February 9, 2011

How Much Do 401k Fees Cost?

Higher fees on your retirement investments can erode your returns.   Its certainly best to look for lower fee options.   Unfortunately you do not have any choice when you are using a employer 401k and you are stuck with the fees they have.    One big problem I have with 401k's is how hard it is to find out what the actual fees are.

What are the Average Fees?

This report from Deloitte : Defined Contribution / 401(k) Fee Study has some data on fees from 2009.
They came up with what they call the 'all in' fee which measures the total fee expenses for a 401k.   As 401ks handle their fees differently they had to normalize it to do a useful comparison.  

According to Deloitte the average fees are :
Mean = 0.93%
Median = 0.72%
10 percentile = 0.35%
90 percentile  = 1.72%

The nature of the particular 401k plan will impact the fees.   Larger plans with more assets will have lower fees figured as a percentage.  Its more efficient and cheaper to administer a 401k for 50,000 people than for 12 people.    A small plan with 10 participants and average funds of $10,000 may have fees approaching 2% whereas a large fund with 50,000 people and $150,000 balances may pay 0.2%.

What are YOUR 401k Fees?

The website BrightScope has a lot of information on many 401k employer plans.   They rate plans based on "total plan cost" how they compare to other plans.  So your plan may be rated 'lowest fees' if the fees are low which is the case for Google's 401k. 

The BrightScope site may have the Form 5500 online.    This form has financial details of the fund.   For example see the Trader Joe's 5500    On page 2 they list total assets of $471 million. On page 4 they show the expenses including $253k in administrator fees.    Thats a pretty low fee rate for the amount of assets.  It works out to about 0.05%.

If your 401k isn't on Brightscope then you can find out the fees for your 401k by digging into the plan documents.  Your 401k should have a Summary Plan Description (SPD) and a Form 5500 which describe the details of the plan.   The SPD may tell you who pays the fees.   For my own 401k at work my employer actually pays the administration fees.   If these forms are not available on your 401k site then you can request them from your employer.  

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