401k fee analysis request

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Topic Author
intendi
Posts: 21
Joined: Sat Oct 17, 2020 10:16 am

401k fee analysis request

Post by intendi »

I don't have much experience with 401k plans having been an independent contractor for the majority of my working life. Based on what I've read the fees for my plan seem to be reasonable but I'm hoping for some confirmation on this as I'm planning to roll my SEP-IRA (by far my biggest chunk of retirement savings) into this 401k to clear the runway for future backdoor Roth contributions. Thank you in advance!

401k plan fees and expenses summary:
Plan Administrative Fees may be deducted from your account in the Plan proportionately based on the amount of assets held by each participant (i.e., pro-rata). Over the course of the year, your Plan expects to incur the following fees for services provided to the plan: $90,000 for Consulting. Trust, custody and recordkeeping fees are .03%-.05% of Plan assets (excluding PCRA and loan balances) per year. Fees paid by the Plan for trust, custody, and recordkeeping services are deducted from your total account in the Plan proportionately based on the amount of assets held by each participant (i.e., pro-rata). Trust, custody, and recordkeeping fees are applied quarterly.

Investments:
The target date fund I'm going to opt for has an expense ratio of .09%.
lakpr
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Re: 401k fee analysis request

Post by lakpr »

That is a VERY REASONABLE record keeping fee, just 3 basis points. The same target date fund, for example, on the IRA (retail) side charges 15 basis points, so with 9 + 3 = 12 basis points expense ratio, your 401k version of the fund is STILL better than to opt for an IRA or taxable.

My plan elected the flat-fee approach, $15 per quarter regardless of the balance.
Topic Author
intendi
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Re: 401k fee analysis request

Post by intendi »

Thank you - really appreciate the help! I'll get started on that rollover.
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ruralavalon
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Re: 401k fee analysis request

Post by ruralavalon »

The "Trust, custody and recordkeeping fees [of] .03%-.05% of Plan assets (excluding PCRA and loan balances) per year" are very reasonable.
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Money_Badger
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Re: 401k fee analysis request

Post by Money_Badger »

I posted a similar question a week or so ago. My fee is .08% (but the individual fund fees are a bit lower than yours).

The consensus was that the .08 fee was very reasonable.
megabad
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Re: 401k fee analysis request

Post by megabad »

Not enough info. I would say that these expenses as you have posted start getting reasonable at a plan size of $30 million or so. As long as you and employees total balance are around there it looks pretty reasonable but still higher than an IRA for small plan balances.
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Stinky
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Re: 401k fee analysis request

Post by Stinky »

One thing that’s unclear to me - is the $90k fee for “consulting” included in the 0.03-0.05% fee for trust, custody, and record keeping?

If so, that’s great. Fees look fine.

If not, and if (a) you’re in a very small plan, and (b) the consulting fee is apportioned back to plan participants proportionate to assets, that could be a stiff charge. For example, if the plan has a balance of $10 million, a $90k fee is 0.90% per year.

You’re likely ok on fees. But I would want to check that out.
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retired@50
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Re: 401k fee analysis request

Post by retired@50 »

Stinky wrote: Wed Jan 13, 2021 4:27 pm One thing that’s unclear to me - is the $90k fee for “consulting” included in the 0.03-0.05% fee for trust, custody, and record keeping?

If so, that’s great. Fees look fine.

If not, and if (a) you’re in a very small plan, and (b) the consulting fee is apportioned back to plan participants proportionate to assets, that could be a stiff charge. For example, if the plan has a balance of $10 million, a $90k fee is 0.90% per year.

You’re likely ok on fees. But I would want to check that out.
+1.

If consulting was covered under trust, custody and record keeping, why wouldn't they say "consulting, trust, custody and record keeping"?
The $90,000 sounds like it's on top of the .03% - .05% fee.

Regards,
This is one person's opinion. Nothing more.
Topic Author
intendi
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Joined: Sat Oct 17, 2020 10:16 am

Re: 401k fee analysis request

Post by intendi »

Thanks everyone! I sent HR an email asking about the 90K. It is odd that they don't specifically mention how that fee will be paid - they are rather specific on the breakdown of the other fees.
Topic Author
intendi
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Re: 401k fee analysis request

Post by intendi »

Here's the clarification from HR (odd that this isn't really the same as what was provided in the plan literature):

"The fees are assessed pro-rata across all participants. The overall plan is charged 3bps on total plan assets, minus PCRA and loans. The value of any PCRA accounts is not include in the total plan assets, but all participants are assessed the fee on a pro rata basis of the remaining plan balance. There is also a plan advisory fee that is paid to Lockton, our plan advisor. This fee is 0.04% and is capped at $90,000 for the plan, allocated pro-rata across all participants."

So the total fee is .07% (plus investment expense). Still worth it to open up the backdoor Roth option I hope.

Perhaps I should have kept my 403b open from an old job. Not sure it accepts rollovers from former employees (and I don't want to know!). Lesson learned: Don't close out those old 401k/403b plans until darn sure they aren't useful.

Thanks again everyone!
lakpr
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Re: 401k fee analysis request

Post by lakpr »

intendi wrote: Thu Jan 14, 2021 6:24 pm Here's the clarification from HR (odd that this isn't really the same as what was provided in the plan literature):

"The fees are assessed pro-rata across all participants. The overall plan is charged 3bps on total plan assets, minus PCRA and loans. The value of any PCRA accounts is not include in the total plan assets, but all participants are assessed the fee on a pro rata basis of the remaining plan balance. There is also a plan advisory fee that is paid to Lockton, our plan advisor. This fee is 0.04% and is capped at $90,000 for the plan, allocated pro-rata across all participants."

So the total fee is .07% (plus investment expense). Still worth it to open up the backdoor Roth option I hope.

Perhaps I should have kept my 403b open from an old job. Not sure it accepts rollovers from former employees (and I don't want to know!). Lesson learned: Don't close out those old 401k/403b plans until darn sure they aren't useful.

Thanks again everyone!
The 0.07% is the worst case scenario. But as plan participants plow more money into the plan, that $90k flat fee will become lesser and lesser percentage of the assets. But yeah, even at the worst case 0.07% additional asset fee, you are breaking even with the retail (taxable and IRA) side, and there is only an upside from here.
megabad
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Re: 401k fee analysis request

Post by megabad »

intendi wrote: Thu Jan 14, 2021 6:24 pm This fee is 0.04% and is capped at $90,000 for the plan, allocated pro-rata across all participants."
This part makes no sense to me. There is a cap but no minimum? 0.07 is low if that is truly the expense so I wouldn’t have any hesitation rolling over. If this is a small plan, HR manager deserves a big bonus for negotiating this.
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