leonard wrote: biturbo wrote: leonard wrote: mickeyd wrote:
Yet another "study" that says what Bogleheads say every day. Why is this even news at this point?
http://www.fa-mag.com/news/high-fees--p ... 14964.html
“Investors incur unnecessary losses due to fiduciaries’ decisions to include a preponderance of costly funds in plan menus,” the Curtis and Ayers study pointed out.
Participants in plans that include a low proportion of index funds have lower expected performance, Curtis and Ayers said. Small plans frequently have higher costs and lower-quality choices, they added.
Let's be a bit more even handed though. Every single person "complaining" about high 401k fees could very easily ask the HR representative "What are your 401k options and what are the expenses for the plan?" BEFORE taking the job.
So, companies are to blame for expensive plans. But, employees are to blame for willful ignorance and taking jobs in spite of that ignorance. Oh, and then complaining afterward. 2 to tango in this case.
The problem is that in all but the most egregious cases, 401k fees are going to basically be noise unless you plan on staying at the same company for over a decade. Other parts of the compensation package, such as cash compensation, bonuses, 401k matching percent, medical benefits, and other perks will be far more noticeable. My employer's 401k plan is pretty bad (Nationwide is most definitely not on your side, at least when it comes to retirement), but even comparing it to fees I pay for my Vanguard IRA, it would take about 12 years before the annual fee difference would equal 1% of my annual compensation - negotiating an extra 1% of compensation is going to be far easier than getting an employer to switch administrators or finding a job that was comparable in all other areas but had better 401k fees.
And, even if you do plan on sticking around for a while, other events in the intervening years can change the 401k plan for better or worse - the company being acquired by another company, the company going out of business, the plan being worsened to cut costs, the plan being improved as its assets grow, etc.
Wasted money is wasted money, but I generally don't think 401k fees are going to be a big enough factor when considering jobs. Better to push employers to look for better plans and hopefully, in the process, push providers to be more competitive. Or find a way to decouple the administration of 401ks from employers.
So, this stuff is worth spending time on, enough to come to this website and learn about low cost investing - but as to taking actual action...
If employers get the "Hire" they simply are not motivated to take action.
I don't think it is useful to fixate on one aspect of a compensation package in the pursuit of following a puristic "low cost" investing strategy. I've yet to see any examples in my career of a case where I'd be best off taking the job with the lowest 401k fees.
BTW - that only "1%" you talk about above can equate to a portfolio in 25 years of 1/3 smaller than without the fee. This is not insignificant money - as you seem to want to characterize it. It's a substantial transfer of wealth.
Let's use an example.
Annual Salary: $100k
401k contribution: 10%
401k matching contribution: 5%
7% annual return
Job A's 401k fees: 0.2%
Job B's 401k fees: 1.2%
At 5 years (slightly more than the average employee tenure, according to the BLS):
Job A's 401k balance: $89,050
Job B's 401k balance: $86,842
This is a difference of $2,208, which averages out to $441 per year - less than 0.5% of your annual compensation.
At 10 years:
Job A's 401k balance: $212,785
Job B's 401k balance: $201,965
This is a difference of $10,820, which averages out to $1,082 per year - just over 1% of your annual compensation.
At 20 years:
Job A's 401k balance: $623,607
Job B's 401k balance: $556,887
This is a difference of $66,720, which averages out to $3,336 per year - almost 3.5% of your annual compensation.
My point isn't that this is an insignificant amount of money, but rather:
1) Statistically, you aren't very likely to be at your job long enough for the difference to be that big.
2) Even after 20 years, it only amounts to ~3.5% of your compensation. While this isn't a trivial amount, other factors that I mentioned (cash compensation, insurance, the 401k matching amount, other perks) can still eclipse that difference.
Most people don't have the luxury of considering a wide enough array of jobs that they can actually find cases where two offers only differ on 401k fees, and so, for most cases, 401k fees are somewhat far down on the list when it comes to comparing offers. If you feel like you'll hold the same job long enough for fees to start having a material impact on your compensation and can get enough offers to actually find a job with low fees without sacrificing on other aspects of employment/compensation, then it probably makes sense to do so, but I don't feel like it is reasonable to expect employees to fix the problem of high 401k fees by simply refusing to work at places with bad plans.