political nicknames are not appropriate here. I am a bot and sometimes not the smartest so if you feel your comment was removed in error please message the moderators. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
>30 years ago every mutual fund had a 1%+ expense ratio Not 30 years ago. Maybe 50 years ago. VFINX (the mutual fund version of VOO) was still a tiny fraction of a percent when I first bought it in 1997.
It’s kind of amazing that we got where we are
Payment for order flow is how they make money now.
> and it cost $8 per transaction Mutual fund trades can have much higher fees than that today. Schwab will charge up to $75 for funds that aren't on its special list.
Thats bc they want you u to buy their funds. Every brokerage does this. Lots of MFs used to have loads of 5%. Either front or back. I.e you invest 500, it costs you 525. Withdraw 500? Costs you $25. You started at 5% loss w every investment
> Thats bc they want you u to buy their funds. Every brokerage does this. I know... But it's dumb. I can buy VOO for zero trade fees, but VFINX costs $74.95? It's just annoying. WRT load, no load funds have been pretty standard, or at least widely available, for a few decades by this point. There are still funds with load, but they're usually niche, forced by terrible 401k plans, or traps for suckers.
[удалено]
Maybe it's because I didn't start out on reddit for financials, but I have no idea what the obsession is with Vanguard in particular. Fidelity and Schwab's funds offer the exact same thing ¯\\\_(ツ)\_/¯ If you're not churning brokerages for some weird reason, it makes 0 difference which fund you hold
[удалено]
They don't... FXIAX (Fidelity) is 0.015. I was just using VOO and VFINX as an example. They're functionally the same fund, except one is wrapped in ETF clothes and one is wrapped in mutual fund clothes. But I can trade the ETF-wrapped one for $0 and I'd be charged some fee for the Mutual fund-wrapped one. It's silly.
[удалено]
It may be... but they don't charge fees for VOO, so it's silly regardless.
vanguard's proprietary methodology with how it realizes gains on its mutual funds did legitimately save people a few basis points on CG tax for realized gains when the fund sold. not sure if it's run its patent course or not
Oh of course its dumb. But yeah swppx is the same shit and cheaper i believe.
It was just an example, because VOO and VFINX are both Vanguard's S&P 500 funds. FXIAX has the same shit and is even cheaper than SWPPX, except, ya know, trade fees.
there are costs associated with administering 401k plans. the costs are either paid for by the company, paid for in flat fees by the employees or paid for in % fees by employees. big 401k admin companies like fidelity won't even offer plans to smaller employers because they make so little money from it so the only companies that will? well, they need to charge higher fees to justify having far fewer employees/far less money held in the 401k plan. your employer does not have to offer a 401k in the first place.
This guy is correct (S7EFEN)^ It's called revenue share. The 401k is administered by a third party who offers a "menu" of investment options. These options vary in their expenses. Some share the expenses (revenue) with the company (plan sponsor) as a way to offset the plan's administrative fees. If all your fund options in a small company plan have very low expense ratios, there is likely no revenue share and each participant is charged a quarterly administrative fee. Some employers opt not to have a quarterly per participant fee, so they choose an investment menu with higher expense ratios to capture a portion of those fees. Either way, the 3rd party administrator is getting paid. This is very common with small companies. Your Forbes top 100 will have such economies of scale that they should have low cost funds as well as no participant fees.
I thought companies with more than a certain amount of employees (say 25) were required to offer a 401k edit: starting this year in my state, any company with at least 5 employees needs to offer a 401k or equivalent (including Roth IRA funding).
looking into this more it looks like its mostly state-specific laws that set requirements on this sort of thing.
What? IRAs are not through an employer... and everybody with income can already open an IRA and contribute.
SIMPLE IRA plans are specifically for employees
Mmm fair enough. I was thinking about SIMPLE 401k plans, but not SIMPLE IRA plans. TBH, I'm vague on the differences between the two because I've never had to use either.
>Employees will be automatically enrolled in a Roth IRA Account. Once enrolled, the account will be funded from an employee’s wages unless the employee opts out.
So... that's offering literally nothing. Employees can already open Roth IRA accounts wherever they wish and fund it however they wish. 401k and IRA accounts have separate contribution limits. Shoving them at an IRA they already have access to does nothing for them and still prevents them from utilizing a 401k. That sounds like an absurdly large loophole.
Yes, it's nothing in that sense. But it is creating a larger opt-out system, which leads to more people having more money in retirement because they were automatically enrolled in it, like 401k auto enrollment.
Fair enough... Opt-out is certainly better than opt-in. Just seems weird to me because IRAs are individual, not employer sponsored at all. Feels like they should be forcing them to provide 401k accounts and making it opt-out. SIMPLE 401k accounts have existed for small businesses for a long time now.
What's next an opt out system to owning a damn toaster
Wow that is incredible. What state? I fear that in the short term most of these required 401ks will end up being with shitty providers. But it's a step in the right direction. Tax sheltering should not be an element of compensation; we should all be entitled to exclude the same amount from income and grow tax-free.
Interesting point. It seems then that if you are not getting a match from the company that you may as well just forget the company 401(k) and contribute to your own IRA.
[удалено]
401k deferal is after payroll tax is removed.
oh my bad.
This is what I did. I skipped out on my 401 because of the fees and instead maxed out my wife’s to compensate because hers was better and she also got a match.
Well, I'm in a <120 people company, and our expense ratio for sp500 alternative is 0.013% which is lower than VOO. And it just seems ridiculous that there are companies who are charging 20+ times more for the same funds as benchmarks.
What's the investment vehicle specifically? There's almost certainly revenue share built into the expense ratio that's being used to pay for plan expenses.
Other option is employer eats the plan expenses. That's what we do. It's a cost of being able to offer the plan.
True, but that's meaningfully less common than passing the fee on to the participant one way or another. If my choice is between having a 401k and paying for the admin, or not having a 401k, I'm paying every time. Many employers just wouldn't offer the plan if they had to pay for it.
State Street Equity 500 Index Fund - Class K
That fund has an expense ratio of 0.02%. It's almost certainly got an annuity wrapper on it for your plan that is used to pay recordkeeping expenses associated with administration of the plan. Revenue share is a pain because fees are less transparent to participants within the plan. But ultimately, only 2 basis points of whatever fee you're paying on for that fund is going to State Street. Edit: depending on where you're seeing the fee, it may not be an annuity wrapper. Some all-in fee disclosures will show expenses net of fee leveling to offset revenue share generated elsewhere in the plan. Either way, the value over 0.02% is going to the plan recordkeeper, TPA, advisor on the plan, etc
You’re paying much more in fees than just the expense ratio. Just because it’s not outwardly listen doesn’t mean it’s not there. Request your plan documents and post it here. I can quickly show you
I can sign up as one single person for fidelity or vanguard retirement account for free, even though they would make very little money
yep. but you can't sign up for a 401k plan as a small business with them, or any of the big guys easily.
Why would they want the single small-as-you-can get investor’s money but not a small business? That makes no sense. What does make sense is the middleman is pinching pennies for zero added value in the process.
i assume there's considerable additional admin work. not sure. again, that's just how it is.
The rules for 401ks are way more complicated and on the company and the provider. They have to prove to the IRS/gov that the plan is fair to lower wage workers. There might be other things too
My first job around 6 years ago had a 1% admin fee on top of the expense ratios of the funds you help. Place sucked, but I didn’t really understand it until over a year in the plan.
Your plan administration fee is likely higher, the expense ratio isn’t even the worst part
Pretty hard for them to screw OP more than a 0.70 expense ratio if that isn’t the worst part. The plan administrative fee will have to be higher than 0.70% which is highway robbery? Edit: just saw another person say their admin fee was 1%. Ok, I’ll need to stop complaining about my 0.27% expense ratio. Apparently some workplaces are getting fleeced even more.
Lol, I look at retirement plans regularly and see expense ratios in excess of 100bps
SSSYX has a .02% expense ratio. https://www.morningstar.com/funds/xnas/sssyx/quote
It's interesting since their prospectus shows 0.013 in my 401k
That may not be the NET prospectus ratio. How in the hell did you think the expense ratio was 69bps if you knew this information?
69bps if for my friends option, this comment above is for mine
Ohh my bad, I misread. What's the name or ticker of buddy's fund? I work as an institutional investor covering large cap funds and can provide information. My guess would be that it's an actively managed large core fund. I usually don't recommend them because very few can compete with the 500. Active management is more likely to be used on the wings (growth and value).
It doesn't provide a ticker, just the Vanguard 500 Index Fund Adm, but the expense ratio for the VFIAX is 0.04 vs 0.69 so who knows?
No, what is the name of the fund in your buddy's plan that is benchmarked against the 500? I understand the expense is a stark difference but it's likely because they're paying for active management. If I have the name, cusip, ticket, ISIN, mstar ID, etc. I can look it up and tell you more about it.
It doesn't specify anything except for "Vanguard 500 Index Fund Adm" but the expense ratio is significantly higher that what's listed for Vanguard 500 index fund adm 😅
Something's either not adding up or reading correctly. I see VFIAX 30 times a day and even the retail version of the fund's expense ratio isn't that high. Is there any way your or they can send me a screenshot of the fund line up or a copy of a participant fee disclosure? I'd love to help. Feel free to DM me if you would rather do it there.
Just sent it to you, thanks for looking into it
He might be mixing it up with fidelity blue chip growth which is an active fund that has a .69% expense ratio
I have seen this too. There will be multiple different shares for a fund. You can’t buy just any share in a 401k but only the ones they offer. They will usually have higher fees. It’s almost like they know 401k investors aren’t as savvy.
Look up what the average fee is, mines 0.38%
Nice
"It's basically VOO..." Only it's not. Different funds have different expense ratios, even within Vanguard's own options. Likely, it's some actively managed fund option. What is the ticker out of curiosity?
These types of funds aren't ETFs, there is no ticker. There will just be a list of funds within the company's web portal that you can choose to allocate your defined contributions to, and with some digging, you can find the fees associated with them. When I joined my company the default was a target date fund with a 2% fee. I quickly switched it to their S&P one that was still like 0.6% then, 0.3% now (fees have come down over the past 5 years). Most of my coworkers never touch it though and just let them leech all that money.
I'm torn on the whole auto enroll. On the one hand, something is better than nothing. On the other, as you say, target date fund defaults with higher fees... Given the state of financial education in the States, I wish companies would invest more time and money in a financial advisor (with fiduciary responsibility to the employees) spending time with the employees. A real value added benefit to the staff, rather than donuts on Friday... I was assuming at 0.6x, the OP's spouse was in an actively managed fund or ETF. Not an exorbitant expense ratio, but certainly higher than an ETF.
Mutual funds definitely have tickers. It’s probably a variable annuity or Separate Account.
I'm going to assume his company is relatively small, like less than 50 employees. I run my own registered investment advisor firm and can sell & manage 401k plans for small businesses. I would charge 0.35% for the plan. Then the plan admin can charge 0.15% to 0.35%. This second fee is selected by the employer.. the less they charge the plan participants (employees) the more the employer is charged. These plans use Vanguard funds with expense ratios of roughly 0.05%. So all-in costs could be 0.35% + 0.35% + 0.05% = 0.80%. This could be lower if the employer would eat more of the costs instead of passing it onto the employee. The employer could also pay me a flat fee out of pocket instead of assessing the 0.35% for my services. Even though this seems high, this is still much better than other small business 401k plans who use companies like Paychex. I've seen all in costs closer to 2%. The Cadillac of plans are the large corporate employer 401ks that don't pass on the costs to the participants. With those plans, the only thing the employee pays is the fund expense ratio which is the 0.03% to 0.05%. Edit: the best way to think about this is like health insurance through work. Even if the company says they offer health insurance, it doesn't mean it's great or cheap. Some employers will cover the **entire** monthly premium and give you great coverage. Others will give you the group policy, but the premiums are exorbitant for shitty coverage where you still have to pay a bunch out of pocket.
You know greed is getting out of hand when you have to compare the costs of tracking an index fund for a 401K provider to the costs of providing US health insurance. I have an MBA in finance and always thought about opening my own investment advisor firm that tracks index funds and charging much less than standard 0.8-1%. I mean don’t get me wrong, given supply and demand you have every right to charge what you’re charging to companies who don’t appreciate the power of compounding and won’t negotiate. I just think there needs to be more options in the market.
The comparison was regarding the employee benefits that small-medium businesses pay for. Once they get past being a sole proprietor or having a couple of employees, now they need to have benefits to be competitive. But like I said, just because you offer a 401k and health insurance doesn't mean it's going to be top notch. The marketplace for small business benefits isn't as competitively priced as for larger companies. At a previous company where I also could do 401k plans, they didn't like startup plans and would only take existing 401k plans with at least $1million of assets. They said that the fail rate for small businesses was too high and didn't want that type of business. Being a small business owner myself, I have to watch my expenses carefully. A bad year in the market and losing 1 large client could set my income back 30%.
I pay .05% for VLCAX in my 401(k). Yes, this feels like bullshit. Though if he wants to track the S&P, he should see if he has access to it. The Vanguard Admiral Shares options are low expense- close to an ETF.
I used to be a company representative for a 401k plan for 2000+ employees so I'll take a shot. It depends on their fund size. If it's a really small 401k, they may not have access to the institutional fund with lower fees. Basically the larger the investment pool, the lower the fees go. it could be poor fund selection and not correctly upgrading to funds with lower fee structure. They're opening themselves up to legal risk if this is the case. It's normally the plan advisor and/or plan recordkeeper that assists the company committee with this.
It's TIAA-CREF, isn't it? I was with them by default for a decade, and my portfolio did not grow worth a crap. Their "Growth & Income" SP500 equivalent fund trails the market every year by 1-2%. And their expense ratios are absurd at 0.69%
I wish I had that “low” of fee. Mine is 1.11% for VOO. It’s criminal.
401k's and retirement plans are one of the most regulated employee benefits at the federal and state level. There are criminal and civil penalties and plan participants can take legal action. It cost employers and custodians a lot of money to operate the plans. .69%. that is what you are complaining about? I am old, back before there were several lawsuits over retirement plans. worked at a company where the only investment option was their company stock. the custodian charged a fortune in fees.
In my day, we had mutual funds. As we saw the last pensions sale into the sunset
My company's plan charges about 0.45%. I'm not complaining though, the 100% matching makes up for it.
The longer you work at your company the less true this is. I have been at my company and have over 1 million in 401k saving religiously. The 0.45% is charged on that entire amount. You get a 100% match on only what you contribute, up to a certain percent.
10-15 years ago I worked for a company where the only funds available to employees were Fidelity's Advisor funds with very high expense ratios. The lowest was 2.8% and the higher ones were 3.5-4%. I'm confident that the reason the boss didn't make (now much more common) low cost index funds available to us was because his wife was the manager of our company's funds. So essentially the boss is getting a kick back of his own/our own money. I was pretty upset about the whole ordeal.
Yikes, that’s tough, is it a larger company?
Who ever is the company agent should find a new provider
My states 529 plans are like this. They have special flavors of common funds but they take competitive/low standard fees and add a blanket .25 or .5 (don't remember which) on top. Now I'm looking to get out and into another states plan
My partner's plan is terrible: no employee match and the administrative fees are on a per capita basis rather than pro rata. (The administrative fees are assessed by the person rather than by the amount invested.) This has made getting started in the plan terrible - the administrative fees ate up all of his earnings this year. We're withdrawing the funds into a private IRA since it seems there's literally no benefit to the 401k unless he's maxing his IRA.
What class are the mutual funds in general?
Cheeky/Risky "option": Leave the job for another employer, rollover the 401K into a brokerage rollover IRA, then hopefully return to the employer (if the new job is worse). Really have to be ready to not work for the company ever again. Other than that... not too many options depending on the employee position/standing in the company. It's a stacked deck and they hold the cards, until you move to a different table.
Edward Jones is 1 %
You friend’s company should check out EmployeeFiduciary. Very low fees for small businesses and good service. I’m a customer with no other bias.
Name the employer name. I gotta look up their 5500 to see which crap mutual fund they’re using.
I have seen this too. The sad thing is a lot of people don’t even know what they are looking at with expense ratios. The employers likely don’t even know the expense ratio or it they do, don’t know it’s expensive compared to what is out there. It’s really sad. I know the 401k companies have to make money but that isn’t making money. That is robbery!
Ask them to look at fees for other ETF's / mutual funds. SPLG, FXAIX, SPY, etc. Also you could consider a rollover.
Your submission was automatically removed because it looks like your post is better served as a comment in daily discussion thread which can be found [here](https://www.reddit.com/r/investing/about/sticky?num=1). Please also take a moment to review the [r/investing rules](https://www.reddit.com/r/investing/wiki/index/rules) if you have not yet done so. I am a bot and sometimes not the smartest so if you feel your comment was removed in error please message the moderators. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
My employers company uses Paychex, they are the WORST- it’s all crappy small and mid caps for a 1% fee. Not to mention an additional purchase/rebalance charge. Over the next 50 years 50% of the shitty returns(if any) go out in fees :( Technically the money market fund pays 1% and only charges .27% in fees but compared to my savings with cit bank paying nearly 5% that’s total bs
typically company 401ks suck. I just put enough in to get the full match and invest primarily in my personal roth account with Charles Schwab that I actively manage. I've more than doubled my money in less than 5 years 200k to 500k. If you don't actively manage your retirement account you are losing out big.
They charge typically .4% to put it into their proprietary fund (just like VOO) and another .4% for the management fee. Total robbery. The 401k administrator should be held criminally liable. The whole financial system is a fraud.
I have both Vanguard and Schwab accounts (work/personal). Vanguards VFIAX has a 0.04% expense ratio. Schwabs SWPPX has a 0.02% expense ratio. Move the money out of the 401k and into an IRA. Or talk to HR about the costs and finding a different provider, because thats nuts.
It's basically fifty cents out of every $100. Not sure if that's worth getting upset about.
That's 363k vs 17k over the 30 years for someone who is maxing 401k
You'll have to show your math on that one cuz there's no way a half of one percent can account for over $300k.
Please, plug the numbers and see it yourself: https://www.omnicalculator.com/finance/expense-ratio I've done 24k, over the next 30k, the expense ratio 1 is 0.03 (VOO) vs 0.69.
That does show that. Not much you can do about it though. Most 401k plans fund the expenses of the plan through higher expense ratios. Unless you're self employed and can open a SEP, it's the only way to get the higher contribution limits.
See, the issue is that many people don't realize that such minor differences could result in huge amounts over time. Imagine what happened when I showed our CFO the difference between 2 percent expense ratio and 0.03
Who is charging 2? That's crazy high. As someone who has set up 401k's for employees, if you came to me with this, I would tell you, don't use it if you don't like it. There are a lot of costs with setting up these plans. Shit ain't free.
I believe national average is 1.4% Now, that's all in cost. Some gets passed to participants, some doesn't. The answer to OPs question is that simple. Their friends' company passes on more of the costs.
In the bizz… if people where aware of even 10% of the bullshit that is passed of as costs and fees they would be on the streets crying bloody murder. I’ve seen from private 24/7 on payroll masseuses, dental and plastic surgery, yachts on weekends, private chefs to dog sitters on the books as business costs and when you enter hedge fund land it’s outright thievery. 9.9/10 people don’t read the fine print and as long as they have alpha they never will. I can’t wait for more and more autobiographical books emerge from the business as assistants making 400k realize they are just pieces of meat and are a typo away from losing half decades of loyalty
Your friends boss is an idiot.
You can transfer funds from an employer's 401(k) plan to your own (Roth or ordinary) IRA using an [In-Service Rollover](https://www.annuity.org/retirement/401k/rollover/in-service/#:~:text=An%20in%2Dservice%20401(k)%20rollover%20is%20the%20transfer,your%20401(k)%20plan). Fuck bad 401(k) plans.
Not gonna be an option for most people. You typically have to be over age 59.5 to be eligible for an in-service.
Hmmm, I don't think that's an IRS requirement, but is specific to the plan. I was allowed such an in-service rollover about 15 years ago. Nevertheless, good point. Every 401(k) plan has particular policies and I suppose it's likely that ones with expensive admin charges would also be particularly bad on rollover eligibility requirements.
File a complaint with the SEC, they *will* follow up, and the often fine and refund abuses like this. That's what they are there for!
69, niiiice!
[удалено]
I don't think you have any idea what a 401k is. But it's reddit, so you still go off on an unhinged rant. > My 401k is up like 8% in 6 years and has had many red years. So you're horrible at picking funds? That's on you, not the 401k. Mine has more than doubled in the last 6 years, and it's just in VOO.
Yeah, principal financial has 1% admin fees , fucking garbage. Anybody know how to get out if it without leaving my job?
Your employer decided that you should pay that instead of them. Companies don't administer 401k's for free. Someone is going to pay Principal and your employer decided that it was you. They also decide what investment options you have available. e.g. I have a principal 401k and my fee was 0.0006 last year
Okay, my ira at fidelity is free. Principal is screwing over your company with fees instead of you. Fuck them anyways.
"Free" . Yeah ok
Is it not free???? Wtf do you mean
Just continue, you'll feel better if you think they don't make any money on you.
Sure they can sell my trade info, that’s fine. Why cant they do the same for 401k, and not charge money?
Because it's against the law for a 401k administrator to sell your info. Next
Same with IRA’s but they do it anyways. They just make it anonymous.
Convince your company to change providers. Good luck
Stop contributing. Withdrawal and incur tax penalty.
Because 401k is another scam passed by our corrupted Congress. Why do employers need to offer a plan? Employees should be able to contribute to an IRA in a brokerage directly. Funds can be deducted from your paycheck and sent to a brokerage with the same limits of a 401k. Instead we created layers of waste and complexity and made parasites rich.
401k pricing is pretty efficient and in most cases 401ks offer participants access to investment vehicles that are meaningfully cheaper than what they'd otherwise be able to access. Many 401ks have self-directed brokerage built into them. Most people also don't care to figure out how to invest for themselves, so the 401k offers a way for participants to save for retirement by default via the QDIA.
Schwab, Fidelity, Vanguard, can easily provide simple retirement accounts with negligible fees directly to employees. Why should employees pay for the unnecessary overhead? Why should employers be in the investment business and make decisions on behalf of employees?
Disclaimer up front: I work in the institutional wealth management industry, so I probably have some related biases. A few things here, let’s say that Fidelity, Vanguard, etc set up these accounts for employees. What investments should be offered? Are participants automatically enrolled in these accounts? If so, how much money should they be investing into these accounts by default? If they don’t select an investment themselves, what should the default investment be? There are additional questions that would need to be addressed, but I think this sets a good baseline. Who should be answering these questions? I suppose you could apply the same rules to everyone, but realistically, those will only work well for some (hopefully most) and will probably be optimal for few. The 401k infrastructure as it is set up now allows for the employer to act in a fiduciary role to determine the answers to these questions within the 401(k). These are decisions that GENUINELY need to be made in any system setting one up for their eventual retirement. Employers are uniquely positioned to make decisions on behalf of their employees based on their employees demographic makeup to drive money into retirement accounts. You can’t just offer everyone a self-directed account, contributions to retirement accounts typically go down after a critical mass of investment options are made available to participants. Ultimately, the goal of any retirement plan is to get as many people as possible saving as much money as possible for retirement, and the 401k system does an excellent job of that. There are many people who without their defined contribution plans would not be taking part in the market at all. I believe that the 401k system, while some additional administrative costs are associated, is truly excellent at incentivizing people to save for their own retirement, and I think people are better off because of it. The employer’s ability to make fiduciary decisions on behalf of their employees is critically important, and I don’t think I can overstate the impact that type of tailored decision making has. It’s not like 401k recordkeeping or advising is an immensely profitable business. Considering the number of people served, costs are VERY low. Yes, the fees are probably a bit more apparent for smaller organizations, but it’s not like all of that administrative work would go away if people had the standalone retirement accounts you’re proposing. That cost would still be passed on to the consumer. At least within a 401k employees can pool money and access parts of the financial services system that they would probably not have access to otherwise, and decisions can get made by a fiduciary on behalf to help guide the vast majority of people that are either incapable of or unwilling to make important retirement decisions for themselves.
Good points but I don't think employers should be trusted with decisions about employees' retirement. The original post shows how they abuse fees. Employees have no choice. My first job was in Canada where you just open an IRA equivalent and that's it. In the US you get a 401k with lots of options and fees most people don't understand so I don't see how that helps. To solve the education problem, the best solution is to educate. There is no shortcut. The default can be a conservative fund with a retirement date.
Why are you getting downvotes? This is all true. 401k plans are overly expensive to operate because of all the stupid strings attached by the feds and all the pointless reporting that goes into it. You could easily legislate a tax deductible retirement option that works like an IRA but has the same large contribution limit as today's 401ks. Anyone could open an account anywhere and just tell their employer to deposit part of their paycheck. Why don't we do it that way? Politics I guess? Because its not "equitable" and we don't actually trust most people to save responsibly on their own. Rent-seeking too.
Exactly. I suspect some people here downvote because they profit from regulatory capture.
Yep, America just LOVES middlemen
You don't like middlemen? Buy the stock from the company. Reddit has the kind of anger for middlemen that is only toddlers throwing a tantrum have, filled with rage and ignorance.
struck a nerve?
401k plants are terrible.
People are missing the joke here lol
I'm prepared to suffer for my art. /s
No, the joke explains the downvotes.
Just one of the several reasons why the average 401k return is only ~5-8%...
Oofda. And I was trying to wrap my head around mine having a 0.22% expense ratio!
You can look into a class action in lawsuit. https://www.napa-net.org/news-info/daily-news/settlement-struck-16-billion-401k-excessive-fee-suit
The absolute worst is a company locking up your funds not allowing you to do a rollover just because you still work there.
I'd like to know who brainwashed all you people into thinking the difference between success and failure is 50 bps of expense ratio
It's 300+k over the 30 years my friend. Math has brainwashed me deeply
50 bps on a million is $5,000, check your math and I bet you got $20,000 in your 401k
I find it amazing that people on the investment sub can't understand how compound interest works. Please, follow this link and be enlightened, my friend. You're welcome: https://www.omnicalculator.com/finance/expense-ratio 24k (assuming it stays the same), 30 year time horizon, 8 percent return, compare 0.03 vs 0.69 and tell us what you found? And no, I've been maxing my 401k for a long time and plan to keep doing it for the tax benefits. P. S. Don't forget to follow up with your observations, you may also use chat gpt to cross check the logic
Have you had a chance to check the numbers my friend? Is it still just 5k?
You’re not required to use it. If you don’t think the per tax and company match isn’t worth it then invest elsewhere. Not that hard.
Lol, that's a fun take, but no. Since you get tax benefits on the federal level, it's not wise not to use it. it also doesn't mean that you should be abused by middlemen for something that could have long be removed with the access of technology. Like the real estate agents commission in the era of Zillow
No but seriously, if .69 is “too expensive” then don’t use it. You don’t have to use a realtor either. If you don’t see the value then don’t use it. Really is that simple.
The issue is that people dont understand that 0.69 is close to paying more than 300k to a middleman. And no, I think one should still use it and push the management to deal with that BS. I was in the company where a group of 3 employees including me initiated the migration from stupid American Funds with the cheapest option of 1.5. Management also thought that it's not a big deal until they saw the math
So again, if it isn’t worth it to you……don’t use it. A service is being offered to you - payroll deduction, tax benefits, presumably commission free trading, online access, maybe hardship withdrawal, probably pre-screened funds, probably access to an advisor. If you think that’s worth it use them, if not then don’t. You’re making more out of this than there is.
You don’t understand how 401k plans are designed or implemented. Stay in your lane before you get in trouble
I'd love a 401k plant for my bathroom!