401k Plan: How to Reduce Plan Fees?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Kookaburra
Posts: 344
Joined: Thu Apr 02, 2020 11:14 pm

401k Plan: How to Reduce Plan Fees?

Post by Kookaburra »

Hi Bogleheads

My current 401k plan has an AUM fee that amounts to 0.25% per year. It’s purpose is “to cover routine expenses of plan administration, record-keeping, preparation of statements, etc.” Unfortunately, this fee is not absorbed by the company, but instead is passed to the plan participants and periodically deducted from their account balances.

While I understand that there is a cost to run a 401k plan, the idea of an AUM % does not sit well with me. The fee will grow as the account balance grows. Do costs of record-keeping, statements, etc. increase proportionate to individual account balances? It seems like it would be more reasonable and appropriate to have a flat fee per person.

I would like to approach my employer (small; probably about 50 employees) and ask them to consider revising the 401k plan to reduce the fees and switch to a flat fee model. Since I doubt they will take time to look into this, I need to do whatever homework is needed to make an effective and enticing presentation.

Here are my questions:

1. What strategies do you recommend I use in approaching them?

2. What options are out there for 401k plan providers that have a “flat fee per participant” or “flat fee per plan” model?

3. Are 401k plans required to have an “advisory firm” (which often tends to charge as % AUM), or can they just have the service provider and third-party administrator?

4. Any other thoughts or experiences that you feel could help me?

Thank you
niceguy7376
Posts: 2770
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: 401k Plan: How to Reduce Plan Fees?

Post by niceguy7376 »

Is this a Solo 401k or a 401k through an employer and you are a W2 employee?

if you are an employee, how big is the company?
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by livesoft »

The bogleheads wiki has some info:
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan
and
https://www.bogleheads.org/wiki/Setting ... 01(k)_plan

I was able to get the CEO of my employer to put me on the 401(k) committee and help improve the company 401(k) plan.

Your best bet is to show the "powers that be" that the current plan is costing them money and the company money. Note that it does not matter to them if it is costing YOU money. Of course, if the sister-in-law of the CEO or CFO is running the 401(k) plan, then you may have hit a brick wall.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Nate79
Posts: 6419
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 401k Plan: How to Reduce Plan Fees?

Post by Nate79 »

I'm not sure a fixed fee would be fair to all employees, especially new employees or those with low balances. There are tradeoffs to both directions but 0.25% is already a very low cost 401k depending on the expense ratios of the funds.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by livesoft »

Nate79 wrote: Tue Jun 23, 2020 4:53 pm I'm not sure a fixed fee would be fair to all employees, ...
I think it is fair if the company pays the fixed fee for each and every employee.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
ruralavalon
Posts: 19441
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: 401k Plan: How to Reduce Plan Fees?

Post by ruralavalon »

Small company 401k providers which have been favorably mentioned here are:
1) Employee Fiduciary;
2) Guideline; and
3) Ascensus.
Last edited by ruralavalon on Wed Jun 24, 2020 9:33 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Kookaburra
Posts: 344
Joined: Thu Apr 02, 2020 11:14 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by Kookaburra »

livesoft wrote: Tue Jun 23, 2020 4:29 pm The bogleheads wiki has some info:
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan
and
https://www.bogleheads.org/wiki/Setting ... 01(k)_plan

I was able to get the CEO of my employer to put me on the 401(k) committee and help improve the company 401(k) plan.

Your best bet is to show the "powers that be" that the current plan is costing them money and the company money. Note that it does not matter to them if it is costing YOU money. Of course, if the sister-in-law of the CEO or CFO is running the 401(k) plan, then you may have hit a brick wall.
Thanks for these links. The current plan has decent fund options (inc. several Vanguard funds), but just the hairy 0.25% AUM slapped on top of it. I’m intrigued by the comment in the 2nd link you provided that says the plan should not incur record keeping and admin fees in excess of $30/year per participant. What is the basis of this number?

To your comment, if the plan is passing the costs to the employees (as it currently is), how exactly is it costing them money? Isn’t it in their interest to do this, as opposed to absorbing the costs internally?

One way or another, there are costs. Ideally these would be low, flat (not a %), and paid by the company (not thru the individual account balances). I still don’t know what argument I can make for them to want to do this. Thoughts?
Topic Author
Kookaburra
Posts: 344
Joined: Thu Apr 02, 2020 11:14 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by Kookaburra »

ruralavalon wrote: Tue Jun 23, 2020 5:20 pm Small company 401k providers which have been favorably mentioned here are:
1) Employee Fiduciary;
2) Guideline; and
3) Ascensus.
Thank you. The first link doesn’t work though.
User avatar
Nate79
Posts: 6419
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 401k Plan: How to Reduce Plan Fees?

Post by Nate79 »

Kookaburra wrote: Tue Jun 23, 2020 5:27 pm
livesoft wrote: Tue Jun 23, 2020 4:29 pm The bogleheads wiki has some info:
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan
and
https://www.bogleheads.org/wiki/Setting ... 01(k)_plan

I was able to get the CEO of my employer to put me on the 401(k) committee and help improve the company 401(k) plan.

Your best bet is to show the "powers that be" that the current plan is costing them money and the company money. Note that it does not matter to them if it is costing YOU money. Of course, if the sister-in-law of the CEO or CFO is running the 401(k) plan, then you may have hit a brick wall.
Thanks for these links. The current plan has decent fund options (inc. several Vanguard funds), but just the hairy 0.25% AUM slapped on top of it. I’m intrigued by the comment in the 2nd link you provided that says the plan should not incur record keeping and admin fees in excess of $30/year per participant. What is the basis of this number?

To your comment, if the plan is passing the costs to the employees (as it currently is), how exactly is it costing them money? Isn’t it in their interest to do this, as opposed to absorbing the costs internally?

One way or another, there are costs. Ideally these would be low, flat (not a %), and paid by the company (not thru the individual account balances). I still don’t know what argument I can make for them to want to do this. Thoughts?
Sure, tell the head of your company that you want the company to pay for the 401k, instead of the participants and you are willing to forgo your bonus to cover the cost.
Topic Author
Kookaburra
Posts: 344
Joined: Thu Apr 02, 2020 11:14 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by Kookaburra »

Nate79 wrote: Tue Jun 23, 2020 5:39 pm
Kookaburra wrote: Tue Jun 23, 2020 5:27 pm
livesoft wrote: Tue Jun 23, 2020 4:29 pm The bogleheads wiki has some info:
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan
and
https://www.bogleheads.org/wiki/Setting ... 01(k)_plan

I was able to get the CEO of my employer to put me on the 401(k) committee and help improve the company 401(k) plan.

Your best bet is to show the "powers that be" that the current plan is costing them money and the company money. Note that it does not matter to them if it is costing YOU money. Of course, if the sister-in-law of the CEO or CFO is running the 401(k) plan, then you may have hit a brick wall.
Thanks for these links. The current plan has decent fund options (inc. several Vanguard funds), but just the hairy 0.25% AUM slapped on top of it. I’m intrigued by the comment in the 2nd link you provided that says the plan should not incur record keeping and admin fees in excess of $30/year per participant. What is the basis of this number?

To your comment, if the plan is passing the costs to the employees (as it currently is), how exactly is it costing them money? Isn’t it in their interest to do this, as opposed to absorbing the costs internally?

One way or another, there are costs. Ideally these would be low, flat (not a %), and paid by the company (not thru the individual account balances). I still don’t know what argument I can make for them to want to do this. Thoughts?
Sure, tell the head of your company that you want the company to pay for the 401k, instead of the participants and you are willing to forgo your bonus to cover the cost.
How is this helpful? I’m well aware of the hurdle, as I pointed out in my post.
User avatar
Nate79
Posts: 6419
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 401k Plan: How to Reduce Plan Fees?

Post by Nate79 »

Kookaburra wrote: Tue Jun 23, 2020 5:46 pm
Nate79 wrote: Tue Jun 23, 2020 5:39 pm
Kookaburra wrote: Tue Jun 23, 2020 5:27 pm
livesoft wrote: Tue Jun 23, 2020 4:29 pm The bogleheads wiki has some info:
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan
and
https://www.bogleheads.org/wiki/Setting ... 01(k)_plan

I was able to get the CEO of my employer to put me on the 401(k) committee and help improve the company 401(k) plan.

Your best bet is to show the "powers that be" that the current plan is costing them money and the company money. Note that it does not matter to them if it is costing YOU money. Of course, if the sister-in-law of the CEO or CFO is running the 401(k) plan, then you may have hit a brick wall.
Thanks for these links. The current plan has decent fund options (inc. several Vanguard funds), but just the hairy 0.25% AUM slapped on top of it. I’m intrigued by the comment in the 2nd link you provided that says the plan should not incur record keeping and admin fees in excess of $30/year per participant. What is the basis of this number?

To your comment, if the plan is passing the costs to the employees (as it currently is), how exactly is it costing them money? Isn’t it in their interest to do this, as opposed to absorbing the costs internally?

One way or another, there are costs. Ideally these would be low, flat (not a %), and paid by the company (not thru the individual account balances). I still don’t know what argument I can make for them to want to do this. Thoughts?
Sure, tell the head of your company that you want the company to pay for the 401k, instead of the participants and you are willing to forgo your bonus to cover the cost.
How is this helpful? I’m well aware of the hurdle, as I pointed out in my post.
You said you wanted the company to pay for the expense that participants are currently paying. That money comes from somewhere and for a small business it comes from paying employees less.
Topic Author
Kookaburra
Posts: 344
Joined: Thu Apr 02, 2020 11:14 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by Kookaburra »

Nate79 wrote: Tue Jun 23, 2020 5:49 pm
Kookaburra wrote: Tue Jun 23, 2020 5:46 pm
Nate79 wrote: Tue Jun 23, 2020 5:39 pm
Kookaburra wrote: Tue Jun 23, 2020 5:27 pm
livesoft wrote: Tue Jun 23, 2020 4:29 pm The bogleheads wiki has some info:
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan
and
https://www.bogleheads.org/wiki/Setting ... 01(k)_plan

I was able to get the CEO of my employer to put me on the 401(k) committee and help improve the company 401(k) plan.

Your best bet is to show the "powers that be" that the current plan is costing them money and the company money. Note that it does not matter to them if it is costing YOU money. Of course, if the sister-in-law of the CEO or CFO is running the 401(k) plan, then you may have hit a brick wall.
Thanks for these links. The current plan has decent fund options (inc. several Vanguard funds), but just the hairy 0.25% AUM slapped on top of it. I’m intrigued by the comment in the 2nd link you provided that says the plan should not incur record keeping and admin fees in excess of $30/year per participant. What is the basis of this number?

To your comment, if the plan is passing the costs to the employees (as it currently is), how exactly is it costing them money? Isn’t it in their interest to do this, as opposed to absorbing the costs internally?

One way or another, there are costs. Ideally these would be low, flat (not a %), and paid by the company (not thru the individual account balances). I still don’t know what argument I can make for them to want to do this. Thoughts?
Sure, tell the head of your company that you want the company to pay for the 401k, instead of the participants and you are willing to forgo your bonus to cover the cost.
How is this helpful? I’m well aware of the hurdle, as I pointed out in my post.
You said you wanted the company to pay for the expense that participants are currently paying. That money comes from somewhere and for a small business it comes from paying employees less.
I’m aware that the expense must be paid. Please read my posts more carefully, as I’ve already stated that. I was responding to the comment “convince the employer that it’s costing them” when it’s actually costing the employees. How do I incentivize them under these circumstances? (without being sarcastic or telling me what I already know).

I also said that my goal is to get the costs to be a low flat “per participant” fee, not a % AUM. So even if it has to be paid by employees, at least it would be smaller. Your response doesn’t address or help on this front either.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by livesoft »

Well,with AUM fees, the top echelon of folks in the company who have the largest accounts are supporting the folks who don't have such high balances. That's probably not as unfair as you might want it to sound ... especially for companies with under 100 employees.

I think the $30 may have come from pricing out plans. I was aware of a plan where the fees were something like this:
$3,000 a year flat rate PLUS
$30 per participant (with minimum of 200 participants) PLUS
any 12(b)-1 fees added to some of the funds.

Everything is negotiable and almost all plan providers can negotiate from a standpoint of "We want to get $20,000 (or $5,000 or $10,000 or ...) a year out of you somehow, so how do you wish to pay it?"
Wiki This signature message sponsored by sscritic: Learn to fish.
pkcrafter
Posts: 14325
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: 401k Plan: How to Reduce Plan Fees?

Post by pkcrafter »

What company is providing the 410k plan?

I know you don't like the fee, but for a small company plan it isn't too bad.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
User avatar
happysteward
Posts: 206
Joined: Tue Jun 16, 2015 11:42 am

Re: 401k Plan: How to Reduce Plan Fees?

Post by happysteward »

I think your 25 basis points for record keeping and admin is pretty good especially if you have choices with low expense ratios. We have choices with low expense ratios and record keeping and admin fees on top of those at 40 basis points.
"How much money is enough?", John Rockefeller responded, "...just a little bit more."
SubPar
Posts: 28
Joined: Mon Apr 27, 2020 11:48 am
Location: MN

Re: 401k Plan: How to Reduce Plan Fees?

Post by SubPar »

My $.02. Respectfully, at the end of the day, you're simply asking your employer to pay more money. Kind of a tough thing to spin in their favor — or to "entice", as you put it. And, frankly, 25bps is extremely reasonable for a small plan. It's pretty darn difficult for closely-held businesses to achieve the same economies of scale that large plan sponsors enjoy. For reference, our plan — about 15 participants and something like $300K in Plan Assets — pays 100bp asset management fee that gets passed along to participants. That'll continue to burn down as plan assets grow, of course.

Moreover, record keeping fees aren't the only costs associated with sponsoring a plan. I'd hazard a guess you company pays a TPA for ongoing administrative services — Form 5500 prep, annual compliance testing, perhaps even 3(16) fiduciary services or an audit if the plan participation eventually exceeds the DOL threshold of 120 participants that allows the "small plan" audit exemption. Those type of expenses are above and beyond the recordkeeper's fees and are seldom borne by the participants.

At the end of the day, your employer is providing its employees a tremendous benefit in sponsoring a plan in the first place, irrespective of the 25bp fee. It may be worth a casual conversation with your management group, but I personally wouldn't expect it to gain too much traction. Those managers were likely presented with that very decision when the plan was organized and they obviously elected to not foot the bill.
Katietsu
Posts: 3985
Joined: Sun Sep 22, 2013 1:48 am

Re: 401k Plan: How to Reduce Plan Fees?

Post by Katietsu »

Have you thought about the consequences of what you are proposing? An employee who is just getting started and puts in $100 a paycheck might end up paying 10% or more in administrative fees over their first year. That is a good way to discourage participation. The only people the flat fee would be smaller for is those who have the most money.

Just a personal reaction to your position, I would not look upon you favorably if you were my employer and came to me complaining about a 0.25% administrative fee for a very small employer plan with good fund choices. It sounds like the company did their due diligence and did a good job at keeping overall fees low.
Last edited by Katietsu on Tue Jun 23, 2020 9:03 pm, edited 1 time in total.
Aku09
Posts: 64
Joined: Wed Jan 09, 2019 11:29 am

Re: 401k Plan: How to Reduce Plan Fees?

Post by Aku09 »

I work for a small healthcare company with about 15 employees. We pay 0.6% AUM yearly. I wish I could get mine down to 0.25%.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by livesoft »

One more thing to think about: Whatever you ask your employer to do, make sure that it does not create more work for the people in payroll and HR. And if it can create even less work for them and make their lives easier, then they may even be helpful and support any changes you advocate.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
Kookaburra
Posts: 344
Joined: Thu Apr 02, 2020 11:14 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by Kookaburra »

Katietsu wrote: Tue Jun 23, 2020 8:41 pm Have you thought about the consequences of what you are proposing? An employee who is just getting started and puts in $100 a paycheck might end up paying 10% or more in administrative fees over their first year. That is a good way to discourage participation.
Just a personal reaction to your position, I would not look upon you favorably if you were my employer and came to me complaining about a 0.25% administrative fee for a very small employer plan with good fund choices. It sounds like the company did their due diligence and did a good job at keeping overall fees low.
A part of my stated preference is to have the fees paid by the employer, so I fail to see how that causes a new participant to pay 10% in fees or discourages participation.
Topic Author
Kookaburra
Posts: 344
Joined: Thu Apr 02, 2020 11:14 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by Kookaburra »

livesoft wrote: Tue Jun 23, 2020 8:57 pm One more thing to think about: Whatever you ask your employer to do, make sure that it does not create more work for the people in payroll and HR. And if it can create even less work for them and make their lives easier, then they may even be helpful and support any changes you advocate.
Thank you for all your help, livesoft.
Lou354
Posts: 678
Joined: Sun Apr 03, 2016 10:51 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by Lou354 »

It appears the employer is unwilling to cover the administrative cost of the plan. If so, the cost will have to be borne directly by the plan participants. There are arguments based in fairness for charging 401k plan administrative fees as a flat fee per participant, and conflicting arguments also based in fairness for charging a percentage of account balance. Those arguments have already been discussed by OP and some other posters, and I don’t have anything to add to their arguments.

You could propose a hybrid fee structure: both a low fee per participant plus a low (i.e., lower than the 25bp you’re paying now) percent of account balance fee, both fees to be paid by plan participants. A hybrid fee structure balances the interests of participants with low balances and those with high balances. It should be perceived as fair and therefore more likely to be implemented, rather than arguing for switching to a fee structure that one-sidedly benefits wealthier participants.
User avatar
Stinky
Posts: 5545
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: 401k Plan: How to Reduce Plan Fees?

Post by Stinky »

Nate79 wrote: Tue Jun 23, 2020 4:53 pm I'm not sure a fixed fee would be fair to all employees, especially new employees or those with low balances. There are tradeoffs to both directions but 0.25% is already a very low cost 401k depending on the expense ratios of the funds.
I agree with this.

I sat on the 401(k) committee of my former employer. The discussion of how to assess the employees for costs of running the plan came up often. HR always wanted the percentage point fee to make the plan look more attractive to those with small balances. They were striving to build participation.

Once participation in the plan approached 80%, we moved to a flat fee model, which I agree is more equitable.
It's a GREAT day to be alive - Travis Tritt
HomeStretch
Posts: 4989
Joined: Thu Dec 27, 2018 3:06 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by HomeStretch »

You did not say what the total 401k plan assets are. But a 25 basis point admin fee for a small employer plan (< 50 employees) with good low-ER fund choices is pretty reasonable for participants.

As another poster pointed out, the Company also likely has 401k plan costs they are paying. So the 401k expenses are likely not all paid by participants.

How much do you have in your 401k account and how much in annual 401k admin fees are you actually paying? The fee is $250 per every $100k. You need to keep in mind the bigger overall compensation package picture. You might be paying $250 for example for 401k fees but if your company pays market or higher-than-median-market salaries and employer share of healthcare costs, IMO it’s not worth expending political capital over the participant-paid admin fee.
Lou354
Posts: 678
Joined: Sun Apr 03, 2016 10:51 pm

Re: 401k Plan: How to Reduce Plan Fees?

Post by Lou354 »

Your employer may be more receptive to increasing the employer match, instead of paying the plan expenses. It’s more visible to plan participants and therefore earns the employer more goodwill from employees. Right now may not be the best time to propose something like that since unemployment is high and employees are in a weak bargaining position.
Post Reply